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Keeping Them Sweet: Why Loyalty Programmes Work in E-Commerce

Running loyalty programmes is usually something people associate with large corporations – the Amazons of this world – but the technology is now available to open up this strategy to the smallest start-ups.

Loyalty programmes have been shown to be a real growth asset by increasing the lifetime value of customers and reducing their acquisition cost. Setting one up does require some careful planning and balancing though. After all, if you are going to offer your loyal customers rewards, these will need to be costed.

If you decide to bite the bullet and go ahead with a customer loyalty programme, one of the most important considerations is ensuring you’re offering something people actually want to sign up for.

Fogg Clears up a Common Problem

Just because you can see the ‘no-brainer’ benefits of your loyalty programme it doesn’t follow that your customers will. Professor BJ Fogg studied the reasons why people either took or did not take certain actions expected of them. He then created the Fogg Behavior Model (FBM) to illustrate the elements that need to come together to prompt action.

He found that there were three main ingredients present whenever any action was taken: a trigger event (e.g. a call-to-action), motivation to achieve the benefit of the action and the ease of performing the action.

The threshold for taking action (Fogg called this the ‘action line’) could be plotted on a graph with motivation on one axis and ability on the other. In terms of e-commerce, a motivated customer is more likely to persevere in an action (e.g. fill in more details on a form) than one who is not that interested in your reward benefits. However, if the action is very easy (e.g. entering an email address and pressing enter), customers with a mild interest in the loyalty benefits might join anyway.

So based on the FBM, the most powerful way to attract customers to your loyalty programme is to offer high value benefits and to make it simple to sign up. Amazon have turned this social engineering into an art form with their Prime programme. Free delivery is a strong incentive for customers to join and they can access the benefits by simply ticking a checkbox while ordering.

Satisfaction Does Not Equal Loyalty

Some e-commerce site owners lull themselves into a false sense of security because they attract lots of five-star ratings on their product pages and customer surveys come back positive.

The trouble is, hardly any of those ‘satisfied’ customers come back. According to a Bain and Co. study, up to 80 per cent of satisfied customers are one-time only buyers. In most cases this means that their purchases don’t even cover the cost of their acquisition.

That’s right, even your satisfied customer could be losing you money!

It is important for business owners to understand that it is engagement that drives repeat business and loyalty programmes are designed to optimise this connection. And if the big companies are investing in such programmes then it must be working for them. For example, most of Amazon’s sales come via their Prime members and their spend tends to increase year-on-year.

That’s lifetime value for you!

Tags, Scripts and Gamification

As mentioned in the opening paragraph, customer loyalty technology is now available to businesses of all sizes. Three of the most useful tools to look out for are tagging, scripts and gamification.

Tagging is a simple way to segment your customer base. Imagine you run an online bookshop. You could set up your programme software to tag anyone who bought books from a certain genre or at a specific time of the year. You could then tailor your special offers to promote only the types of book they like to read or to run only when they are most likely to buy.

Scripts can be useful if you want your e-commerce store to behave differently to people in your loyalty programme. For example, you could set up a script that automatically applies free delivery to members rather than having them enter promo codes (remember Fogg’s model!)

Finally, gamification injects a fun competitive element by unlocking extra benefits for reaching different levels or awarding points that can be exchanged for prizes.

There are plenty of different ways to run an e-commerce loyalty programme. You could integrate your site with your existing CRM systems or a third-party app or you could build something from scratch. If you want to bounce some ideas off a digital marketing specialist, feel free to give us a call or pop on over to our offices.

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