The Beginner’s Guide To Customer Loyalty Programs

Selling on your own website gives you one huge advantage vs. selling on marketplace sites like Amazon or Etsy:

Repeat sales from loyal customers.

The first sale to a customer matters, but if you really want to make your ecommerce business a success, you need to focus on the 2nd, 3rd, 4th….you get the idea. As the infographic shows, it is 6-7 times more expensive to acquire a new customer than it is to keep one. Your bottom line won’t love you for chasing new customers.

Customer loyalty programs work, but most businesses get it wrong.

In our Beginner’s Guide you’ll learn:

  • What a customer loyalty program is and how it can impact your brand’s bottom line
  • The different types of customer loyalty programs
  • How to design a rewards program that attracts the right type of buyers
  • The best way to launch, promote and measure your loyalty program

Click on the infographic below for full size image, tweetable stats and sources.

The True Value Of Customer Loyalty

Hopefully, you’ve taken great pains to make sure your user experience is excellent. There’s more to keeping a customer than making them happy during their first sale, though. You need to entice customers to return. That’s where customer loyalty programs come into the picture. They’re easy to set up and enrolling customers isn’t that hard.

What is a Customer Loyalty Program?

A customer loyalty program is a relationship between a brand and customer. The company offers exclusive products, promotions, or pricing; in return the customer agrees to “go steady” with the business through repeat purchases or brand engagement.

Before you get started, make sure your goals are clear and you’re doing it for the right reasons. If you design a customer loyalty program around discounts, you’ll attract cheapskates and your program will more than likely fail. In fact, 77% of these transaction-based programs fail in the first 2 years.

The goal should be to attract the right customers, and create profitable long-term relationships with them. But if you focus too much on the money and have no intent of understanding your customer and meeting their needs, you’ll fail.

Ready to get started designing a killer customer loyalty program?

Ok, let’s dive in!

Types Of Customer Loyalty Programs

Points Programs

Loyalty point programs let customers accumulate points that they can redeem for rewards or free products/services. They’re so easy to set up that 73% of loyalty programs are points based, making this the most popular type of loyalty program by far.

A lot of ecommerce businesses struggle to get customers in the virtual door. If that’s a problem that’s keeping you up late at night, referral marketing can help. And you can take that to the max with points-based loyalty programs.

Not all points are tied to money transactions – some may be earned from social sharing, emails, or other actions customers take to drive traffic to your site. In fact, your loyalty program shouldn’t be purely transaction-based. Get your best customers to send you more business and reward them for helping you.

9WLOVES (Nine West)

9WLOVES Is Nine West Points Based Rewards Program

Nine West makes their point system clear. $1 = 1 point. It doesn’t get any simpler than that. We love that they give surprises to customers on their birthdays. Who says only kids can get free stuff on their birthday?

IHG Rewards Club

IHG® Rewards Club The World s Largest Hotel Loyalty Program

IHG keeps their rewards site user-friendly and provides plenty of ways for members to earn and redeem points. Travel and hospitality companies have some of the best loyalty programs around. Study them to improve yours.

ToyZoo Rewards

Reward Points

Talk about a user-friendly explainer page – ToyZoo has a well-designed, easy to understand rewards program. It’s success is no surprise.

Bottom Line On Points Programs

Points Programs Overview
Points programs are the most popular loyalty programs. They’re easy to use and can encourage specific consumer behaviors.


  • Tangible value for the consumer
  • Flexible and customizable
  • Can drive desired consumer behavior
  • Easy to understand
  • Lots of loyalty program apps and software to choose from
  • Avoids price discounting


  • Point program operation can be confusing
  • Need to be clearly explained
  • Might require a catalog or separate redemption site
  • No “instant gratification” (gamification can fix this)

Thanks to the ease of use and customizability of points programs, they’re perfect for most ecommerce business, regardless of size or target market.

Spend Programs

In spend programs, customers get loyalty credit for the amount they spend at your business. You can use similar discounts without an upfront email capture to keep customers coming back, but you’d lose out on a lot of valuable information (and a captive audience!). This kind of program is very easy to understand, create, and maintain. They’re an effective way to cut your churn rate and increase transaction amounts.

