8 KPIs to Measure the Effectiveness of eCommerce Loyalty Programs

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“In the world of Internet Customer Service, it’s important to remember your competitor is only one mouse click away.” – Doug Warner

The ever-growing landscape of eCommerce has prompted businesses to adopt loyalty programs as a crucial strategy to foster customer loyalty and drive sustainable growth.

As online shopping continues to gain momentum, companies are recognizing the importance of measuring the effectiveness of their eCommerce loyalty programs through key performance indicators (KPIs).

By tracking specific metrics, businesses can gain invaluable insights into the success of their loyalty initiatives and make data-driven decisions to optimize customer engagement and maximize revenue.

While there is no Felix Felicis for an effective eCommerce loyalty program, there are certain KPIs that will help you draw reasonable conclusions and make improvements.

This begs the question:

Table of Contents

What is an eCommerce Loyalty Program?

An eCommerce loyalty program refers to a structured marketing strategy implemented by online businesses to incentivize and reward customers’ loyalty.

Taking that the repeat customers spend 67% more than the new ones, keeping them both returning and loyal to the brand is critical.

A loyalty program is designed to encourage repeat purchases, foster long-term relationships, and increase customer engagement in the digital marketplace.

(Learn more about introducing eCommerce loyalty software in Magento 2).

Which Benefits Online Loyalty Programs Offer?

Online loyalty programs offer a range of benefits to customers, designed to enhance their shopping experience and incentivize repeat purchases.

Some of the common benefits provided by such a program include:

Exclusive Discounts

Loyalty program members often enjoy access to exclusive discounts and promotional offers, allowing them to save money on their purchases and feel rewarded for their loyalty.

Reward Points

Customers earn points for every purchase they make, which can be accumulated and redeemed for discounts, free products, or other rewards. Points earned incentivize customers to continue shopping with the retailer to earn more points and unlock greater benefits.

Free Shipping

Many online shopping rewards programs offer free shipping as a perk for members. This benefit reduces the overall cost of online shopping and encourages customers to choose the loyalty program retailer over competitors.

Early Access to Products and Sales

Rewards program members may gain early access to new product releases or special sales events. This exclusive access makes customers feel valued and creates a sense of privilege, fostering online loyalty and driving engagement.

Personalized Offers

Online rewards programs often tailor promotions and offers based on individual customer preferences and purchase history. Personalized offers make customers feel understood and appreciated, increasing their likelihood of making repeat purchases.

Extended Return or Exchange Policies

Some loyalty programs extend return or exchange periods for their members, providing added convenience and flexibility. This benefit enhances customer satisfaction and loyalty.

VIP Treatment

Program members may receive VIP treatment, such as dedicated customer service channels, priority customer support, or enhanced customer care. This personalized attention enhances the overall shopping experience and strengthens customer loyalty.

Why Doesn’t Discount Program Equate to Loyalty Program?

While discount programs can be a part of a loyalty program, they do not solely define what a loyalty program is.

A discount program primarily focuses on offering price reductions or special deals to customers as an incentive to make purchases.

On the other hand, a loyalty program encompasses a broader scope, aiming to foster a long-term relationship between the customer and the brand beyond just discounts.

Here are some reasons why a discount program doesn’t equate to a loyalty program:

Lack of emotional connection: A loyalty program goes beyond transactional benefits by aiming to create an emotional connection between the customer and the brand. It focuses on building trust, engagement, and a sense of belonging, rather than just providing discounts.
Multi-dimensional rewards: Rewards programs often offer a variety of rewards beyond discounts, such as exclusive access to events, personalized offers, freebies, or enhanced customer service. These rewards go beyond monetary value and provide a more holistic and personalized experience.
Customer engagement and interaction: Loyalty programs encourage customers to actively engage with the brand through activities like referrals, social media interactions, or providing feedback. This engagement helps strengthen the relationship between the customer and the brand, fostering loyalty beyond mere discounts.
Long-term relationship building: Rewards programs aim to build a lasting relationship with customers, encouraging them to become repeat buyers and brand advocates. This requires consistent efforts to engage and retain customers, beyond the temporary appeal of discounts.
Strategic data collection: Such programs often collect data about customer preferences, purchase behavior, and demographics. This data enables businesses to personalize offers and improve their overall customer experience, leading to enhanced loyalty.

