How to set up a loyalty club for your e-commerce site: a step-by-step guide

How to set up a loyalty club for your e-commerce site: a step-by-step guide

A customer who knows your store won't necessarily come back to buy from it. Sometimes they need a reminder, a good reason to choose you again, or a shopping experience that rewards their loyalty. A loyalty club can provide all three, as long as the benefits are clear to the customer and worthwhile for the business too.

In this guide we'll walk through how to set up a loyalty club: from defining goals and choosing a benefits model to testing the system, a phased launch, and measuring the results.

Step 1: Define a goal and measure your starting point

Before choosing between points and store credit, define which behavior you want to encourage. Is the goal to bring customers back for a second purchase, shorten the time between orders, or increase purchase frequency? A focused goal will help you choose a suitable benefit and check whether the program is succeeding.

Document where things stand before launch so you can compare it with later results. Useful baseline metrics include:

• Repeat purchase rate: the percentage of customers who made more than one purchase in a defined period.

• Time between purchases: the average time that passes between one order and the next.

• Purchase frequency: the number of orders a customer places over a period.

• Active customers: the number of customers who bought within a time frame you've defined as relevant to your business.

Compare similar groups based on the date of their first purchase or of joining the club. New and long-standing customers are at different stages of their relationship with the store, so comparing them without segmentation may be misleading. Also match the measurement window to the buying cycle: in a store selling consumables it may be shorter than in a furniture store.

Step 2: Choose a loyalty club benefits model

A good model is easy to explain in one sentence and suits your purchase frequency and the products you sell. These are the common options:

Earning points

Customers earn points on qualifying purchases and convert them into a benefit. This model works when customers can reach a benefit within a reasonable time. Show a clear earning and redemption ratio so it's easy to understand what the points are worth.

Credit toward a future purchase

The customer receives credit with a monetary value to use on their next order, according to the program's terms. The advantage is simplicity: it's easy to understand what was received and how to use it. On the other hand, the business needs to plan for the cost of redemption and whether the credit can be combined with promotions.

Membership tiers

Members move between tiers based on predefined activity, and each tier grants its own benefits. This model may suit a store with an active and diverse customer base, but it requires maintenance and a clear explanation of the conditions for moving between tiers, how long a tier lasts, and the benefits that come with it.

Paid club

Customers pay for a membership that grants defined benefits. This model requires a value proposition customers can assess before paying, along with the ability to deliver the benefits throughout the membership period. Make the payment and renewal terms clear up front, if there are any.

If customers buy from you only rarely, a long accumulation period may be less appealing. In that case you can consider a dedicated service or early access to launches. With any model, also check your business margin and your ability to keep the promise over time.

Step 3: Calculate costs and set the program rules

A loyalty club for an e-commerce site should create value for the customer without hurting the business's profitability. Start with a simple scenario: 5% credit on a qualifying amount of ₪200 creates an entitlement with a face value of ₪10. That is the value of the benefit to the customer, not necessarily the final cost to the business.

The actual cost depends on, among other things, the redemption rate, the products bought with the credit, the shipping cost, and how it combines with promotions. Also factor in the cost of the system, service time, and handling returns. Build low- and high-redemption scenarios and examine their effect on profitability. For the accounting analysis and the handling of VAT and credits, consult a professional based on your business's circumstances.

What should the earning and redemption rules include?

• Which products or amounts qualify for the benefit, and how the amount is calculated after discounts.

• When the benefit is earned, when it can be redeemed, and whether it expires.

• Whether a benefit can be earned and redeemed on the same order, and whether it can be combined with coupons.

• What happens to the balance after an order is canceled or a product is returned, in full or in part.

• How customers view their balance and whom they contact if there's a mistake.

Write the rules in plain language and display them where they're easy to find. For example, if the credit is calculated on the amount after a discount, explain this before the purchase. When preparing the terms and conditions and the cancellation and return processes, also take into account the consumer protection laws that apply to your business.

Step 4: Choose a system and connect it to your store

The infrastructure for an e-commerce loyalty program needs to link the customer's identity, their orders, and their benefits. You can look at built-in capabilities in your e-commerce platform, evaluate a loyalty app, or opt for custom development. The choice depends on the program's complexity, your budget, and your maintenance resources.

