E-commerce Marketing and GrowthRetention, lifecycle marketing and loyalty · Lesson 9 of 20
Loyalty programmes, subscriptions and referrals
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Loyalty programmes, subscriptions and referrals
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0:00 Loyalty, subscriptions and referrals
Every store wants loyal customers. Few stores ask the more useful question: why would anyone come back? Points and badges don't create loyalty on their own. Good products, great experiences and genuine reasons to return do. In this lecture you'll learn the types of loyalty programmes, how to design one that pays for itself, when subscriptions make sense and the rules that now govern them, how to run referral programmes that don't lose money, and how to measure what loyalty really adds. Then you'll watch me check whether a referral reward is affordable.
0:40 Why loyalty matters
Why invest in loyalty? Because repeat customers carry no acquisition cost for their later orders, often spend more over time, and refer friends. A small improvement in repeat rate can change the economics of the whole business. But loyalty programmes also cost money: rewards, software and management. A programme that mainly rewards people who would have come back anyway is just a discount with extra steps. So design for incremental behaviour.
1:11 Programme types
Types of programmes. Points: earn per purchase, redeem for rewards; simple, but easy to ignore. Tiers: silver, gold and so on, with better benefits for higher spend; motivating for top customers. Paid memberships: pay a fee for ongoing benefits like free delivery. Value-based programmes: rewards like donations or community access. And subscriptions: regular deliveries of consumables. Think of it like a gym. Some people want pay-as-you-go, some want a membership, and some just want a friend to train with. Pick the model that fits your customers and your margins.
1:50 Sustainable design
Designing a sustainable programme. Lead with benefits customers value immediately, like free delivery or early access, not just points in the distant future. Make the maths transparent: earn one point per dirham, five hundred points equals twenty-five dirhams off. Budget rewards as a percentage of revenue, and model the cost. Reward behaviours that help the business, like reviews, referrals, profile completion and app downloads, not just spend. And keep it simple enough to explain in one sentence.
2:23 Subscriptions
Subscriptions suit consumables and replenishment: coffee, pet food, skincare, supplements, razors. They create predictable revenue, but only if customers stay. Offer flexible control: skip, swap, pause and change frequency, because rigid subscriptions get cancelled. And follow the rules. Show the renewal price and frequency next to the sign-up button, send reminders before renewals where required, and make online cancellation easy. In the US, ROSCA and state automatic-renewal laws apply. In the UK, new subscription rules are being phased in under the DMCC Act. Trust keeps subscribers longer than friction does.
3:02 Referral programmes
Referral programmes turn happy customers into acquisition channels. A classic structure: give a reward to the friend, get a reward for the referrer. Keep it easy to share on WhatsApp, Instagram and email. Pay the referrer's reward after the friend's order passes the return window. Allow one reward per new customer, and block self-referrals and obvious fraud. And measure referred customers' repeat rate, not just their first order.
3:32 Simple example: Saudi pet supplies
A simple example. A Saudi pet supplies store builds a loyalty programme around what customers value: free delivery for members, a birthday treat for their pet, points on every order, and early access to new foods. They add auto-replenishment subscriptions for pet food, with easy skip and pause. The programme costs are budgeted, and the store watches repeat purchase rate and subscription retention rather than points issued.
4:01 Tools
Tools make this easier than it used to be. Loyalty apps like Smile dot io, LoyaltyLion and Yotpo integrate with the major ecommerce platforms. Subscription tools like Shopify Subscriptions, Recharge, Skio and Loop handle recurring orders, with skip and swap built in. In the Gulf and South Asia, loyalty status and offers increasingly travel through WhatsApp and digital wallet passes. Before choosing, check three things: whether recurring payments work with the payment methods your customers use, whether the tool supports Arabic or Urdu if you need it, and how easily you can export your data if you switch later.
4:44 Realistic example: Dubai home fragrance (illustrative)
Now a realistic scenario with illustrative numbers. A Dubai home-fragrance brand plans give twenty dirhams, get twenty dirhams. Average order value is a hundred and eighty, gross margin fifty-five percent, and variable costs per order twenty-five. Each order contributes about seventy-four dirhams before rewards. After forty dirhams of rewards, the first order contributes about thirty-four. If referred customers place about one point two extra orders over twelve months, total contribution is around a hundred and twenty-three. The team compares that with their paid acquisition cost, and decides referrals deserve more promotion.
