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Effective Referral and Loyalty Programs in The Beauty Industry: A Deep-Dive

The beauty industry, worth $80 billion in the US alone, encompasses the skincare, fragrance, cosmetics, and hair care industries, as well as some of the personal care industry.  It hasn’t transitioned online as quickly as many other consumer packaged goods have, but this is beginning to change (as evidenced by the fact that the online share of this market virtually doubled from 2010 to 2015).  This shift may be due in part to the industry’s demographic.  A study by TABS found that, within the cosmetics industry, female millennials are the heaviest beauty product buyers — and indeed, millennials are increasingly purchasing online.

But change in an industry this big is complex, and the move towards e-commerce is causing a number of fundamental shifts.  Primary among them are:

Loss of brand loyalty (due to easier access to direct product comparisons and competing websites)

67% of consumers buy beauty products from at least 4 websites, and loyalty rates for cosmetics are only 42%.  However, 67% of online beauty shoppers still report that loyalty programs are either “somewhat important” or “very important” when shopping online, and cosmetics is the only major consumer packaged good for which customers prefer loyalty cards to circulars.  This indicates that, even while loyalty is somewhat lacking, consumers’ demand for loyalty programs remains quite high.

Increasing skepticism of branded claims (due to distrust of self-promoting marketing and increased access to online reviews) and a resulting reliance on peer opinions

According to Facebook IQ, “Friends, coworkers, family and acquaintances on social media” are one of the top five sources that influence cosmetics and skincare purchasing.  The Benchmarking Company also found that, when it comes to the beauty industry, “the top interest driver in new products is liking how it looked on someone else”  and that 86% of consumers are significantly influenced by favorable product reviews or ratings.  This makes sense, given that beauty products are highly experiential in nature, making it difficult for consumers to evaluate an online product without feedback from users like themselves.

 

In light of these trends, it’s easy to see why rewards programs — particularly those that emphasize product reviews and social media engagement — as well as referral programs are increasingly critical tools for the beauty industry.  Let’s take a closer look at how each can add value to this e-commerce category.

Rewards Programs

Soko Rewards

Image via Soko Glam

We’ve established that, due to low levels of consumer loyalty but high demand for loyalty programs, loyalty programs in the beauty industry make a lot of sense.  And thankfully for your brand, beauty products are typically purchased regularly (41% of women spend time monthly looking for them).  This makes the industry a good fit for programs that capitalize on repeat purchases in order to generate value.

Not only are rewards programs helpful because they increase loyalty, but also because they can incentivize shoppers to do things like write product reviews or engage with your brand on social media.  And because beauty consumers are increasingly turning to their peers for opinions, incentivizing your best customers to leave reviews and engage positively on social media (both public forms of peer feedback) can go a long way.  For this reason, it may be smart for your loyalty program to reward these sorts of actions more generously than programs in other industries would.

In the case of social media specifically, we also know that millennials (the beauty industry’s big players) are heavy users of social media, and that a great deal of this demographic’s peer-to-peer communication occurs on such platforms.  Because of this demographic profile, positive social media engagement — things like a high number of followers and active sharing of your brand’s content — is even more valuable to your brand.  And although the number will certainly vary from store to store, we typically recommend rewarding a social media follow or like with somewhere around $0.50-$1.00 in reward points.  You can also take a page from Soko Glam’s book and reward customers for sharing your blog or website content on their own social media profiles.

When it comes to reviews, photo reviews are particularly helpful.  This is because beauty products are often quite visual, and so photos can provide customers with helpful information.  Beauty shoppers typically want to experience a product firsthand before buying it, and while this hands-on experience can be difficult to provide digitally, photo reviews offer online shoppers a more complete impression of the product in action.  When shoppers have access to other customers’ photographs, they are much more likely to feel confident about purchasing an online beauty product.  For this reason, while we recommend rewarding beauty product reviews with anywhere between $0.10 – $1.50 in points, a review with a photo may be worth a reward five times that.

Referral Programs

phone

So — we’ve established that beauty consumers are increasingly relying on the opinions of friends and family.  And in fact, millennials are particularly reliant on peer opinions — they consider recommendations from friends to be the second most important criteria (behind price) when it comes to trying new brands.  Given both of these facts, it’s no surprise that referral programs can be a powerful tool for beauty e-commerce sites.