When compared to discount programs, loyalty programs:

Do not devalue your items or services
Do not compromise the ability to earn loyalty points/stamps
Help you not lose in revenue by offering a discount
Give clients satisfaction from earning extra

Discount programs are undoubtedly effective. They attract customers and allow increasing sales, but these increases have a short life. Rewards programs fuel repeat purchases and build brand allegiance that lasts.

Why Doesn’t Retention Program Equate to Loyalty Program?

While retention programs and loyalty programs share a common goal of retaining customers, they are not synonymous.

Here are some reasons why a retention program doesn’t equate to a loyalty program:

Focus on repeat purchases vs. emotional connection: A retention program primarily focuses on strategies to keep customers coming back for repeat purchases. It often relies on incentives such as discounts, rewards, or special offers. In contrast, a loyalty program aims to create an emotional connection between the customer and the brand, fostering a sense of loyalty and advocacy beyond transactional benefits.
Transactional vs. relational approach: Retention programs tend to be more transactional in nature, focusing on the immediate benefits that encourage customers to continue purchasing. In contrast, loyalty programs take a more relational approach, aiming to build long-term relationships with customers based on trust, engagement, and personalized experiences.
Narrower scope vs. holistic approach: Retention programs typically focus on specific tactics to prevent customer churns, such as targeted email campaigns, re-engagement offers, or personalized recommendations. A loyalty program, on the other hand, takes a broader and more holistic approach, encompassing various strategies to enhance the overall customer experience and foster loyalty.
Limited benefits vs. multi-dimensional rewards: Retention programs often offer benefits directly tied to repeat purchases, such as discounts on subsequent orders or loyalty points based on transactional value. In contrast, loyalty programs offer a range of multi-dimensional rewards that go beyond just discounts, including exclusive access, personalized offers, enhanced customer service, or experiential rewards.
Engagement vs. repeat transactions: Retention programs primarily focus on encouraging repeat transactions from existing customers. While this is an important aspect of loyalty, true loyalty programs also emphasize customer engagement, interaction, and participation, which goes beyond the act of making purchases

When compared to retention programs, a loyalty program:

Doesn’t simply keep customers despite their attitude to the brand but makes them loyal
Creates emotional ties with the customers. It makes them choose your brand when compared to competitors
Has a broader reach and includes more lifecycle components, such as customer development, retention, and win-back.

To make a long story short, the retained customers may buy from you again, or they might not. The loyal customers, in turn, will choose your brand and encourage others to start shopping with you. As simple as that.

Goals of eCommerce Loyalty Programs

The goals of rewards programs can vary depending on the specific objectives and strategies of the business.

However, some common goals include:

Customer Retention

One of the primary goals of online rewards programs is to retain existing customers. By offering incentives, rewards, and a positive customer experience, businesses aim to encourage clients to continue shopping with their brand instead of switching to competitors.

Repeat Purchases

Such programs aim to increase customer loyalty by incentivizing repeat purchases. By providing rewards, discounts, or exclusive offers to loyal customers, businesses encourage them to make frequent and ongoing purchases, thereby boosting revenue and customer lifetime value.

Customer Engagement

Rewards programs aim to actively engage customers with the brand. Through personalized offers, exclusive access to events or content, and interactive experiences, businesses seek to deepen the connection between customers and the brand, fostering engagement and loyalty.

Brand Advocacy

Loyalty programs aim to turn satisfied customers into brand advocates. By providing exceptional experiences, rewards, and incentives, businesses encourage loyal customers to spread positive word-of-mouth, refer new customers, and promote the brand, thus expanding its reach and acquiring new customers.

Data Collection and Insights

Such programs provide valuable data and insights about customer preferences, behaviors, and purchasing patterns. By collecting and analyzing this data, businesses can gain a better understanding of their customers, personalize offers, and improve overall marketing strategies.