5:24 Watch me do it: referral maths
Watch me check the referral maths. I write a small Python function with the order value, gross margin, variable cost per order, the friend's reward, the referrer's reward, and expected repeat orders in twelve months. It calculates contribution per order, subtracts both rewards from the first order, and adds contribution from repeat orders. I run it with the illustrative numbers: about thirty-four on the first order, and about a hundred and twenty-three over twelve months. Now I compare that with paid acquisition. If referrals win, I invest more. If the first order loses money and repeats are low, I switch to non-cash rewards, like early access or free delivery.
6:11 Measuring loyalty
Measuring loyalty impact. Compare members and non-members carefully, because loyal customers join programmes, so members always look better. Better approaches: compare repeat rates before and after launch for similar cohorts, run a holdout where a random group isn't invited, or test specific benefits. Track reward cost as a share of revenue, redemption rates, and member retention. A programme that looks amazing in a member-versus-non-member chart may be adding very little.
6:41 When not to launch
When shouldn't you launch a loyalty programme? When the product or experience isn't good enough yet, because rewards can't fix disappointment. When purchase frequency is naturally very low, like mattresses. When margins can't support rewards. And when you don't have the resources to run it well. In those cases, focus on product quality, service and post-purchase communication first.
7:06 Launch and promote
Launching and promoting the programme matters as much as designing it. Tell customers about it at the moments they're most receptive: on the order confirmation page, in the post-purchase email, and on the packaging insert. Show members their status and progress, like you're two hundred points from twenty-five dirhams off, in emails and in their account. Make joining effortless, ideally automatic at checkout with clear consent. And train customer service to mention member benefits when they solve problems. A good programme that nobody remembers is the same as no programme at all.
7:46 Common mistakes
Common mistakes. Points nobody understands. Rewards that cost more than the behaviour they create. Rigid subscriptions that are hard to cancel. Referral rewards paid before returns clear. No fraud controls. And measuring success by members versus non-members, which flatters every programme.
8:04 Recap
Recap. Loyalty comes from good products and experiences, and programmes amplify it. Lead with benefits customers value now, keep the maths transparent and budgeted, offer flexible subscriptions with clear renewal terms and easy cancellation, and design referral rewards that pay back with fraud controls. Measure incrementally, not with members versus non-members. Try this now: run the referral economics function from the lesson text with your own numbers, and rewrite your loyalty pitch to lead with an immediate benefit.
Building reasons to return
Beyond messages, you can build structural reasons for customers to come back: loyalty programmes, subscriptions, memberships and referral schemes.
Types of loyalty programmes
| Type | How it works | Best for |
|---|---|---|
| Points | Earn points per purchase; redeem for rewards | Frequent, moderate-value purchases |
| Tiered / VIP | Higher tiers unlock better benefits | Brands with a wide spread of customer value |
| Paid membership | Customers pay for benefits (e.g. free shipping, discounts) | High-frequency categories |
| Value-based / community | Access, content, events, causes | Lifestyle brands with strong identity |
| Cashback / wallet | Store credit on purchases | Price-sensitive markets |
Designing a sustainable programme
- Define the goal: more frequent purchases? Higher AOV? Better retention of top customers?
- Understand your economics: what is the cost of rewards as a percentage of revenue? What behaviour change must happen to make it profitable?
- Make it simple: customers should understand how to earn and redeem in one sentence.
- Offer meaningful rewards: a mix of financial (discounts, credit) and experiential (early access, exclusive products, events).
- Communicate: show point balances in emails, account pages and checkout.
- Manage liability: unredeemed points can represent a financial liability; set clear terms and expiry in line with local law.
Subscriptions
Subscriptions (replenishment of consumables like coffee, pet food, skincare) can create predictable revenue. Best practices:
- Flexible frequency, easy skip and pause options.
- Clear pricing and renewal terms before sign-up.
- Easy cancellation — regulators in many markets (for example, under UK consumer law reforms and US state automatic-renewal laws) scrutinise subscriptions that are hard to cancel or have unclear renewal terms.
- Reminders before renewal where required.
Referral programmes
Satisfied customers can bring new ones. A typical structure: "Give 10%, get 10%" — the new customer gets a discount, the referrer gets credit after the friend's first order. Tips:
- Ask at moments of delight (after delivery, after a positive review).
- Make sharing easy (links for messaging apps and social).
- Prevent abuse (self-referrals, fake accounts) with rules and checks.
