Building a loyal customer base can be a game-changer for any eCommerce business.
As loyalty consultants, we know first-hand that loyalty programs are a powerful tool in achieving this objective for enterprise brands. However, many online businesses often stumble in their implementation, despite the variety of Shopify loyalty and reward apps and platforms.
This comprehensive guide will dive into the art and science of designing a loyalty program tailored specifically to your industry and eCommerce or Shopify business. This guide explores what a loyalty program is, the importance to a business, and the return-on-investment it can bring when executed correctly.
Plus, this guide also includes a step-by-step framework on crafting a Shopify loyalty program that thrives.
Table of contents
- What is a Shopify Loyalty Program?
- Why are Loyalty and Rewards Programs Important for Shopify Businesses?
- The Hidden Pitfalls of Generic Loyalty Programs (and how to avoid them)
- Choosing the Right Type of Loyalty Program for your eCommerce Business
- Five-Step Process: Designing a Loyalty Program for eCommerce, That Works
- Bonus Tips for Shopify Loyalty Program Success
- Design a Shopify loyalty program that reflects your brand
What is a Shopify Loyalty Program?
A Shopify loyalty program is a formalised initiative designed to reward and stimulate desired customer behaviours on an eCommerce store. It typically involves providing incentives and exclusive benefits to encourage a targeted behaviour. These behaviours may be transactional, such as greater spend and frequency, or something less transactional – such as repeated brand engagement and fostering a sense of community among the brand and customers.
Why Are Loyalty and Rewards Programs Important for Shopify Businesses?
Loyalty programs are crucial for Shopify businesses for a number of reasons, with benefits for the business and the end-consumer.
Business Benefits of Having a Shopify Loyalty Program
Increased customer retention: the primary goal of a loyalty program is to mitigate churn and retain existing customers, especially as repeat customers are often more valuable than newly acquired customers. Loyalty programs are most effective at retention when they help develop sunk costs.
Boost sales and average order value: loyalty and repeat customers tend to spend more than new ones, leading to higher, more sustainable revenue in the long term.
Drive advocacy: loyalty programs can help turn members into promoters by delighting them above expectations, resulting in positive, organic word-of-mouth. When designed effectively, programs can also support the development of communities.
Improved understanding of customers: programs can provide access to valuable data on customer behaviour and preferences, which can play a pivotal role in improving business decisions and the customer experience.
Competitive advantage: a well-designed loyalty program can be a key differentiator in a saturated eCommerce market by providing customers with an extra incentive to choose one business over another. Note, simply implementing a loyalty program does not necessarily create an actual advantage, and so it is critical to design a loyalty program with a unique edge.
Consumer Benefits of Having a Shopify Loyalty Program
Businesses should remember that loyalty programs can also greatly benefit consumers. Based on the loyalty industry’s go-to resource, Loyalty Programs: The Complete Guide, there are four key benefits for consumers:
Deliver value: members may be rewarded with desirable tangible or non-tangible benefits.
Develop exclusivity: members may be provided with access to exclusive benefits that non-members do not receive.
Provide recognition: members may be shown appreciation through the delivery of surprise gifts or rewards.
Deliver relevancy: members may receive tailored communications, offers and experiences specific to their individual preferences, increasing their usefulness and appeal.
The Hidden Pitfalls of Generic Loyalty Programs (and how to avoid them)
While loyalty programs can be highly profitable, many Shopify businesses struggle in their loyalty program execution due to a variety of reasons.
Based on our consultancy’s extensive industry analysis of eCommerce and Shopify businesses with loyalty programs, there are five key factors why most eCommerce and Shopify loyalty programs fail:
1. Lack of clear strategy
Industry insights reveal a lack of direction and purpose often leads to a program that is overly complicated, not user-friendly and without true business buy-in. The first critical step to a successful loyalty program is to establish what the business wants to achieve, and how this might be best achieved. Well-defined business goals and objectives drive success.
2. Ignoring customer preferences
If businesses do not truly understand customer interests and profiles, a business risks offering rewards that do not resonate. A poorly designed loyalty program can also damage brand image if it does not truly reflect the brand and its customers. Best-practice loyalty programs hinge on understanding the customer first, and not the other way around. Note: if it is a business goal to use the program to better understand customer profiles, start very simply – then evolve to greater ambitions.
3. Incorrect program design
Arguably the most common reason for program failure, particularly in eCommerce, is that brands choose ineffective program design frameworks and reward types. Tip: This article covers what framework may be right for your eCommerce business and industry.