Kohl’s Yes2You Rewards

Sign Up for Kohl s Rewards Yes2You Rewards Kohl s

Kohl’s dominates cash-back rewards for brick and mortar, and they’ve carried the same strategy over to ecommerce beautifully with Yes2You Rewards with a simple to understand, mobile-friendly system that offers clear benefits. Cashback

Introduction to Cashback SHOP.COM’s Cashback program is introduced beautifully with an opt-in popup that illustrates the programs benefit to the user and maximizes conversions.

Fawn & Forest Rewards

About Rewards Popin fawn forest

Although the page layout could be better, fawn&forest beautifully explains how their program works. Design can make a major difference, however. Don’t waste space like this on your explainer page. Make sure you’re optimized for mobile AND computer use.

The Skinny On Spend Programs

Overview: Spend Programs
Spend programs are a great option for encouraging increased transaction values and reducing high churn rate. The simplicity makes it easier to get customers to sign up.


  • Tangible value
  • Intuitive rewards system
  • Encourage repeat business
  • Increase transaction amounts
  • Easy to set up
  • Easy to maintain


  • May not let you gather as much data as other types of loyalty programs
  • Can decrease perceived value of products/services
  • Higher cost to your business

Spend programs are a great option for retailers in fast fashion or other, similar industries that rely on high numbers of transactions and retail products with high markup.

Tiered Programs

An improved version of points programs, tiered loyalty programs give customers rewards based on different levels of spending or points. They are growing quickly in popularity because they can be highly targeted and customized easily, and customer segments can be target pre and post-payment In some tiered programs, customers are offered gifts, free products/services, privileges, or exclusive products.

GILT Insider Unveils Gilt Insider Program Gilt Groupe About
To introduce their Insider program, the GILT Group posted a press release. Smart move, and a great way to let existing customers know about the program, especially if you link to it on your homepage.


Sephora-VIB Rouge Tiered Program
Sephora clearly illustrates the benefits of each tier in a fun and easy to understand way. Scroll down the page for each tier, and you’re presented with beautifully illustrated reasons to signup – the most attractive level is, obviously, the VIB Rouge.

Best Buy

My Best Buy Rewards Card Overview
Best Buy provides an easy to understand chart for potential rewards members, complete with details on how to qualify for each level.

Bulletproof Coffee

BulletProof: Milestones and exclusive
Bulletproof coffee makes their program tiers easy to understand, although the point quantities might be a big daunting for some customers.

Tier Program Takeaways

Tiered Programs
Need to cut your churn rate, save on your loyalty program expenses, and target specific segments or actions? Spend loyalty programs might be the right solution – especially if you’re in the luxury market.


  • Decreases churn rate for most valuable customers
  • You don’t invest in low-end customers (saves you cash!)
  • Uses gamification to motivate customers to higher levels


  • Unlikely to draw new site visitors into joining on the first visit
  • Not universally appealing (great for targeted campaigns, but not as a general, stand-alone strategy)
  • More complicated to set up

Tiered programs are great choices for e-commerce service providers, luxury retailers, and companies in the travel and hospitality industry.

Paid Programs

Paid loyalty programs provide an exclusive feel by incorporating a monthly or yearly fee that members pay for access to special services, discounts, or unique opportunities. Although the customers these programs draw may require more coddling, the increased transaction value is substantial. The program’s barrier to entry draws prospects further into your marketing funnel, and provides an incentive to continue making purchases on your site.

Amazon Prime

Amazon Prime Is A Great Example Of A Paid Membership Program

To overcome the barrier to entry, Amazon Prime offers a 30-day free trial for new members. They’ve also found ingenious ways to market the program as part of the checkout process, on pop-ups, and even incorporating “try prime” into the Amazon logo on every page.

Newegg Premier

New Egg's Paid Rewards Program
Newegg has largely copied Amazon’s placement techniques for program enrollment, but they’ve mastered the visual approach to benefits with an attractive, flat design and intuitive images.