Customer Satisfaction and Loyalty

Ultimately, the goal of a program is to enhance customer satisfaction and loyalty. By delivering a rewarding and personalized experience, businesses aim to create a strong emotional connection with customers, building trust, and fostering long-term loyalty.

Competitive Advantage

Implementing a robust loyalty program can give businesses a competitive edge in the crowded eCommerce landscape. By offering unique rewards and benefits, businesses can differentiate themselves from competitors and attract and retain customers who value the added incentives.

Increase in Share of Wallet

It’s critical to create conditions that satisfy the customers’ requirements in certain categories. This is normally carried out through the system of bonuses and benefits.

“All-in-one purchases” is the model that must be stimulated by such a program.

Fighting Customer Churn

Loyalty programs aim at decreasing the number of customers who chose to leave and paying special attention to the customers at risk. A good loyalty program becomes an attraction that helps retain customers.

Customer Attraction

While the main goal of a loyalty program is to retain existing customers and increase the number of repeat orders, it can also be used as an instrument for customer acquisition through referral methods, such as emails, shareable URLs, social media, etc.

Critical KPIs to Measure eCommerce Loyalty Program

Measuring the success and effectiveness of an eCommerce loyalty program requires tracking key performance indicators that provide insights into various aspects of customer engagement, retention, and program performance.

How do you measure the effectiveness of a loyalty program?

Here are some critical KPIs to consider when measuring an eCommerce loyalty program:

Net Promoter Score (NPS)

These metrics allow for calculating expenses that are related to promoting your loyalty program.

Under the best-case scenario, you should create a system when your customers promote your online store and the loyalty program themselves.

In order to estimate this score, you’ll need to survey your customers.

Include the following question:

“What are the chances you’ll recommend our brand to your family and friends on a scale from zero to 10?”.

They’ll have to give an estimate.

Depending on what the customers answer, you’ll be able to divide customers into 3 groups:

Promoters (9-10 score)
Passive buyers (7-8 score)
Detractors (6 and less)

You should aim at having as many promoters and as few detractors as possible.

Detractors must be determined, as well as the reasons for their dissatisfaction in order to improve the way buyers see the brand.

This is as important as keeping the promoters satisfied.

Tips for making the best of NPS:

Bring personalization. The easiest way to measure NPS is to ask personalized questions right after customers’ interaction with your brand. Avoid asking general questions. Ask about the staff, for instance, instead.
“How likely will you recommend our eCommerce store after your last interaction with our support team?” – Zappos.com, the online merchant that sells shoes and clothing, offers such a question to its buyers to ensure high customer service.
Use follow-up questions. You can learn where your customers mostly come from or improve your business thanks to the questions based on negative customer experiences. Consider the following questions:
“What is the biggest thing you dislike about our store?”
“How did you first hear about our brand?”
“What three things stopped you from completing an order the last time you shopped with us?”
Use thank you messages. This kind of message must be different for the 3 above-mentioned groups of customers. When dealing with detractors, make sure to mention that you are ready to improve customer service and value their opinion.

Customer Lifetime Value (CLV)

It allows measuring what value a customer brings to the company over a lifetime. CLV variations help evaluate the effectiveness of the loyalty program as you’ll see how often your customers make purchases and correspondingly stay with your brand. This helps see whether buyers become more loyal to the brand or not.

On average, three years is often considered to be an optimal realistic time frame during which loyal customers last with a brand in eCommerce.

By tracking CLV, you can determine the long-term profitability of customers enrolled in your loyalty program, providing insights into their value and helping optimize retention strategies.

Active Engagement Rate (AER)

These metrics show what percentage of customers actively and regularly participate in a program. Here, participation is measured by the way buyers earn and spend points within a certain period of time.

A monthly/yearly estimation of the AER is a great way to evaluate the effectiveness of your loyalty program.

