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How to Create an E-commerce Loyalty Program That Drives Conversions

Posted by Jeremy Smith on Jan 26, 2015 7:33:38 AM

E-commerce Loyalty programs are awesome, but only if they work.

Many online retailers have tried and failed to create loyalty programs, either because there was no interest or because the loyalty program was cumbersome to maintain.

Many e-commerce retailers gain major benefits from loyal customers. Sweet Tooth, which creates e-commerce loyalty programs, reports that their clients gain an average year-over-year sales lift of 27%, increase the lifetime value of a customer by 40%, and see an average increase in repeat purchases of 20% — all because of a loyalty program.

To state the issue simply, an e-commerce loyalty program is a powerful way to increase conversions. You can gain higher amounts of revenue from existing clients, while reducing customer falloff and shopping cart abandonment.

Loyalty programs are a win-win-win-win.

Today, there are plenty of service providers who are more than willing to maintain your loyalty program on your behalf. Even with the benefit of such loyalty-program businesses, it’s smart to be strategic about the details of your program.

As you consider or create your own e-commerce loyalty program, here are the features that will make it an absolute success:

1. The program is simple to understand.

I’ve known some people who obsess over loyalty programs. They study reward program policies, join online discussion boards and absolutely loot retailers by spending only a few pennies. I see them walk into places like CVS or Walgreens, spend a dollar or two, and walk out with a shopping cart full of merchandise.

Most of the time, they’re able to do this because they’ve reached a level of knowledge unattainable by common mortals. They know the loyalty program. They have learned the tricks — the dark arts and hidden intricacies of the program.

And that’s a problem. E-commerce Rewards programs should not be complicated. Whenever you start messing around in points, rewards, levels and achievements, things can quickly spiral out of control. Most people lose interest.

You need to reduce the complexity as much  as possible to create an enjoyable experience for the buyer. It will take the buyer just a few seconds to decide whether she wants to join. Therefore, you should make the program's overview easy to understand and analyze.

For DD Perks, simplicity is the name of the game. One buck equals five points. Join.

DD loyalty program, DDPerks

Best Buy’s reward program is pretty simple. Here’s how it's described in this display:

BestBuy’s reward and loyalty program

Users crave simplicity. Make your program as simple to understand as possible.

2. The loyalty program is easy to join.

You don’t want to create any barriers to a customer joining the program. It should be as easy. Usually, the best way to allow users to sign up is a simple email entry.

Gilt uses the email entry option, but also allows users to log in with Facebook. This increasingly popular social login feature is a major plus, especially for users who are already sharing, buying and interacting on social sites.

Gilt loyalty email entry option

Gilt provides a simple two-second join that helps users get on board without even thinking about it.

A not-so-great example of this is Best Buy’s Reward Zone. The application is reminiscent of tax forms.

loyalty program, Best Buy’s Reward Zone

3. The customer easily participates in the loyalty program.

Rewards should accrue without the customer having to worry about it. Most customers don’t want to have to enter a PIN  or redeem a coupon code just to participate in the loyalty program.

One of the great features of Starbucks’ loyalty program is that you participate simply by paying with your card or app.

Starbuck’s loyalty program

Staying active is easy. It happens without even thinking about it.

If your rewards program requires anything more than a login, card or app, it’s probably too complicated. Think of ways that you can simplify it, and customers will be more likely to actually participate.

4. The customer gets true rewards.

For the reward program to be compelling, it has to provide  true rewards. The reason why so many loyalty programs fall short is because they are superficial — they're really just a way to snag an email address or get people to sign up.

Don’t be like that. A true rewards program is one that pays off.

The most appealing kinds of rewards are cash, rebates, coupons and free stuff. If your loyalty program is built on the “You’ll hear about the latest deals!” offer, then you’ve failed.

Walgreens has a masterful e-commerce rewards program. Although it’s a bit complex, it has tremendous benefits.

Walgreen's loyalty program

REI is unusual among rewards programs, because it actually costs money — $20! I do not recommend that your rewards program have an entry fee, but in REI’s case, the benefits outweigh the cost.

REI’s loyalty program

For example, members receive in-store discounts, discounts on travel and classes, access to REI yard sales, and even an annual rebate of about  10% of what they spent with REI  during the year.

REI rewards

Home Depot’s rewards program has fewer benefits. The ability to view orders, track orders, create shopping lists, and subscribe to email newsletters isn’t that appealing. Why? Customers want stuff. They want to get cash or prizes, not some newsletter or shopping list.

loaylty program home depot

Make sure that you’re truly rewarding your customers, not just providing a surface-level pseudo loyalty program.

5. The loyalty program has a built-in level of surprise or mystery.

Customers are driven by curiosity. Rewards programs are like a game. They want to find out what comes next, how to beat the next level, and what the final outcome is like.

This is exactly the kind of behavior that you want to encourage. You can do it by creating a sense of mystery in the program.

Macy’s card holders at the elite level get unspecified “bonus events.”

