Welcome to Thanx Media’s “Elements of E-Commerce” blog series. Follow along as we wade through the nuts and bolts of e-commerce technologies that you need to know.

Today’s Element is customer loyalty programs; they help you keep customers using your products and services. Customer loyalty is important: existing customers spend about 67% more than new customers according to HubSpot. And shoppers increase their spending by 20% when they are close to getting a reward, according to a University of Chicago study. So it definitely makes sense to focus on keeping existing customers interested and happy. In this Part I of our Customer Loyalty Program discussion we’ll look at options for your company’s program.

What are Customer Loyalty Programs?

Points, rewards, discounts! Sign up today! All of those offers that reward you for shopping, those are a part of a customer loyalty program. So is the gist that you give your customer some cash to incentivize her to keep shopping? Yes and no. Giving customers cash can help bring them back for more, but the bigger goal of a customer loyalty program is to create a continued connection with your customer.

Loyalty programs give you more touchpoints to engage a customer. So use these opportunities to excite them as well as offering price-based promotion.

Types of Customer Loyalty Programs

1.  Points programs—This system relies on points accrued based on behavior, such as making a purchase or bonuses on anniversary dates. The points can be redeemed, including for cash, products or prizes.

⋅  A points system needs to be set up for long-term use and you need to think about how to end the program. If you start a points program, you need to have enough resources to let the program run in the long-term so that your customers can get their expected value from the points they accrue. And have a contingency plan: if the program ends up not working for you, make sure you know what you will give your customers in exchange for their existing points despite the program ending.

2.  Discount & cash-back programs—As a reward for making a purchase or completing a survey, you can give customers special discount codes to entice them to their next purchase. Or you can offer them rewards cash, redeemable towards their next purchase.

3.  Prize programs—Reward customers with valuable prizes when they reach certain benchmarks, including purchase amounts or a number of years as a customer.

4.  Tiered programs—Offer higher levels of rewards, whether it is more points or higher discounts, to customers as they hit higher spending levels.

⋅  Remember that customers might react negatively to being downgraded. Plan for easing customers into a lower tier when they stop meeting your program’s requirements for higher-level rewards to avoid losing them altogether.

5.  Fee-based programs—Charge customers a membership fee that offers them valuable perks. Customers who pay for a membership are likely to feel invested in using it. Think this sounds counter to the give-rewards goal? Amazon’s Prime Membership is a version of a fee-based program that works: Prime members spend more than double the amount spent by non-prime customers.

6.  Co-op programs—This system offers customers a cash dividend based on their purchases, for example a cash dividend in the amount of 5% of the customer’s yearly purchases. The idea here is to make the customer feel invested in the wellbeing of the company; the customer takes part in the health of the business and takes part in the profits.

7.  Coalition programs—These are multi-company benefits that are offered to the customer through a single sign-up. This way a customer can pool her rewards points from purchases at several vendors and use the points flexibly toward a reward at the vendor of her choice.

⋅  Added visibility done right. Partnering can be a clear way to boost your company and your loyalty program’s visibility. Before you enter into a partnership, make sure you’ve thought about the partner’s brand and how it aligns with your own. Also don’t forget to think about how the customer service will be managed; you don’t want a customer who is upset by another vendor to take it out on you.

8.  Rewards based on check-ins not sign-ups—You can also think about keeping track of customers who check-in at your business on Facebook or Foursquare, or who share your social media shout-outs consistently. These customers can be rewarded with discounts or offers to encourage them to keep up their social media sharing.

Next Steps

It’s also important to know how to run a program that actually does its job—keeping your customers happy. Customers are instead annoyed by a lot of loyalty programs: 90% of social media sentiment on loyalty programs (across industries) is negative, a study by Capgemini Consulting finds.

So focus on building a sustainable program that fits your customers; we’ll talk more about how to do that in Part II of our discussion, so be sure to come back. And don’t miss more planning musts in Part III. We’ll go over setting up your program to give you measurable data and how to keep track of the usefulness of your program.