One of the most important metrics to consider when growing your WooCommerce store is the lifetime value of customers. This is true not only because your existing customers already trust your brand and are more likely to buy more but also because finding new customers may cost you more than maintaining existing ones. In this article, we’ll explore how to drive loyalty and increase the lifetime value of a customer with a loyalty program in WooCommerce.
What is customer loyalty and why it matters
Studies show that the top 1% of your customers can be worth as much as 18 times more than your average customers. These customers are your loyal or most loyal customers and trying to maintain their loyalty and amplifying it should be one of your primary retention strategies. Now the loyalty is generated and driven by many factors but the most important factor is the relationship between your brand and your customer which is like a two-way street: your brand gives your customer the value and your customer pays for it. The more and longer the value the more longer they are eager to pay.
The two-way essence of the relationship relies deeply on a human cognitive bias called reciprocity bias. If somebody does something to you, like giving you something, you are more likely to return the favor by giving them something in return. In other words, your customers are more ready to make repeat purchases, leave you good reviews, recommend you to their acquaintances or even actively sell your product to their network if you do something for them first.
How customer loyalty is rewarding
With a loyalty program in WooCommerce, you not only form and improve the bond between your brand and your customer and make more motivated customers but you also achieve the following goals.
Increase stickiness by building relationships
Stickiness is one of the main engines of growth in Lean methodology. The most successful businesses in the world master the art of building stickiness for their business or product to secure sustainable growth. A loyal customer will visit your website more, interact more with your products and actively share your content. If nothing else, this will increase the customer’s time spent on your website, improve your SEO and help you rank better with more backlinks to your website across their shared content.
Increase conversions by repeat or referral sales
This is the immediate effect of a loyalty program. As a result of increased and encouraged loyalty, you will sell more. More sales are either generated by the customer themselves or those that they have been referred to your brand.
Save money by retaining your customers
With a loyalty program in WooCommerce, your CLV-CAC (customer lifetime value versus custom acquisition cost) ratio will increase so you’ll spend less money in building new ones to replace them.
Attract referral business
A customer loyalty program can facilitate growth exponentially. You can hack the linear growth that is limited to your customer base by allowing them to proactively promote your brand to their networks and eventually reach stellar growth by leveraging a large group of customer networks in addition to your own customer base.
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What is a customer loyalty program
So in order to trigger the reciprocity bias in a customer’s mind, you should encourage loyalty by reciprocating it with rewards. The reciprocated reward can take 3 forms:
- Point-based gifts, discount coupons and freebies which encourage loyalty with one-off rewards. NorthFace has a point-based program that generates points upon every purchase and you can redeem those points when buying the next item as a discount.
2. Tier-based loyalty programs that assure a longer period of royalty. Unlike the first kind, discounts in this type are not linear and can change based on how often people buy, or other important engagement metrics. Elf Cosmetics makes good use of the tier-based loyalty programs.
3. Progress programs are the third form of rewards that have the best from the other two forms but also add other powerful psychological elements such as gamification, the endowed progress effect and the Zeigarnik effect. It accompanies the customer step-by-step and constantly helps and motivates them towards reaching their goals. Nike, for example, uses this method of ’The more active you are, the more you get rewarded,’ which unlocks various types of rewards upon your physical activity.
The third rewarding method is what we’ll use to create our loyalty program in this article. So let’s learn a little more about it by digging into its most distinctive factor gamification.
Why implement gamification in a loyalty program
Gamification applies the characteristics of game elements to a process and amplifies the will to accomplish more. If you are into gaming, you have seen when a game urges you to do specific actions and finish some quests to unlock new skills and upgrades. You kill a ghol threatening a poor settlement deep down in Fallout 4 map and then waves of appreciation messages come from settlement families and also nice new weapons or skills get unlocked for you to reward your dedication to help them. Now how can this be used in a loyalty program context?
The customer loyalty program is a gamification strategy that rewards customers based on the frequency and level of their engagement with your brand.
By rewarding recurring engagement through a game-like hierarchy in your loyalty program in WooCommerce, you can increase customer engagement and encourage them to ‘accomplish’ more and eventually help your business grow.
You expect a customer-specific amount of purchases but you distribute it through a milestone system, help the customer start from zero and onboard, and nurture them across their journey across milestones and most importantly fuel them with tempting rewards for each goal and then promise them the next reward if they hit the next milestone.
The more that people feel they are about to accomplish their goal, the more motivated they will be to achieve it.
This is known as the endowed progress effect, which is an effective psychological trigger you can use in your loyalty program to encourage repeat engagement.
What should be your rewarding basis?
There are different factors upon which you can reward a customer through a loyalty program:
- By total order value
Some customers are used to buying a few products but because they are very valuable and expensive, they can make progress in the ‘total order value’ metric. This can be a good metric to assess customer loyalty for enterprises.
- By total count of purchased items
Some customers’ shopping behavior is based on the quantity meaning they buy many items that have a lower item value so they can make progress in the ‘total count of purchased items’ metric easier. This can be a good metric to assess customer loyalty for e-commerce websites.
- By total count of orders
Some businesses care more about the quantity of placed orders, not the quantity of purchased items or order value. This kind of business can target ‘total count of orders’ to assess customer loyalty. For example restaurant or delivery businesses.
- By combination
This is the most effective rewarding basis for a loyalty program as it covers the widest shopping patterns across customers. If your business has a business model where all of the above metrics can be a meaningful metric to assess customer loyalty, your loyalty program should allow progress in either of the above metrics. In the sample loyalty program we’ve created in this article, we’ll use this combined rewarding basis.
End of Part 1
In this post, we covered the basics of customer loyalty, why it matters, its psychological elements and the rewarding basises. In the next part of the series, we will go through the steps to create an actual loyalty program in WooCommerce. Stay tuned!