Customer retention is one of the most powerful growth levers in eCommerce. While attracting new buyers can be expensive, turning existing customers into repeat purchasers often brings higher profits with less effort. That’s why loyalty programs have become essential to modern online stores.
Magento 2 offers a flexible foundation to build a loyalty program tailored to your business, either manually using built-in tools or by extending functionality with purpose-built modules. In this guide, we’ll walk you through every step of creating a rewarding loyalty program in Magento 2, from strategy to setup and optimization.
A well-designed loyalty program is more than just a marketing tactic, it’s a strategic approach to customer retention and revenue growth. With rising acquisition costs, nurturing existing customers becomes essential. Here’s what a loyalty program helps you achieve:
● Build long-term relationships: Keep customers returning through recognition and rewards.
● Encourage repeat purchases: Motivate users to shop again with points, credits, and tier benefits.
● Increase average order value (AOV): Unlock benefits based on higher spending thresholds.
● Boost customer lifetime value (CLV): Maximize the value of each customer over time.
While Magento 2 does not include a complete loyalty program out of the box, it provides key building blocks like customer groups, cart price rules, and email templates. These can be combined or enhanced with extensions to create a feature-rich loyalty experience.
Common elements of a Magento 2 loyalty program include:
● Loyalty points system: Reward purchases or actions (e.g., reviews, social shares).
● Tier levels: Offer exclusive perks based on spending or order frequency.
● Gift cards: Send value-based incentives to loyal customers.
● Store credit: Encourage repurchases instead of issuing refunds.
● Referral bonuses: Reward customers for bringing in new shoppers.
● Automated email notifications: Keep engagement high with personalized messages.
In this section, we’ll walk through a step-by-step process to help you build a loyalty system that fits your business goals and customer behavior.
Objective: Set the direction for your program aligned with your business goals.
The first and most critical step in building a loyalty program is to define a clear strategy. This strategy should directly support your business objectives, such as increasing customer retention, boosting average order value (AOV), or acquiring new customers. A well-defined strategy will guide all subsequent decisions and ensure your program delivers tangible results.
Decisions to make:
● Will you use points, tiers, gifts, or referrals?
Choose the reward system that best fits your business goals:
○ Points: Customers earn points for actions, which can be redeemed for discounts or other rewards. This is a flexible and popular choice.
○ Tiers: Customers are sorted into different levels (e.g., Bronze, Silver, Gold) based on spending or activity. Higher tiers unlock better rewards, creating a sense of exclusivity.
○ Gifts & Store Credit: Reward customers with physical gifts, gift cards, or store credit for reaching milestones. This encourages future purchases and makes customers feel valued.
○ Referrals: Reward both existing customers and new customers when a referral leads to a purchase, helping to grow your customer base.
● What customer actions will you reward?
○ Think beyond just purchases. Rewarding non-purchase actions can significantly increase customer engagement and build a stronger community.
○ Purchase-related: Reward customers for placing an order, spending a specific amount, or purchasing from a new category.
○ Engagement-related: Reward customers for creating an account, leaving a product review, subscribing to your newsletter, or engaging with your brand on social media.
○ Milestone-related: Celebrate customer loyalty by giving them a bonus on their birthday or on the anniversary of their first purchase.
● How will you measure loyalty? (spending? frequency?)
The way you measure loyalty should align with your primary business objective.
○ If your goal is to increase AOV, measuring loyalty by total spending is a good choice. You can create tiers based on spending thresholds (e.g., spend $200 to reach Silver status).
○ If your goal is to encourage regular shopping, measuring loyalty by purchase frequency is more appropriate. You could reward a customer after a certain number of orders, regardless of the value.
○ You can also combine these metrics for a more sophisticated program. For instance, a customer might need to spend a total of $500 and place at least five orders to reach the top tier.
Tip: Start with a simple program and then expand as your business grows. This allows you to test what resonates with your customers without a complex setup. A points-based system for purchases is an excellent starting point, as it’s easy to implement and manage. You can always add tiers, referrals, and other rewards later on.
Objective: Organize customers into loyalty tiers based on their purchase behavior, enabling you to personalize rewards and increase retention.
By grouping your customers, you can provide tailored rewards that motivate them to engage more with your brand. The process involves using your existing data to create customer groups that will serve as the foundation for your loyalty tiers.
Direction: Define loyalty tier rules using historical orders
Before you begin, you need to decide what criteria will define each tier. Will it be based on a customer's total spending or the frequency of their purchases? For example, you might decide on a three-tier system:
● Bronze: All new customers are automatically placed in this tier.
● Silver: Customers who have spent a total of $500.
● Gold: Customers who have spent a total of $1500.
How to do it:
● Export historical order data: The first action is to get a complete picture of your customer's past order behavior. You can do this by exporting a report of all historical orders from your Magento Admin panel. This data will include customer IDs, total spending per order, and other information you can use for analysis.
