Loyalty Program
A rewards system for repeat customers: points, discounts, early access, gifts. Increases purchase frequency, AOV, and LTV. Examples: Sephora Beauty Insider, Starbucks Rewards.
In practice
A loyalty program is 'legal bribery' — the customer feels it's worth coming back to you instead of a competitor. The trick: points must be transparent (how much is a point worth?) and have accessible value (not 10,000 points before any use).
Common misconception
'A loyalty program is just discounts.' Value-based loyalty beats price-based loyalty. A customer who returns because 'I have 200 points' will leave the moment a competitor offers a bigger discount. A customer who returns because 'they know and value me' is truly loyal.
How to fix it
Loyalty program not working? (1) Check redemption rate — if under 20% of points get redeemed, the value isn't accessible enough, (2) check enrollment rate — what % of customers sign up? (3) simplify — a complicated program gets abandoned. '$10 spent = 1 point, 100 points = $10 off' is clear and simple.
Example
A bookstore had a 15-tier loyalty program with complex points. Enrollment was 12%, redemption 4%. Simplifying to 2 tiers — Silver ($55+/year) and Gold ($280+) — raised enrollment to 34% and repeat purchases 28%.
Priority
Launch a loyalty program once you have at least 500 active customers and a repeat rate above 20%. Before that, there isn't enough volume. Tools: Smile.io, Yotpo Loyalty (Shopify). Cost: $30-200/month.
Related terms
Keep learning. Metrics that touch the same area:
- Repeat Purchase RateFinanceThe percentage of customers who made at least a second purchase. A gauge of product-market fit and experience quality. Healthy: 25-40% within 12 months. Above 40% is excellent.
- eCommerce / Electronic CommerceMarketingAll business activity conducted online — showcasing products, ordering, payment, shipping, and post-sale service. The backbone of every online store.
- CPC – Cost Per ClickMarketingThe price an advertiser pays each time a visitor clicks the ad. Influenced by competition, Quality Score, and landing page relevance.
- CPM – Cost Per MilleMarketingThe cost of advertising per 1,000 ad impressions. A key metric in awareness-focused and brand-building campaigns.
- CPA – Cost Per AcquisitionMarketingThe amount it costs to get a customer to complete a desired action. A core profitability metric — if CPA exceeds gross profit, the campaign loses money.
- CAC – Customer Acquisition CostMarketingTotal marketing and sales spend divided by the number of new customers. Always compare to LTV. A healthy ratio: LTV at least 3x higher than CAC.
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