For example, Amazon can boast of a 93% level of customer engagement in their loyalty program as it meets buyers’ expectations practically to the full.
In order to keep customers back, Amazon:

Uses a $0.16 marketing strategy. If a customer purchases an item and its price suddenly drops, Amazon credits back the difference. Doesn’t it show that the merchant puts a customer first?
Stays creative. The company offered to pay a yearly fee to get 2-day free shipping. So, no matter whether buyers still have to pay, the feeling of being rewarded with free shipping does increase satisfaction.
Timely diversifies. Do you remember how Amazon started? I do. First, they sold books only. Now you can get practically anything under the roof there. That’s probably why Amazon is one of the online marketplaces I’ve personally stuck to.

Repeat Customers Rate

stores that have rewards programs: repeat customer rate

It’s no secret that repeat customers bring more profit and have a high chance to become loyal. These metrics can also help analyze what motivates customers to make repeat purchases, which can surely play into your hands.

For example, HKEA, the group company that specializes in education, property, hospitality, LED lights, and more, claims to have a 98.5% repeat customer rate. They place a special focus on over 10 years of experience in the field and ISO 9001 factory compliance. This builds trust that lasts over the years.

Monetary Bonuses

It has been proved that customers that are active with loyalty programs make 90% more frequent purchases and spend 60% more in each transaction. Moreover, the chances that such buyers will stay with the brand increase fivefold.

Have your customers started making more purchases as a result of an effective loyalty program?

That’s what you need to ask yourself and learn to calculate in order to measure this KPI. You’ll have to analyze what exactly motivates buyers and segment them depending on the obtained results.

Return on Investment (ROI)

Like any other business activity, there are certain expenses related to the introduction and continuous use of the brand loyalty program. In order to see the full picture, it’s critical to analyze loyalty program-related expenses compared to the extra revenue that it brings to the company. They are software development, design, marketing, and the cost of special offerings themselves.

Charlie Casey, the CEO of LoyaltyLion, claims that the average ROI for companies they work with is from $14 to $32 for each $1 spent on the loyalty program. This concerns both small and large companies.

So, this is probably the numbers you should expect from your loyalty program, at least.

These steps will let you achieve high ROI for your loyalty program:

Estimate customers’ profitability. Taking into account the last 2 years (depending on buyers’ purchase cycle), estimate their profitability by subtracting all the expenses from the total revenue for each separate customer.
Select the most profitable customers. There should be about 20% of them.
Create these customers’ profiles to know what they like and where they come from.
Search for a lookalike audience to target and attract.

Customer Satisfaction

A loyalty program must be developed in the way customers see the extra value they get. This can be realized by offering:

Extra discounts depending on customers’ tier
Exclusive personalized offers

Customer satisfaction must be in focus. Be it financial benefits or such benefits as free shipping, personalized offerings, etc.

Brand and Program Awareness

Make sure to track brand awareness and customer engagement rates in the loyalty program. Always control why customers participate in the program.

Is it related to an emotional bond with your brand or because of the extra value you offer?

Surely, establishing an emotional bond must be an objective, and it’s not that easy to achieve.

Personally, I just love when info about a loyalty program is easily accessible on the site or made available on social media. Besides being easy to understand, it keeps me updated on the benefits it offers.

For example, Flash Tattoos uses a subscription popup to offer VIP status, as well as 10% off the first purchase.

More details on the company’s special offers are conveniently available right on the main page of their loyalty website.

Measuring a Magento Loyalty Program

Measuring a loyalty program on Magento follows similar principles to measuring loyalty programs on other eCommerce platforms.

While the fundamental metrics and strategies for measuring effectiveness remain consistent, there may be specific features and capabilities within Magento that can facilitate the measurement process.