Before committing to a vendor, ask to see how the processes that matter to you actually work. Check in particular:

• Hebrew support and a clear display of the benefit on mobile.

• Integration with the checkout and the customer account area, including balance display and redemption.

• Updating benefits after a cancellation or partial return.

• Reports and data export, so you aren't dependent solely on the vendor's dashboard.

• Connection to your customer communication systems, subject to the appropriate permissions and consents.

• Setup, usage, support, and ongoing maintenance costs.

Also check what happens when something goes wrong: for example, when an order is received in the store but the balance update is delayed. Define who detects the issue, who handles it, and how the service team checks the status of the customer's account.

Step 5: Take care of privacy, advertising, and membership terms

Setting up a loyalty club for an online store also involves collecting and using personal information. Before launch, examine which details are needed, what purposes they serve, who has access to them, and how the information is stored or deleted. Also review your agreements with system vendors and the relevant disclosure and data security obligations, including under Amendment 13 to the Protection of Privacy Law and the Data Security Regulations.

Distinguish between club membership and consent to receive advertising. In Israel, sending advertisements by email and text message is subject to Section 30A of the Communications Law. As a rule, prior consent is required, subject to the exceptions and conditions in the law, and recipients must be able to opt out as required. Joining the club does not in itself constitute automatic consent to marketing messages.

Present the membership terms and clear information about how customers' details are used, and plan the advertising consent mechanism separately. Because the legal and accounting obligations depend on the details of the program, it's advisable to get professional advice before launch.

Step 6: Plan sign-up, communication, and service

Even a good benefit won't help if customers don't understand it. On the sign-up screen, briefly explain what members get, which details are required, and how to redeem the benefit. Ask only for information the process needs and avoid a long form that makes joining harder.

After sign-up, make sure customers know where to find their balance and the relevant terms. You can show them in the customer account area or in the cart, depending on your site's capabilities and the customer's permissions. Service messages about account status should be clear and distinct from advertising, which is sent subject to the law and the required consents.

Also prepare your service team for expected questions: When does the credit appear? Why is the amount earned different from the order total? What happens after a return? Give agents a way to check the activity history and escalate issues, without promising a fix the system can't deliver.

Step 7: Launch with a pilot and measure the results

Before a wide launch, run the club with a small group and test the journey end to end. Make a test purchase, make sure the benefit is earned and appears in the right place, and redeem it on another order. Then test more complex scenarios as well:

• Canceling an order before and after the benefit is updated.

• A partial return and its effect on the balance.

• Combining a coupon with earning or redemption.

• An order placed without logging in or with mismatched customer details.

• A delay or failure in syncing between the loyalty system and the store.

• Service messages and the process for handling an inquiry.

Fix issues and repeat the tests before expanding the launch. Going forward, track not only the number of sign-ups and the benefit redemption rate, but also repeat purchases, retention, gross profit after the cost of benefits, and operating expenses.

How do you know the club generated additional purchases?

Customers who join a loyalty club may be more loyal to begin with. So a simple comparison between them and those who didn't join doesn't prove the club caused the improvement. If possible, plan a controlled experiment in advance: randomly assign similar customers to a group that is exposed to the program and a control group that isn't, and compare them over the same period. Examine the difference in purchases and profitability, not just the use of benefits.

If a controlled experiment isn't possible, compare similar groups over time and treat the conclusions with caution. The data will help you decide whether to simplify the terms, change the benefit, or improve the sign-up process.

Frequently asked questions

How do you choose a benefits model for a loyalty club?

Consider options such as points, credit toward a future purchase, membership tiers, or a paid club. The choice depends on purchase frequency, your business margin, and your ability to operate and explain the benefits.

Does joining a loyalty club allow you to send advertising?

Not automatically. In Israel, prior consent is generally required for marketing emails or text messages, subject to the exceptions and conditions of the law. Recipients must be able to opt out as required.

How do you measure the success of a loyalty club?

Track repeat purchases, retention, benefit redemption, profitability, and operating costs. A controlled experiment with a control group can help assess the additional purchases the program generated.

Start simple and improve based on the data

A successful loyalty club starts with a clear goal and a promise the business can keep. Choose a model that's easy to understand, calculate the cost under different scenarios, check the infrastructure and the legal requirements, and launch gradually. That way you can learn from your customers and build a program that encourages them to come back while protecting your profitability.