4. Incorrect technology choice
Shopify’s partner ecosystem has resulted in many Shopify loyalty apps available for eCommerce businesses, but these solutions do not meet the needs of all businesses. Our consultants often witness copycat programs across similar businesses which are poorly designed due to the out-of-the-box approach – unfortunately, this only reinforces bad practice program design.
5. Inadequate resourcing
Designing, implementing and managing a loyalty program requires proper resources, both in technology, staff and time. Prioritisation and company-wide buy-in is essential to success. Please reach out to us if you would like more guidance on the resource expectations the company should have.
Choosing the Right Type of Loyalty Program for Your eCommerce Business
Designing a loyalty program for an eCommerce business brings with it a multitude of possibilities, but it is essential to recognise that one size does not fit all. This section details the 11 distinct loyalty program models, each offering a unique set of advantages:
- Punch/stamp cards
- Loyalty currencies
- Status tiers
- Member benefits
- Discounts
- Credits
- Referrals
- Merchant funded
- Surprise and delight
- Gamification
- Hybrid
Tip: It is crucial to recognise that each loyalty framework possesses unique nuances that align differently with business objectives and industries. Therefore, businesses should exercise caution and carefully assess their goals, business and industry dynamics to choose a loyalty program design that best suits their needs and context.
Punch/stamp card model
How it works
Members collect stamps for each purchase or desired action, leading to a reward after a certain number. See full details and examples for loyalty program punch and stamp cards.
Benefits
Encourages repeat purchases or actions and provides a tangible sense of progress towards a reward.
Best fit for
- Services, Hospitality, Grouped Offerings
- High frequency, lower-cost, fast purchase decisions
- Brands competing on value and simple products
Loyalty currency model
How it works
Members earn a currency (e.g., points) for transactional and non-transactional behaviour, which is then redeemed for a reward. See full details and examples for loyalty currencies and points.
Benefits
Simple to understand and can provide customer flexibility in reward options. It provides a business with greater flexibility to incentivise behaviours and manage actual costs versus perceived value (in comparison to discounts or credit).
Best fit for
- Retail/eCommerce , Grocery, Travel, Hospitality
- Repeat purchases are common
- Businesses with a wide product or service range
Status tier model
How it works
Members advance through different loyalty tiers based on their spending or engagement, unlocking exclusive benefits at each tier. See full details and examples for loyalty program status tiers.
Benefits
Motivate higher spending and foster a sense of status, exclusivity and achievement.
Best fit for
- Discretionary spend sectors such as Fashion, Beauty, Hospitality, Travel
- Aspirational or luxury brands
- Presence of Pareto Principle (i.e., revenue overly driven by a small number of high-value customers)
- Businesses with available efficient rewards which are emotionally attractive and/or remove friction points (e.g., priority)
Member benefits model
Members gain exclusive perks or access to products/services as part of their loyalty program membership – often co-supplied by third-party partners. See full details and examples for loyalty program member benefits.
Benefits
Encourage customer sign-ups and provide ongoing value to members. It provides a business with a cost-effective approach to generate an emotional connection and highlight core product offerings.
Best fit for
- Fashion, Technology, Utilities, Telecommunications, Service-based businesses
- Low purchase frequency and high average order value (AOV)
- Focused on high adoption rate or community building
- Lower margin businesses
- Businesses with a subscription-based option (i.e., using the free option to enhance marketing and upselling opportunities)
Discounts model
How it works
Members receive a percentage or fixed discount on purchases, motivating repeat business through immediate savings. See full details and examples for loyalty program discounts model.
Benefits
Provides a straightforward, immediate incentive for members to return and make additional purchases, which can also be tailored to specific products or customer segments.
Best fit for
- Fast Fashion, Home & Lifestyle, Insurance, Consumer Electronics
- Highly competitive markets driven by seasons or clearance
- Focused on lock-in across product offering
- Businesses where price incentives are effective in driving sales
Credits model
How it works
Members receive a percentage of each purchase back, in the form of store credit, to put towards future purchases. See full details and examples for loyalty program credits model.
Benefits
Encourages repeat business by providing members with a reason to return and utilise earned value. The direct and monetary value of credit can be perceived to be more valuable for customers of specific business and target audiences (in comparison to a loyalty currency).