Macy’s loyalty program

What is the “special bonus event?” It could be nothing. It could be a single lousy sale. It could be a glitzy gala with limousine service and expensive champagne. Who knows? You want to find out? Join and spend. The sense of curiosity drives more sales.

6. The program requires continual participation.

If your e-commerce loyalty program is going to make customers buy more, then you need to encourage participation. The drawback of many loyalty programs is that they reward users who are already loyal, without compelling users who should be loyal.

Create built-in penalties for inactivity.

You can create the program in such a way that points will expire, or redemption bucks will become inactive after a certain amount of time.

Remind users to use their rewards or remain active.

You don’t simply want to drop people from the program because they’re not active. Remind them regularly about their rewards and the potential to earn more.

If you use an app, provide push notifications. You should have their email address. Send them updates. Basically, get them to participate as often as possible. The result for you is more conversions.

7. The loyalty program gets better as the customer is more active.

Walgreens rewards active members, literally. By tracking their activity, fitness, weight, sleep and other health factors, loyalty program members can earn real rewards.

Walgreens rewards active members

This innovative approach to an e-commerce loyalty program has the benefit of creating a lot of customer buy-in. Members are motivated to become active and live better as a result of a loyalty program. This activity creates a greater sense of interest and brand awareness on the part of the customer.

8. The customer can make progress.

One of the best ways to motivate behavior is to create a sense of progress. If a user can earn new levels of rewards, they are much more likely to make an attempt to do so.

One of the reasons why the Starbucks' reward program is so successful is that customers can track their progress and eventually gain that coveted gold level of membership.

Believe it or not, this dang little animated cup image got me excited until I eventually got the gold. Now I’m just waiting to get a free bagel or lemon loaf. Why does a dinky two-dollar gift excite me? Because I have a sense of progress. I get to watch the golden stars plink into the little cup!

customer can make progress

Macy’s reward program also provides a tiered membership level. The more you spend, the more you get.

tiered membership level

Progress is one of the Papa John’s reward programs features. They motivate loyalty by reminding users to “track your progress.” Ooh, sign me up! I want pizza; I want progress.

Progress is one of the Papa John’s reward programs feature

9. The customer enjoys a new experience level.

What good is a rewards program that doesn’t feel any better? When a customer makes progress and wins rewards, they want to actually sense it.

Starbucks does a great job of this. When you reach the gold level, you receive an actual gold card (sorry; it’s actually plastic) in the mail. Starbucks also promises that your barista will know that you’re someone special.

It may be cheesy, but it works. Customers who win rewards want to have a different experience level.

Boloco does this with their rewards card.

Boloco does this with their rewards card

This elevated experience level is what motivates many users of hotel and airline loyalty programs.

elevated experience level

Starwood Preferred Guest program helps users feel rewarded by providing personalized room service and check-in recognition.

Starwood Preferred Guest program

10. Answer all the questions.

Users are going to have questions about your rewards program. Be sure to answer them.

The most loyal customers will be the ones who have the most questions. They want to know exactly how they will benefit, how to gain more rewards, and what risks there may be in the program.

While you don’t need to provide all the terms of service on the rewards entry page, you should create an easy way for members to access information when they want it.

The DD Perks program, the reward program of Dunkin' Donuts, has a series of helpful Q&As that allow users to get answers to their questions.

DD Perks program

11. The loyalty program makes it easy to share and grow.

You want your loyalty program to spread. There are a few ways to do this:

  • Reward users for sharing with their friends or persuading their friends to join. You don’t want your rewards program to turn into affiliate marketing, but there’s nothing wrong with thanking those who share. Few people will share for truly altruistic reasons, but if you motivate them with extra points or additional rewards for getting their friends to sign up, it will cause your program to grow.
  • Create a program so good that people will talk about it. When Starbucks came out with their loyalty program, I heard people talking about it. It was easy to join, easy to participate, and provided great rewards. Starbucks was able to achieve viral growth, not just because they have a huge brand, but also because they had a great loyalty program.
  • Add social sharing icons to the rewards page. The most basic way to help users share on social media is to add the social sharing icons to relevant pages. This makes it easy for users to invite members of their social network.
  • Allow users to post their rewards status to social media. Some successful rewards program allow the customer to tell their friends about what they’ve just done with a reward program. A built in Twitter widget for example, will auto-populate a tweet with “I just got a free flight using my Airline rewards!” Most users feel a sense of satisfaction when they earn a reward, so it makes sense that they will want to tell others about it.


There’s no rule — written or unwritten — that demands that e-commerce retailers create loyalty programs.

But it sure is smart. Loyalty programs are proven to increase conversions.

As conversion optimizers, we spend much of our time creating minuscule improvements to produce minuscule upticks in conversion. Why not go for a big one?

It’s not easy or cheap to start a loyalty program, but in most cases, the benefits outweigh the costs. You can gain huge improvements by starting a loyalty program.



Topics: Conversion Optimization, ecommerce, rewards, Web Psychology

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