- Disclose incentives where referrers post publicly, as advertising rules may treat incentivised recommendations as endorsements.
Measuring loyalty impact
Compare members and non-members carefully: members are often already your best customers (selection bias). Better methods:
- Compare behaviour before and after joining for similar customers.
- Use holdout groups when launching new benefits.
- Track repeat purchase rate, purchase frequency, AOV and retention by cohort.
- Track programme cost (rewards redeemed, admin, technology) against incremental margin.
Worked example: a Saudi pet supplies store
The store sells pet food (frequent, predictable purchases) and accessories. It launches:
- Subscription for pet food with flexible delivery every 2, 4 or 6 weeks, easy skip, and a small saving versus one-off orders.
- Points programme: points on all purchases, bonus points on accessories (higher margin).
- Referral: "Give SAR 30, get SAR 30" after the friend's first order.
After six months, the team compares cohorts and finds subscribers order more often and churn less — while monitoring whether the subscription discount is paid back by the extra orders (outcome illustrative).
Hands-on: is a referral reward affordable?
Before launching "give 20, get 20", check the maths with your own numbers (illustrative):
def referral_economics(aov: float, gross_margin: float, variable_cost_per_order: float,
friend_reward: float, referrer_reward: float,
friend_repeat_orders_12m: float) -> dict:
"""Contribution from a referred customer over 12 months, after both rewards."""
per_order = aov * gross_margin - variable_cost_per_order
first_order = per_order - friend_reward - referrer_reward
total_12m = first_order + per_order * friend_repeat_orders_12m
return {"contribution_first_order": round(first_order, 2), "contribution_12m": round(total_12m, 2)}
print(referral_economics(aov=180, gross_margin=0.55, variable_cost_per_order=25,
friend_reward=20, referrer_reward=20, friend_repeat_orders_12m=1.2))Compare the 12-month contribution with what you pay to acquire a customer through ads. If referred customers are cheaper and similarly loyal, referrals deserve more investment; if the first order loses money and repeat rates are low, reduce rewards or use non-cash rewards (early access, free delivery, gifts).
Tools and 2026 practice
- Loyalty apps (for example Smile.io, LoyaltyLion, Yotpo Loyalty, Rivo) and subscription apps (Shopify Subscriptions, Recharge, Skio, Loop) integrate with major platforms; check local payment support for recurring billing in your market.
- Wallet passes and WhatsApp messages increasingly carry loyalty status in the Gulf and South Asia.
- Subscription rules: show renewal price and frequency next to the sign-up button, send reminders before renewals where required, and make cancellation easy online (US ROSCA and state laws; UK DMCC subscription rules being phased in; EU consumer rules).
- Fraud controls for referrals: one reward per new customer, reward after the friend's order passes the return window, and block self-referrals.
Before and after: a loyalty programme pitch
BEFORE "Join our rewards club and earn points!"
AFTER "Members get free delivery on every order, early access to Eid drops, and 1 point per AED 1
— 500 points = AED 25 off. Join free in 10 seconds."The "after" leads with benefits customers value immediately and makes the points maths transparent.
Common mistakes
- Programmes too complex to understand.
- Rewards that cost more than the behaviour change is worth.
- Hard-to-cancel subscriptions.
- Measuring loyalty impact without accounting for selection bias.
- Launching and never promoting the programme.
Launching and promoting the programme
A programme nobody knows about changes nothing. Promote it on product pages, in the cart, at checkout, in post-purchase emails and on packaging inserts. Show customers what they would earn on the current order ("You'll earn 120 points with this purchase"). Remind members of their balance and upcoming expiry in lifecycle messages. Review membership sign-up rate, redemption rate and the behaviour of members against a fair comparison group each quarter, and simplify rules that customers find confusing.
When not to launch a loyalty programme
If products are bought rarely (for example, furniture or mattresses), a points scheme may add cost without changing behaviour. In those categories, referral programmes, excellent service and post-purchase content often work better.
Loyalty checklist
Key takeaways
- Loyalty programmes, subscriptions and referrals create structural reasons to return.
- Design programmes around a clear goal and sustainable economics.
- Subscriptions must have transparent terms and easy cancellation.
- Measure loyalty impact while accounting for selection bias.
Check your understanding
Quick questions to lock in the lesson. They don’t count towards your certificate.
Put it into practice
Design a simple loyalty or referral programme for a store, including the goal, rules, costs and how you would measure incremental impact.
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