Many beauty brands are recognizing this.  We did a quick comparison of beauty and non-beauty loyalty programs, and the beauty brands in our sample rewarded referrals more than four times more generously than the non-beauty brands.  While our analysis was by no means scientific, it does indicate a trend that supports the importance of a strong and generous referral program in this particular e-commerce space.

Most of the beauty brands we looked at rewarded a successful referrer with $1.00-$15.00 in points, and the average reward was worth $6.16 in eventual store credit (although again, this is only a benchmark — the specific value of a referral for your brand depends on your average cart size and customer acquisition cost).  Most brands also offered the referred invitee a “welcome” discount as well.  These relatively high valuation numbers reflect the substantial influence that personal recommendation has in this space.

Additional Tips for Appealing to a Millennial Customer Base

(If your brand happens not to have a large millennial customer base, feel free to skip this section.  But if many of your customers do fall under this demographic, then this is for you.)

Offer Non-Monetary Rewards

When it comes to loyalty programs, millennials are more likely than other demographics to value exclusive events, sales, products, and services.  Therefore, offering these sorts of rewards can provide customers greater incentive to engage with your program.  Ulta’s Ultamate Rewards program, for example, offers members exclusive offers and event access.

Another type of non-monetary reward — samplers — can also be effective in this space, since beauty shoppers so highly appreciate testing an item before committing to a full purchase.  For this reason, deluxe sample sizes of the products sold on your site are a smart reward to offer.  Sephora’s very successful Beauty Insider program implements this idea very effectively.  As part of this program, members can visit the “Rewards Bazaar” to browse an extensive set of available rewards, most of which are deluxe sample sizes of the products that Sephora carries.  (This also has the benefit of promoting eventual purchase of the full-sized item.)

Rewards Bazaar

Image via Sephora

Make Rewards Attainable

How quickly rewards can be attained plays an extremely large role in determining whether millennials choose to engage with your loyalty program.  For this reason, it’s a good idea to offer at least one reward that can be redeemed without many points, and to reward a large variety of actions.  (Note that, in these cases, it’s important to make sure you aren’t enabling fraud by letting customers make a free purchase without first making at least one real purchase.)

To see these best practices in action, check out Kopari Beauty’s Kopari Clique (which offers an attainable $5 discount as one reward) and Vanity Planet’s VP Rewards program (which rewards customers for a wide variety of actions).

Vanity Planet

Imagine via Vanity Planet

Prioritize the Customer-Brand Relationship

Millennials want more than just transactional rewards from their rewards programs.  When it comes to loyalty, they’re also looking for affective, emotional connections with the brand.  Therefore, it’s important that your rewards and referral programs strengthen the relationship that your brand has with its customers.

There are various ways to accomplish this.  One is to make your rewards or referral program community-based, in this way adding a strong social and inclusive component to your customers’ relationship with your brand.  It’s also important to prioritize branding your rewards program such that it reinforces your brand persona.  For example, if your branding is adventurous, glamorous, or quirky, then it’s important that the language, visuals, and messaging used in your incentive programs communicate this quality as well.  Allies of Skin is a great example of both of these principles.  The beauty company’s sleek and futuristic persona is complemented well by their “Allies Underground” program, which is branded as an exclusive society of sorts, and which requires that members sign in with a “secret handshake”.  A strong, cohesive brand persona like this one makes it easier for you to foster strong relationships with customers.

Finally, designing generous rewards and referral programs communicates to your customers that you are invested in the relationship.  And, according to this study in The Journal of Marketing, shoppers’ perceptions of your brand’s investment in the brand-customer relationship has a significant impact on their loyalty.  Being generous can mean offering rewards designed exclusively for the program; giving customers points on their birthday (as Tyra Beauty’s Beauty Bank Rewards does); offering points just for creating an account or for reaching spending milestones; or simply offering a higher percent back on purchases, if doing so makes sense for your store.

Wrapping Up

The beauty industry’s shift towards e-commerce — combined with its demographic profile and the experiential nature of its products — makes it a great space for loyalty and referral programs.  Using these programs to properly reward socially-oriented actions can generate even greater value for your brand.  So, while e-commerce does pose certain challenges, these sorts of programs can allow your brand to more actively harness the power of being online.

beauty industrybrand loyaltycosmetics industryloyalty programmillennialsproduct reviewsreferral programrewards programsocial media

Talia Patapoutian • July 20, 2017


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