Are Paid Programs Worth The Money?

Paid Programs
A fee to join is the hallmark of this loyalty program, and it’s a two-edged sword. It gives you the chance to cultivate an extra revenue stream, higher transaction values, and highly-targeted campaigns, but the value may not be apparent to all customers.


  • Higher spend per customer
  • Easy to understand
  • Provides additional (ancillary) revenue stream
  • Highly-targeted
  • Value is obvious to subscribers


  • First-time visitors most likely won’t see value
  • Barrier to entry may dissuade some customers
  • May require increased customer service efforts

Paid programs are perfect for larger retailers, and also make a smart pick for luxury product and service sites. Information businesses can also make good use of this loyalty program model.

Punch Programs

One of the simplest and oldest loyalty program designs, punch programs are extremely popular in brick and mortar businesses, but their adoption in e-commerce isn’t as prevalent. The idea behind punch cards is that customers are rewarded for purchasing a particular product or service with “punches.” One punch is given per purchase. After a set number of punches are collected, they receive a product or service of equal or lesser value free of charge. Rewards Punch Rewards Program

Simplicity in action. This is easily one of the best punch card rewards programs in e-commerce, with a beautiful explainer page.

L’Oreal Gold Rewards

L’Oreal Gold Rewards

Another beautifully simple program, but one problem – if L’Oreal weren’t such a household name, that sign-up form would send customers running. It’s asking for way too much.

What Are Punch Programs Good For

Punch Programs
Punch programs are intuitive, easy to use and track, and low cost. Unfortunately, they tend to be targets for fraud, though. If you can track your customers, they make a great option for a very basic loyalty program.


  • Easy to track online (potential advantage over brick and mortar punchcards)
  • Familiar program model for customers
  • Can be highly targeted or appeal to mass customer base
  • Low implementation cost


  • May decrease perceived product/service value
  • Common target of loyalty program fraud

A great choice for new loyalty programs, but tracking data and preventing fraud can be an issue. Ideal for experience-based industries like travel, although they work well with consumer goods that are high value and high consumption, too.

10 Tips For Launching A Reward Program

10 Tips For Launching A Rewards Program
Launching a reward program is an important step in growing your business, and one you don’t want to mess up.

1. Keep it simple

If your program is a hassle to use or difficult to understand, it won’t be used. Simplicity and predictability is key to creating a trust-based customer experience.

2. Start with your existing mailing list

You already have loyal customers. They like you enough to join your mailing list. Use that to your advantage and make them feel special at the same time by offering them a chance to be the first members of your loyalty program. You can iron out the kinks and make sure your program is perfect with the help of an audience you know will be receptive.

3. Make it easy to join

Make it simple to join your rewards program

Ask only for the information you really need. Loyalty programs can be great lead capture incentives, but no one wants to share their life story with an ecommerce retailer.

This Rewards Programs Asks For Too Much Information

An email capture, and maybe your customer’s name and birthday (if you offer something special to help them celebrate, like a discount), are all you really need at this point.

4. Make earning rules simple

Make Earning Rules Simple

If no one understands how to earn in your program, they may ignore it. The simpler the rules are, the more likely your customers are to actively try to earn.

5. Make spending rules simple

Make Spending Rules Simple

Once again, simplicity is huge. If customers have to jump through hoops to spend, they may feel that your loyalty program isn’t such a great deal, after all. Even if they loved the simplicity of earning, and your company.

6. Launch in digestible chunks

Noticing a theme here? Don’t overwhelm your program members. Launch the program in easy-to-understand chunks so that each part of it feels like a natural progression from the previous step.

7. Don’t overwhelm customers with options

Keep your rewards transparent, worthwhile for your customer, and easy to use or acquire.

8. Have your end goal in mind

You started your business with a solid foundation – a business plan that helped you see the viability of your vision and a clear path to your goals. The loyalty program deserves equal attention. It’s the path to keeping your customers, and your bottom line profitable.