Best fit for
- Beauty & Cosmetics, Fashion, Grocery, Home & Lifestyle, Consumer Electronics
- Consistent purchase frequency and order values
- Businesses with a subscription-based offering
- Brands competing on lowest price guarantees
Referrals model
How it works
Members earn a reward for referring new customers who make a purchase or sign up to a service. See full details and examples for loyalty program referral strategies.
Benefits
Leverages existing members to acquire new ones and fosters a sense of advocacy. Earned members (via referral channels) can contribute a higher AOV, in comparison to the AOV of traditionally acquired members (via standard acquisition channel).
Best fit for
- Service-based businesses, Health & Fitness, Hospitality
- Presence of devoted customers and evangelists
- Early adoption stage products or services with high referral potential
Merchant funded
How it works
Businesses partner with other third-party companies to offer members access to rewards or benefits funded by those partners. See full details and examples for merchant funded loyalty programs.
Benefits
Enhance perceived value without direct cost to the business and fosters partnerships and brand associations.
Best fit for
- Financial, Service-based businesses, Travel
- Lower margin businesses
- Businesses focused on supplementary value-adds or revenue drivers
- Partnership focused businesses
Surprise and delight
How it works
Businesses sporadically surprise customers or members with unexpected rewards or personalised experiences. See full details and examples for loyalty program surprise and delight.
Benefits
Create positive emotional connections, memorable experiences and generate positive word-of-mouth.
Best fit for
- Financial, Beauty & Cosmetics, Luxury, Travel, Retail/eCommerce, Home & Lifestyle
- Businesses with logical touchpoints along the customer journey
- High engagement businesses
- Strong customer experience and brand identity
Gamification
How it works
Businesses incorporate game-like mechanics (e.g., progress trackers, challenges, badges or leaderboards) to add excitement to mundane tasks and stimulate specific desirable behaviours. See full details and examples for loyalty program gamification.
Benefits
Increases user interaction, motivates specific actions and provides a sense of fun and achievement.
Best fit for
- Most businesses, particularly Retail/eCommerce, Fashion, Consumer Electronics, Food & Beverage
- Focused on greater touchpoint engagement and community building
- Driving meaningful and fun experiences
Hybrid
How it works
Businesses combine elements of multiple loyalty frameworks to create a customised program tailored to the business and customer needs.
Benefits
Maximises flexibility and appeal, allowing businesses to adapt loyalty programs to specific goals and customer preferences.
Best fit for
- Retail/eCommerce, Fashion, Consumer Electronics, Food & Beverage, Travel, Hospitality
- Focused on aligning program design with business strategy
- Long-term growth and experience focused
Five-Step Process: Designing a Loyalty Program for eCommerce, That Works
Building robust customer loyalty is important to sustainable growth. But before launching a rewarding journey for your business and customers, laying the groundwork is crucial. Follow these five essential steps to craft a loyalty program that truly resonates with customers and delivers business impact.
1.Define Your Goals and Objectives
a. Business Goals
Begin by defining clear business goals for your Shopify loyalty program. Are you looking to increase sales, encourage repeat purchases, improve your proposition, enhance customer engagement or fill a gap in brand perception? Clearly outline what success looks like for your business.
b. Customer Insights
Understanding how your customers engage with your eCommerce business (shop, play, interact, etc.) and what they find valuable is crucial. Consider conducting market research to gather insights into customer preferences and behaviours, as well as use any existing data you have available. This information will help you tailor your loyalty program to meet their expectations.
c. Resourcing for Program Management
Determine the level of internal resources you can allocate to the loyalty program. Whether it’s a set-and-forget approach (which we typically do not recommend), a single operator managing the program, a dedicated team or an experienced external specialist, ensure you have the necessary team, budget and business prioritisation to drive the initiative forward.
2. Decide on the Criteria, Rewards and Program Structure
a. Tailor to eCommerce Customer and Business Needs
For your customers, craft a program that resonates with your audience. Consider demographics, purchase and activity history, and preferences, and any other important insights you learned in the first step of defining your goals and objectives. Knowing your customers will enable you to offer rewards that genuinely appeal and resonate.
