Case Overview

Are loyalty programs relevant for on-demand e-commerce platforms and are they still effective in boosting retention, purchase frequency and lifetime value of customers? Most e-commerce platform owners fail to realize that top 5% customers are more valuable than the remaining 90% of the customers. Loyalty programs have the potential to increase purchases. However, this can only be achieved if the loyalty program is easy to understand and fosters a sense of ‘being valued’ to the customers.

Why e-commerce platforms need a loyalty program?

The growth of e-commerce platforms like Shopify have reduced the barriers of entry, with more and more stores being launched every week. It is becoming increasingly difficult for e-commerce brands to differentiate themselves on the basis of their products alone. Customers today look for an e-commerce platform that offers exceptional purchase experience with a touch of personalization and try to foster a relationship with them. Cultivating brand loyalty can be a key differentiation for your visitors.

But how do you even know if your loyalty program is working?

The goal of a loyalty program should be to engage customers, not push more products to them. Data-driven loyalty programs help businesses measure the effectiveness of their loyalty programs, and drive higher engagement. It is therefore important for e-commerce players to drive the loyalty program in the right direction.

1. Repeat Customers: One of the basic purposes of a loyalty program is to retain customers and increasing their Life Time Value (LTV). Build a loyalty program that entices them to return to spend on another purchase soon. Businesses should keep a close eye on customer retention rates, email open rates and clickthrough rates as a measure of engagement. The success of a loyalty program can be measured through customer LTV, redemption rate and customer churn rate

2. Know your customer needs: Customers today are bombarded with promotions and offers. A high percentage of them is generic advertisement that customers don’t care for. And once a customer has made a purchase on your platform and provided valuable information about them, you need to make the most of it. Social Media platforms provide a great source to follow your customers and understand what they need, likes and dislikes. It is therefore important to integrate a social listening component to your loyalty program

3. Customer Segmentation: Not all customers are going to stick with your platform. It is therefore important to identify the customers you need to focus on as early as possible. With limited resources, you would not want your loyalty campaign budget to be spent communicating with customers who are less likely to generate high life time value. Once you know your customer segments, it becomes easier to build a customized reward program targeted towards the valuable segments

4. Personalization: Customers expect brands to know them and their needs. With the limited attention span, e-commerce businesses need to communicate with customers with the right messaging. Data points like browsing history, product(s) purchased, value of purchase, demographics like customer location, frequency of purchase should be utilized to build a highly targeted offers and product recommendations

5. Measure Redemptions: Rewards are the currency of your loyalty program. Customers who are spending the currencies are more engaged and see the value of the rewards you are offering to them. A higher redemption rate means customers are engaging with your brand, which means more active customers. Another key metric to measure is the participation rate i.e. of all customers, how many opt for your loyalty program. Participation rate gives you a measure of the value attached with your loyalty program, and helps you measure the success of the program

To be the e-commerce platform of choice for your customers, you need to have an effective loyalty program. If you want to integrate advanced analytics to make your loyalty program more effective, please feel free to write to us.

Xtage Labs is an advanced analytics and machine learning based decision insights company. We work with businesses to derive insights from data, and improve the decision making processes.

Get in touch with us to find out what we can do for you.