Here are some aspects to consider:

Integration with Magento analytics tools: Magento offers various analytics and reporting tools that can provide valuable insights into loyalty program performance. These tools can help track customer behavior, engagement, and program-specific metrics, allowing you to measure the effectiveness of your loyalty program within the Magento ecosystem.
Customization and flexibility: Magento offers customization options and third-party extensions, allowing businesses to tailor their loyalty program to their specific needs. This flexibility extends to measuring the program’s performance, as you can customize reporting and tracking mechanisms to capture the desired metrics and KPIs relevant to your loyalty program objectives.
Integration with Customer Relationship Management (CRM) systems: Magento comes with integration capabilities with CRM systems, which can enhance loyalty program measurement. By syncing customer data between your loyalty program and CRM, you can track customer interactions, purchase history, and program engagement, providing a comprehensive view of loyalty program effectiveness.
Extension Marketplace: Adobe Commerce extension marketplace offers a wide range of loyalty program extensions and integrations. These extensions often come with built-in reporting and analytics features, allowing for more streamlined measurement and analysis of loyalty program metrics.
Performance monitoring and A/B testing: Performance monitoring tools can help assess the impact of your loyalty program on website performance, conversion rates, and overall customer experience. Additionally, there are A/B testing capabilities, which allow you to test different loyalty program strategies and features to identify the most effective approaches.

While measuring a loyalty program on Magento shares many similarities with other platforms, the specific features, integrations, and customization options within Magento can enhance the accuracy and efficiency of your measurement efforts.

Summary

As eCommerce continues to thrive and customer expectations evolve, measuring the effectiveness of online shopping rewards programs has become paramount for businesses seeking long-term success.

By tracking key performance indicators (KPIs) such as customer retention rate, repeat purchase rate, average order value, and customer lifetime value, businesses can gain valuable insights into the performance and impact of their loyalty programs.

Additionally, metrics like churn rate, engagement, referral rate, and Net Promoter Score provide a holistic view of customer satisfaction, advocacy, and program engagement.

Armed with these KPIs, stores that have rewards programs can make informed decisions, optimize their loyalty programs, and nurture lasting relationships with their customer base.

By continually evaluating and adapting their strategies based on these KPIs, eCommerce retailers can drive customer online loyalty, increase revenue, and stay ahead in the competitive online marketplace.

FAQ: eCommerce Loyalty Programs

What are the KPIs for eCommerce?

Some key performance indicators (KPIs) for eCommerce include conversion rate, average order value (AOV), customer acquisition cost (CAC), customer lifetime value (CLV), cart abandonment rate, website traffic, and return on ad spend (ROAS).

These KPIs provide insights into various aspects of the eCommerce business, including sales performance, customer behavior, marketing effectiveness, and financial metrics.

What is loyalty in eCommerce?

Loyalty in eCommerce refers to the degree of commitment, trust, and repeat business exhibited by customers towards a specific online retailer or brand. It signifies the customer’s preference to consistently choose and engage with a particular eCommerce business over its competitors.

In eCommerce, loyalty is not solely based on emotional attachment but is often influenced by factors such as customer satisfaction, personalized experiences, value for money, convenience, and the quality of products or services provided. Building loyalty in eCommerce involves developing strong relationships with customers and continuously meeting or exceeding their expectations.

How do you retain eCommerce customers?

To retain eCommerce customers, consider the following strategies:

Exceptional customer service: Provide prompt and personalized support across multiple channels to address inquiries and resolve issues effectively.
Seamless user experience: Optimize your website for easy navigation, fast load times, and a user-friendly interface to enhance the shopping experience.
Customer loyalty programs: Implement a rewards program to incentivize repeat purchases and offer exclusive discounts or perks to loyal customers.
Personalization: Leverage customer data to personalize product recommendations, marketing messages, and offers, creating a more tailored experience.
Email marketing: Send targeted and timely emails to engage customers with relevant content, exclusive offers, and personalized recommendations.
Social media engagement: Build a strong presence on social media platforms to connect with customers, share updates, run promotions, and gather feedback.
Post-purchase follow-up: Stay engaged with customers after their purchase through order updates, feedback requests, and personalized recommendations.
Continuous improvement: Regularly analyze customer feedback and data to identify areas for improvement and implement changes that enhance the overall customer experience.

What are the best loyalty programs?

There are several highly regarded loyalty programs that have achieved great success and garnered positive feedback from customers.