9. Use automation

You focused on simplicity for the customer. Don’t forget simplicity for you, too. Automation can reduce the workload on your end, while helping your customers to feel appreciated and in touch with your business. That personal touch is important. Speaking of which…

10. Make it about your customer, not about money

From the rewards you offer to the way your program feels to the customer, make it about them. If you’re only thinking about earning on your end, you’ll miss the mark and you might destroy your credibility with the customer in the process. People crave a personal connection, even (or perhaps more so) in e-commerce.

Before You Launch

Keep it simple. Start with your existing customers. And most importantly, make your program about your customers, not your bottom line.

Why Online Rewards Programs Fail

Why Customer Loyalty Programs Fail

Reward and loyalty programs sound like the key to instant success so far, but most fail spectacularly. According to Cap Gemini, 89% of social media sentiment regarding loyalty programs was negative.

Sure, people are more likely to talk about things they don’t like, but that’s a startlingly high statistic.

Cap Gemini reported that the key reasons for negative social media sentiment about loyalty programs were:

  • a lack of reward relevance, flexibility & value (44%)
  • a lack of a seamless multi-channel experience (33%)
  • customer service issues (17%).

That gives you a few places to strengthen your loyalty program before you launch it, but there are more steps you can take to make sure it’s a hit, too.

How much do you like colonoscopies? Yeah….not many people could call them enjoyable. Make sure your sign-up form doesn’t feel like one to your customers. Asking for too much information is something that 38% of people feel loyalty programs do, according to Bond Brand Loyalty. Coupled with the lack of personalization and dynamic loyalty program content that plagues many loyalty programs, you’ve got a recipe for failure.

Customer Loyalty Is Bigger Than Discounts

Make customer loyalty programs about customers.
Reward programs are a great opportunity to cultivate relationships with customers, but they fail almost as often as they succeed. Make sure yours works by providing great customer service, focusing on the relationship with your customers, and not being too intrusive, but still listening to what they want and providing it. Be sure to avoid these 7 customer experience sins.

Another common cause of loyalty or reward program failure is focusing too much on just the transactions that bring you revenue.

Sure, you need to keep your bottom line in mind, but a loyalty program can be so much more – if you do it right, it’s a powerful tool for referral marketing, too. Focus on building a relationship with your loyalty program members. Listen to your customers and act on their comments. To get the highest ROI possible from your loyalty program, help them love you so much that they become volunteer brand ambassadors.

Part of helping your customers to market you is making sure you provide opportunities for engagement outside of sales transactions. Gamification models help with this, and keeping active social media profiles and informative, interesting content on your site will help, too.

How to Measure Customer Loyalty

Measure Your Rewards Program
You can tell by the look in your significant other’s eyes what mood they’re in. Brick and mortar store owners can tell how customers feel based on comment cards and conversations with customers. But ecommerce is a different world.

Customer Relationship Metrics

Track vital loyalty metrics to judge how your loyalty program is performing and how much your customers love your company. Stats like churn, response, and retention rate can keep you on the right track to a strong customer relationship.

Keeping track of your relationship with your customers isn’t an option. It’s a requirement. Track your customer relationship’s pulse with these metrics:

Customer Lifetime Value

Many ecommerce entrepreneurs slowly leak profitability by spending more per customer than they are worth. Once you figure your product profit margin, add in marketing, fulfillment, shipping, and staffing costs your bottom line can get away fast.

CLV =  customer value * by the average lifespan of a customer

To calculate customer value you need to know two things:

  • Average Order Value (Total Revenue/Total Number Of Orders)
  • Purchase Frequency (Total Orders/Unique Customers)

Customer Value = Average Order Value * Purchase Frequency

To calculate average customer lifespan, look at the average time between purchases.

For more on CLV, I recommend you check out this article from SweetTooth.

Adoption and Redemption Rate

It’s relatively easy to calculate program adoption rate. You just have to look at the number of people enrolled divided by total number of customers. So if you have 1,000 with reward points and 10,000 customers your adoption rate is 1%.

