A loyalty program is a marketing strategy that “rewards” customers for repeatedly shopping with a particular company. Free or reduced-price merchandise are among the most common types of rewards. These rewards are typically earned by the customer when they sign up for the program, when they make a purchase, or both. Jo-Ann Fabric and Craft Stores, for example, gives customers access to coupons as soon as the customer downloads their app and creates an account. However, customers who have downloaded the app can also earn custom coupons based on their personal spending habits.
While the traditional champions of loyalty programs are brick-and-mortar retail stores, e-commerce retailers have also been joining the fray. The intense competition within the world of e-commerce has persuaded many e-commerce businesses to adopt loyalty programs as a means of keeping customers “loyal” to their brand. These loyal customers can in turn keep e-commerce retailers running despite the competition. Here’s how:
The probability of selling to an existing customer is higher than selling to a new prospect.
According to Marketing Metrics by Paul W. Farris, an existing customer is 60–70% more likely to buy a product or service than a new customer is. Existing customers also cost e-commerce businesses six to seven times less to retain than new customers cost to acquire.
Returning customers spend more than new customers.
Global management consulting firm Bain and Company found that the average repeat customer spent 67% more than new or one-time customers. They attributed this number to repeat customers’ frequent visits. These frequent visits often resulted in larger transactions than one-time or otherwise sparse visits. As a result, repeat customers are more likely to turn over a higher profit than non-repeat customers.
More than 60 percent of a company’s business comes from existing customers.
While e-commerce businesses should by no means ignore new customers altogether, they only account for about 40% of an e-commerce company’s profits. The lion’s share of an e-commerce business’s revenue is going to come from customers that already know and love that business’ products and services. What’s more, those customers can also help an e-commerce business acquire new customers by recommending that business to their friends and family at little to no cost to the business.