The Beginner's Guide to Building a Customer Loyalty Program

Aleksandra Velkova on December 07, 2020

Before Dropbox implemented their referral program, it cost the company $400 to acquire each new user, and the premium subscription price was just $99. 

After they launched their referral program, their users were sending 2.8 million invitations per month to their friends and family, growing the company’s user base from 100.000 to 4.000.000 in about 1 year.

Source: Dropbox

If you are experiencing this scenario, it’s time to realize that this expense-to-profit ratio is not at all sustainable. When the acquisition costs are higher than what you stand to gain from a customer, it’s time to change the strategy. 

In today’s digital world, e-commerce businesses are faced with 2 fundamental challenges: 

  • the continuous increase of customer acquisition costs and

  • the unprecedented competition for customers’ attention. 

In such a world, marketers have to be creative and highly customer-centric in order to adapt their marketing strategy and help their businesses survive in the fast-paced digital economy.

That is where loyalty marketing comes in. 

What is loyalty marketing?

As a strategy, loyalty marketing encourages customers to do repeat business with you, instead of churning at the first alternative presented to them. It encourages them to engage with your brand in various creative ways, and ultimately become brand ambassadors. 

Customized loyalty programs produce several positive outcomes for businesses, most importantly: 

  • Decreased customer acquisition cost;

  • Increased repeat sales rate;

  • Improved customer retention rate

It’s no wonder that marketers across various industries are reporting that loyalty programs are paying off in a big way. Consequently Forrester’s predictions on loyalty spend for 2021 come at no surprise:

“Spend on loyalty and retention marketing will increase by 30% in 2021 as CMOs assert control over the full customer lifecycle.

Knowing how to build a loyal customer base comes down to tackling the challenges e-commerce businesses face today through careful strategizing and the use of a strong loyalty program software. 

Let's dive into the basics of creating and launching a successful loyalty marketing program.

1. Define your goals

    Knowing which business objectives you wish to address is the first step towards creating a loyalty program that can transform your business into a customer-centric profit turbine.

    This may be a joint effort between several teams: the sales team, the social media marketing team, the content marketing team so make sure you sit with all of them and establish the SMART goals they need to achieve in the following quarter. 

    These goals may look something like:

    • Increase Instagram followers base by 30% in quarter 1;
    • Increase  repeat sales by 30% by the end of quarter 1; 
    • Increase traffic by 15% to our latest guide on our blog by the end of quarter 1.

    • Generate 10 video testimonials for product X in the first 3 months of 2021;

    • Grow our referral rate by 25% in the first 3 months of 2021.

      A well-structured loyalty program can help you achieve a lot of various business objectives; from driving brand awareness to increasing customer retention, so it’s imperative to define them concisely at the beginning of your journey to see maximum results. 

      Wondering which of your pressing business goals you can tackle with a loyalty program? 

      Here are some of them:

      1. Customer Acquisition - the most obvious business goal is acquiring new customers.


      Did you know that 69% of consumers will choose a retailer that offers a loyalty program so they can earn rewards? 

      It’s no surprise really; when faced with multiple options to choose from, people will always choose the one that is incentivizing them to do so.

      Source: I Love Linen

      Pro Tip: Create a great first shopping experience for prospective customers: offer an incentive to join your program and a reward for making their first order. People like feeling special, and you’ll capitalize on this feeling by building a long-lasting, fruitful relationship with them instead of focusing on the single sale. 

      2. Increase Customer Retention - in times of unprecedented competition and easy access to products and services it’s so easy to lose your customers to your first competitor. However, research shows that 78% of consumers will continue doing business with a brand that offers them loyalty program benefits.

      Give your customers a reason to stay with you - a rich points and rewards program is a great way to achieve this. Offer your customers various ways to earn points which they can redeem for a reward at your store like a special discount coupon, a product you know they love and adore, free shipping coupon and much more. This shows your customers that you care about them and are offering them an opportunity to earn with each interaction with your brand.

      Pro tip: Guide your customers on their shopping journey at your store by sending them email notifications with their points balance and the next reward that is waiting for them down the road. 

      Source: ULTA Beauty

      Make sure it’s a reward you know your customers will love!

      Tailoring the reward offer to be relevant to your customers assures they’re 8 times more likely to get out of their way to use them.

      3. Increase Revenue (customer lifetime value) - offering the right incentives at the right time allows you to encourage repeat purchases and boost the spending amount of your customers.

      Through the deals and rewards you’re strategically offering, you’re effectively increasing the rate of repeat customers in your base. People earn something more with each purchase they make at your store.

      Pro Tip: invest some effort into getting to know your customers: what is it they desire the most? Do they respond well to percentage off deals? Or maybe, a free product is more lucrative to your audience?

      Once you have this information, strategize with it: what do you want your customers to do in order to reach this reward you’ll give them?

      Spend X amount of money at your store? 

      Make Y number of purchases? 

      Or reach a specific amount of points and enter one of your tiers where you’d be offering this reward?

      There are a lot of business goals you can address with your loyalty program and when you think about this first step always start with defining SMART goals, and then strategize the actions that customers need to take in order to help you achieve them.

      Read on how to do this next.

      2. Structure your program

      Structuring your loyalty program consists of 2 steps: 

      • defining the actions your customers should take to qualify for a reward and 

      • defining the rewards you’ll offer them once they perform the desired action.

      Before you start strategizing on which actions and rewards to choose, do some research into your customers and answer 2 questions:


      • Who are your customers?

      • What motivates them to buy from you?

        When you have this information at hand, it’s  easier to develop a strategy that ultimately helps you achieve the major loyalty objective: increase revenue at each customer interaction. 

        Let's tackle the 2 steps in detail.

        1) Define the Action

        This boils down to answering a simple question: 

        What should your customers do to help you reach your previously defined goals?