More importantly, though is your customers are spending those points and giving you more business. Here is how to calculate your redemption rate.

Redemption Rate=Number of Points Spent/Total Points Issues

Churn Rate

Although it seems pretty straightforward as a measure of how many customers you lose vs. gain in a given period, you can calculate churn rate in many ways. According to Wordstream:

“you can measure client churn in one or more of the following ways:

  • Total number of customers lost during a specific period
  • Percentage of customers lost during a specific period
  • Recurring business value lost
  • Percentage of recurring value lost”

The lower your churn rate is, the better your business is doing. Keep that number as close to zero as possible!

Retention Rate

Wait….hold up. I bet you’re wondering about what the difference between churn and retention rate is. They’re opposites. Customer Retention Rate doesn’t take new customers into account, while churn rate does. Evergage tells us:

There are three pieces of information you need to calculate customer retention:

  1. Number of customer at the end of a period – E
  2. Number of new customers acquired during that period – N
  3. Number of customers at the start of that period – S

…CRR [customer retention rate] = ((E-N)/S)*100)

Alex McEachern does an excellent job of listing some other metrics that can help you track your customer loyalty, with and without loyalty programs. Check out his article on the Sweet Tooth Rewards blog for more numbers to track.

Promoting Your Rewards Program

Promoting Your Rewards Program

You’ve invested a lot of time and effort into creating a worthwhile loyalty program, but let’s be honest. If no one knows about it, it might as well not exist.

You need to promote your loyalty program to really see any revenue from it. You can do that via email, social media, or your website. The best strategy, however, is to combine the three.

Spread The Word

If no one knows about your rewards program, it’s not going to work. Promote heavily and intelligently to your own email list first, and then via social media and on your website.

Marketing Your Customer Loyalty Program To Your Email List

Earlier in this guide, I mentioned that you should start with your own mailing list. Don’t forget to do it. At the same time, actively work to grow your mailing list and encourage new members to join your loyalty program, too. Consider offering a special perk or benefit to your email subscribers who join the rewards program. When they joined your mailing list, chances are high that you ‘paid’ for their subscription with an incentive offer. This is the same kind of transaction, and deserves just as much investment on your part.

Publicizing Your Online Store’s Rewards Program on Social Media

Once you have the kinks worked out and are confident that your program will be a hit, start advertising it on social media. Focus on platforms that your demographic gravitates towards (for example, Pinterest tends to be dominated by women, while Reddit is predominantly a men’s platform). Check out this post on Social Media Examiner to master social media loyalty program launches. Make sure your campaigns are carefully targeted, and get the right content to the right potential members at the right time.

Using Your Website to Promote Your Rewards Program

On your website, you’ve got a relatively captive audience. The people on your site are already interested in your company. Don’t get lazy, though. Offer an opt-in freebie, discount, extra points, or some other incentive to entice site visitors to join your membership program. Lightboxes and pop-ups work well for advertising your program, as do reminders in the checkout process. In some cases, they can increase signups by up to 1,375%!

Customer Loyalty Tools and Apps

Customer Loyalty Apps

Now that you’ve mastered the basics of loyalty programs, it’s time to find a loyalty app or software program to make creating your program that much easier. Keep your eyes on our blog for more.

Keep in mind that not every loyalty program app works for every platform. Before you get your heart set on one, check to make sure it’s compatible with your e-commerce site.

Do You Really Need A Customer Loyalty Program?

Loyalty programs, as you can see from this guide, are a huge help in e-commerce. They increase customer retention and transaction value while cutting your costs. If you’re really serious about making the most out of your e-commerce website, sign up for our newsletter today. You’ll get great content like this, as well as tips and tricks from industry pros.

Loved this guide? Somewhere out there is an e-commerce store owner like you who is hunting for the secret to loyalty program success. Spread some good karma by sharing it now.

About the author

Photo of author
Darren DeMatas
Darren has an MBA in Internet Marketing and 10+ years of experience marketing retail, manufacturing and Internet marketing corporations, 7-figure brands and startups online. Follow him on TwitterLinkedIn. Or take his course to learn ecommerce.