Here are some of the best loyalty programs:

Amazon Prime: Amazon Prime offers a comprehensive range of benefits, including free shipping, access to streaming services, exclusive deals, and more.
Starbucks Rewards: Starbucks Rewards allows customers to earn stars for every purchase, which can be redeemed for free drinks and food items. It also offers personalized offers, early access to new products, and convenient mobile ordering.
Sephora Beauty Insider: Sephora Beauty Insider provides members with points for purchases, birthday gifts, access to exclusive events, and beauty product samples. Members can redeem their points for various rewards.
Nordstrom Rewards: Nordstrom Rewards offers members benefits such as early access to sales, personalized style recommendations, and rewards based on spending. Members can earn points for purchases made at Nordstrom and its affiliated stores.
Hilton Honors: Hilton Honors is a hotel loyalty program that provides members with perks like free nights, room upgrades, and the ability to earn points for future stays. It also offers personalized experiences and benefits for elite members.
Southwest Airlines Rapid Rewards: Southwest Airlines’ loyalty program allows members to earn points for flights, which can be redeemed for future travel. It offers benefits like priority boarding, no blackout dates, and the ability to earn tier status.
CVS ExtraCare: CVS ExtraCare is a pharmacy and retail loyalty program that provides members with exclusive discounts, personalized coupons, and ExtraBucks rewards on eligible purchases.
Mageworx discounts: As members of the program, customers can earn reward points for various actions, such as making purchases, leaving reviews, and referring friends. These reward points can then be redeemed for discounts on future purchases from the Mageworx Magento extensions store.

How do I create a loyalty program?

Creating a loyalty program involves several steps to ensure its effectiveness and success.

Here’s a brief overview of the process:

Set clear objectives: Define the goals and objectives of your loyalty program. Determine what you aim to achieve, such as increasing customer retention, driving repeat purchases, or fostering brand advocacy.
Know your customers: Understand your target audience and their preferences. Identify what motivates them and what rewards or incentives would be most appealing to them.
Choose a reward structure: Decide on the type of rewards you want to offer, such as discounts, free products, exclusive access, or points-based systems. Consider which rewards align best with your target customers’ preferences and your business model.
Determine program mechanics: Establish the mechanics of your loyalty program, including how customers earn and redeem rewards, membership tiers (if applicable), and any additional benefits or perks associated with the program.
Implement technology: Choose a suitable loyalty program platform or software that aligns with your program goals and integrates well with your existing systems. This platform should allow for easy member enrollment, reward tracking, and data analysis.
Promote your program: Develop a marketing plan to promote your loyalty program to both existing and potential customers. Utilize various channels, such as your website, email marketing, social media, and in-store signage, to create awareness and incentivize sign-ups.
Monitor and optimize: Continuously track and analyze key metrics, such as customer participation, retention rates, and redemption patterns. Use this data to assess the program’s effectiveness and make adjustments to improve its performance over time.
Provide excellent customer service: Ensure your customer service team is trained to handle loyalty program inquiries and provide assistance to program members. Delivering exceptional customer service can enhance the overall experience and strengthen loyalty.
Regularly engage and communicate: Keep your loyalty program members engaged by regularly communicating program updates, exclusive offers, and personalized rewards. Use various communication channels, such as emails, newsletters, and mobile apps, to maintain ongoing engagement.
Evolve and adapt: As customer preferences and market dynamics change, regularly evaluate your loyalty program’s performance and make adjustments as needed. Stay up-to-date with industry trends and innovations to ensure your program remains competitive and compelling.

Remember, the success of your loyalty program depends on continuous evaluation, adaptation, and delivering value to your customers.

Does Amazon Ship loyalty rewards?

Yes, Amazon does offer shipping for certain loyalty rewards. Amazon has a loyalty program called Amazon Prime, which provides various benefits to its members, including free shipping on eligible items.

Prime members can enjoy fast and free shipping on millions of items available on the Amazon website.

Additionally, Amazon offers a wide range of products and services as part of their loyalty program, which may include physical goods that can be shipped to customers as rewards or incentives.

However, the specific rewards available and their shipping eligibility may vary based on the terms and conditions of the loyalty program or promotional offers.