Psychology of E-commerce – Loyalty Programs

Loyalty is a buzz word nowadays and seems to be a constant battle between retailers, airlines, and credit card companies competing for the same customers with similar offers. But what’s missing is actual loyalty and you’ll discover through this article there is a fundamental difference between loyalty and rewards programs.

Most offline and online businesses understand that to be successful you need to create long term, meaningful relationships with customers. But how? Well, you can offer a rewards program which will drive some repeat sales and increase your bottom line but that doesn’t create long-term customer relationships. The key to long-term sustainability is through loyalty programs that make your business indispensable to your followers.

Undervalued Rewards Programs will create unhappy customers

Rewards programs create customer dissonance when buyers feel that the reward amount is trivial. As in, the reward is so small that they don’t see the value of continuing to do business with you. For example, a customer gains reward points every time they purchase an item at a particular online retail store in which $1 equals 1 point and for every 100 points, the customer receives a 10% discount off their next purchase. After accruing 100 points, the customer makes a purchase of $50 in which they receive their 10% discount, which equates to $5. This is great until the customer realizes that they spent $150 with your business and received a 3.33% discount. Once they realize this, your customer leaves you for a competitor who just unveiled their rewards program offering a 15% discount for every $50 spent.

And right there in that example is where we see an inherent and fundamental flaw with offering a rewards program, customers are only loyal to a certain degree until your competitor gives them a better deal. So how do you create true customer loyalty?

Create a loyalty program that makes your business indispensable


Howard Schneider states, “Savvy and strategic companies are now looking beyond these rewards programs to delight, create, and retain loyal customers. They are looking to solve customers’ problems and soothe pain points.” A perfect example of this would be the Starbucks app. Customers earn rewards points for every purchase at Starbucks but with the Starbucks app, they can place and pay for their order, redeem rewards in real time, and even listen to music.



Another example of a loyalty program is Amazon Prime. Prime began as a $99 membership fee paid to Amazon for free shipping. Now, Prime includes music streaming, movies and TV shows, storage for digital photos, and even earning cash back.

But, I can’t compete with Amazon or Starbucks…

And you don’t have too, most businesses can’t compete with Amazon or Starbucks, but you can create a rewarding loyalty program that differentiates your business from other key competition and helps you seize a larger profit share. Think about what the Starbucks app and the Amazon Prime account did for customers:

  • Created a useful and valuable asset that customers can use every day
    • Amazon Prime: stream movies, music, or TV shows
    • Starbucks: stream music; pay for your coffee order
  • Offered an easy way to gain, monitor, and use rewards
    • Amazon Prime: free shipping with signup
    • Starbucks: earn rewards every purchase and redeem in real time
  • Soothed a pain point
    • Amazon Prime: 1-click checkout; free-shipping
    • Starbucks: order and pay through the app and avoid long lines

Let’s take one example of an eCommerce business focused on band and music merchandise. Simply offering a members account that includes a 1-click checkout system, exclusive reward system including giveaways, discounts and birthday gifts, order tracking, pre-order alerts for new products, and cashback rewards creates some benefit for customers to continue doing business. But as our theme suggests, go the extra step.

For example, become a source for industry news like new and upcoming band spotlights, new song and album releases, this theoretical store can even create a list of concerts near customers, suggest the best priced tickets, and offer store discounts on merchandise associated with the bands playing. The possibilities are endless and now that you’ve read this article, you’re on the way to creating a memorable loyalty program!