27 thoughts on “The Beginner’s Guide To Customer Loyalty Programs”

  1. Wow. I’m launching my brand very soon and really want a over the top, spoiling rewards program. I have a lot to consider. Your article is helpful and informative. Thank you for the time you put into such a valuable and detailed post. I greatly appreciate it!

  2. Thanks for these graphics and info. I get the general principle for sure, but can you speak a little more about the obstacles to creating repeat customers and loyalty marketing through third-party sites like Amazaon and Etsy? Would love to here your thoughts!

  3. Great Content. Still have one question though! Is there any kind of guidelines to define points value. Let me clarify my question!

    How can we calculate points value ratio to money worth? Is there any kind of thumb rules or list of things to consider?

    Thank You very much!

  4. Great post! I really appreciate you all breaking everything down. You have a broken link though for Spark Base. Also after reading this post I was really compelled to set up a tiered VIP style rewards system and looked through all of your resources and found they were all super expensive for a small business to do tiered plans ($200+).

    So I went to Shopify and looked and I’m testing a program called loyalty which is only $99 for a tiered plan. It’s pretty great. Only played with the backend so far but thought I’d pass it along as it’s a great option for that. I’m in no way affiliated.

  5. Predator Nutrition shares insights on how they achieved 33% increase in average order value (AOV) using a 360 degree customer loyalty program. View free case study here.

  6. Beautifully done and easy to understand. Congrats on the hard work!

  7. WOW
    That’s an amazing document –so many ideas and great tips

    Thank you and we we will be sharing with our tribe straight away

    Neil Murphy uk

    • Glad you found it useful!

  8. Hallo there Darren, I believe that is one of the comprehensive loyalty program guide that I have read in years. And that was a nice inforgraphic too. Will surely be sharing with some beginners in one of our blogs. Thanks for your time in putting all these together.


    • Thanks for dropping by, Cindy. Its good to know that all my effort is helpful to someone. 🙂

  9. Great article! We are doing a lot of loyalty business in The Netherlands. If you want we like to share some loyalty cases smartphone based.

    All the best,

    • Hey Paul,

      Im sure our readers would love to see some more ecommerce case studies.

  10. Outstanding guide to loyalty programs, I especially appreciate the inclusion of measuring as too often companies “set it and forget it” — and so no wonder so many loyalty marketing programs are boring copies of each other! Great infographic, we’ll be sharing with our readers soon.

    • Thanks Elizabeth, you rock! You cant manage what you cant measure. Thanks again for dropping by!

  11. Darren,

    This is such a comprehensive resource. Thanks for compiling it. It’s well thought out and so much detail… love the stats, formulas, how-tos, and examples. Great job!

    Annette 🙂

    • Nice to see a familiar face around here 🙂

  12. Hi Darren,

    It’s a super content that you shared! I would complete your detailed list with one thought: e-Commerce companies can decide which kind of loyalty program can work for them based on their:

    – brand’s emotions,
    – pricing,
    – frequency of their products’ purchases.

    For example, a loyalty program coalition can work for those brands, which couldn’t raise much emotions in their customers, whose products’ are quite expensive, and they offer products with lower re-purchasing frequency.

    • Hi Timi 🙂 Those are all important considerations in how you can tackle a loyalty program. Thanks for adding that.

  13. Darren,
    What a great resource and very well done on putting it all together. A great step by step guide for anyone wanting to get started with setting up and building their own loyalty programme.


    • Really appreciate you taking the time to comment, Adrian! That was the goal, actionable and detailed, but not information overload 🙂

  14. This is an amazing resource for anyone considering a loyalty program in ecommerce! Everything you need to know is laid out in easy to digest sections.

    • Thanks for all your insight, Alex!

  15. Great content. Anyone interested in starting a loyalty program or refining an existing loyalty program would do well to read this article. There are outstanding examples and suggestions throughout.

    • thanks, Shep! Examples are always helpful to me too.

      Thanks again for dropping by 🙂


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