For the business, consider the behaviours and actions you want to incentivise at each touchpoint (e.g., sign up, refer, share, purchase or try), and ensure they link back to your objectives. Defining the reward criteria upfront will help determine the business value of each action, this in turn will help determine the customer expected effort of each action, which can then be matched with corresponding rewards based on the perceived value.
b. Different Types of Loyalty Program Models and Incentives
Explore the 11 distinct types of loyalty programs as detailed in the section above and choose the right model which fits your industry and objectives. A successful loyalty program is built on a compelling value exchange – consider what rewards and incentives will deliver value to customers, and also resonate with brand image. Diversify your offerings to cater to different customer preferences, motivations and stages across the customer journey. If available, consider additional value extensions, such as partnerships and unique interaction loops.
c. Incorporate Loyalty Psychology
One of the more critical steps, but unknowingly neglected, is understanding consumer psychology and how this can be built into the design of loyalty programs. Our consultants have written extensively about loyalty psychology and its real-world application, including within the complete guide.
3. Choosing the Right Loyalty App or Platform
a. Shopify Loyalty Apps
When it comes to loyalty programs on Shopify and Shopify Plus, there are various Shopify loyalty and reward apps to choose from. Whilst the popular Shopify loyalty apps deliver to general requirements, our analysis has uncovered that some brands (particularly larger or enterprise businesses) find these platforms limiting and did not incentivise the right type of behaviour.
Notably, the main advantage of an out-of-the-box Shopify loyalty app is that they are relatively cheap, and usually quick to implement. If you can determine that one of these loyalty apps will genuinely deliver to your original strategy and requirement, then it is worth it.
The main disadvantage of these apps is that they do not work for everyone and often cause brands to neglect the development of a proper strategy – this can diminish a program’s effectiveness and leave members (and the business) questioning its value. This trend has led to new eCommerce loyalty innovators, such as Flaunt Loyalty, attempting to provide a balance between cost, speed and strategy-focused features.
Looking for the right Shopify loyalty and rewards app for your business?
We can help. We have researched all the popular Shopify apps – tell us about your vision, and we will share some insights to help you make the perfect choice for your business.
b. Explore Alternative Loyalty Platforms To Suit Your Needs
As with any platform decision, the best approach is to evaluate and develop a product/business requirements brief, and then compare platforms based on features, compatibility, and pricing.
For any medium or larger business seriously considering loyalty, explore our complete in-depth customer loyalty software guide, which includes a list of loyalty platform options.
4. Implementation and Operation
a. Resource Allocation
Define required workstreams and allocate the necessary resources to implement and operate your loyalty program seamlessly. Ensure that your team is well-trained and equipped to handle customer queries related to the program, particularly for customer service and staff-to-customer interaction is a major component of every day business operations.
b. Promotion and Marketing Lifecycle
Create a robust member lifecycle management strategy and launch marketing strategy to promote your loyalty program and ensure ongoing member engagement and nudging. Utilise various channels such as email, social media, and your website to spread the word. Consider running promotions during the launch phase to generate excitement.
5. Launch, Track Results and Optimise
a. Test & Learn Approach
Develop a Test & Learn Strategy to monitor the program, guide iterative testing and determine how elements are phased. This should not only help lay the foundation for performance measurement, but also support efforts to encourage an internal culture which is supportive of program refinement (a set-and-forget attitude does not lead to positive business and customers outcomes).
b. Begin Experimentation and Evolution
Launch your loyalty program and closely monitor its performance. Track key performance indicators such as completed actions, repeat purchases, churn, member feedback and overall program effectiveness. Remember, a successful loyalty program is an evolving one. Continuously analyse performance data, gather feedback, and adjust to ensure the program proposition remains valuable and relevant.
Bonus Tips for Shopify Loyalty Program Success
- Personalisation is key: Offer targeted rewards and experiences based on individual customer preferences
- Keep it simple: Avoid overly complex rules or redemption processes that discourage participation
- Stay mobile-friendly: Ensure program accessibility and engagement across all devices.
- Integrate with existing marketing channels: Leverage email, social media, and promotional tools to amplify program reach
- Celebrate customer loyalty: Recognise and reward members through exclusive initiatives, personalised communications and mini moments of delight
Design a Shopify loyalty program that reflects your brand
Designing a loyalty program with Shopify can be a game-changer for your eCommerce business. By setting a clear strategy, understanding your customers, choosing the right rewards, and implementing the right technology, you can create a program that not only retains customers but also drives growth and impact.
Distinguish your eCommerce business by crafting a Shopify loyalty program that genuinely reflects your brand identity, aligns with customer desires and prompts thoughtful engagement.
Tired of Unexciting Programs? Redesign for Shopify & Ecommerce Success
You’re not alone. Many Shopify and ecommerce businesses struggle to design programs that truly engage customers and drive sales. Our customer loyalty experts can help – contact us today to schedule a consultation with our team and take the first step toward boosting your approach.