● Filter customers by total spend or total orders: Once you have the data, use a spreadsheet or a business intelligence (BI) tool to filter and sort your customers according to the tier rules you defined. This will give you a list of customer IDs that belong to each loyalty tier.
● Assign them to appropriate customer groups: In Magento, you can create new customer groups (e.g., "Silver Tier," "Gold Tier") and manually assign customers to them. For a large number of customers, you can use a data import tool to assign the customers to their respective groups in a bulk operation. This is the most efficient way to get your program off the ground quickly.
For a large number of customers, manually assigning them to groups is not feasible. The Magento order export extension by BSS Commerce simplifies this process, allowing you to quickly update customer group assignments based on your analysis of historical data. This tool streamlines the setup, letting you focus on the strategy and execution of your loyalty program.
Objective: Deliver exclusive offers to specific customer groups.
Cart price rules are Magento's built-in feature for creating promotions and discounts. This allows you to create targeted incentives for your loyalty tiers, making them feel valued and encouraging them to continue shopping with you.
How to set it up:
● Go to Marketing > Cart Price Rules: Here, you can manage all your promotions (create, edit, and disable rules).
● Set conditions: (e.g., 10% off for “Gold” customers). Use the “Conditions” tab to define the criteria required for the rule to take effect and to associate it with the loyalty tiers configured in the previous step. You can set a condition like "If the customer belongs to the 'Gold' customer group" and "If the cart subtotal is greater than a certain amount".
● Choose actions (discount, free shipping, or gifts): The "Actions" tab defines what happens when the conditions are met. You can choose to apply a fixed or percentage discount to the entire cart, offer free shipping, or even include a gift with the purchase.
● Optional: Use coupon codes or auto-apply: You can choose to have the discount automatically applied at checkout for customers who meet the conditions, or you can create a specific coupon code that you can email to your loyalty group members.
Pro tip: Stack this with tiers for more value. To maximize the impact of your loyalty program, consider creating multiple rules that stack. For example, a Gold-tier customer could get a 10% discount on their order and free shipping, while a Silver-tier customer only gets a 5% discount. This provides a clear, escalating value proposition that motivates customers to climb the loyalty ladder.
Objective: Keep customers engaged and informed about their loyalty rewards.
Automated email notifications are a powerful way to keep your loyalty program top of mind for customers. By sending personalized messages at key moments, you can increase engagement and make customers feel valued. This is a critical step in turning a simple program into a dynamic, customer-centric experience.
What to do:
● Use Marketing > Email templates to customize templates: Magento's built-in email template editor allows you to create custom, branded emails. You can design templates for different loyalty-related events, ensuring they are visually appealing and consistent with your brand.
● Trigger emails for:
○ Tier upgrades: Send an immediate email congratulating a customer when they move from a lower to a higher tier. Highlight the new benefits and rewards they have unlocked to motivate them further.
○ Gift card rewards: Notify customers as soon as they receive a gift card, including the value and any expiration dates.
○ Birthday or loyalty anniversary: Sending a special offer or a small gift on a customer's birthday or the anniversary of their first purchase is a highly effective way to build rapport and show appreciation.
● Integrate with 3rd-party email tools (e.g., Klaviyo, Mailchimp) for automation: While Magento's native functionality is a good start, a dedicated email marketing platform offers more advanced features. These tools can automate the sending of personalized emails based on specific triggers and customer data, ensuring your messages are timely and relevant without manual effort.
Objective: Offer gift cards as a reward instead of simple discounts.
Gift cards are an excellent way to reward your most loyal customers and encourage future purchases. Unlike a one-time discount, a gift card or store credit balance serves as a powerful incentive for customers to return to your store. This strategy helps to boost customer lifetime value (CLV) and reduce churn.
Examples:
● Send a $10 gift card after the third order.
● Give gift cards for completing a referral.
● Use gift cards as holiday thank-you gifts.
Since Magento doesn't have a native gift card feature, you'll need a dedicated extension. BSS Commerce offers a good Magento gift card module that will provide the necessary functionality to:
● Create customizable gift card products: This allows you to sell or give away gift cards that match your brand's look and feel.
● Auto-generate and email codes to customers: The extension should automatically create unique gift card codes and send them to the recipient, streamlining the process.
● Set expiration dates, balance tracking, and apply at checkout: These features provide full control over the gift card program, allowing you to manage balances, set limits, and ensure a smooth customer experience at checkout.
=> Check out the BSS Commerce website for more helpful extensions. BSS Commerce - the leading Magento 2 extension development agency.
Objective: Enhance program variety to keep customers interested.
By this point, you've established a solid foundation for your loyalty program with customer groups, discounts, and gift cards. This step is about adding more diverse and engaging elements to keep the program fresh and appealing. Integrating a points system, referrals, and store credit offers more ways for customers to earn and redeem rewards, which increases their overall motivation and engagement.
Examples:
● Earn 1 point per $1 spent, redeem at checkout
● Get $5 in store credit for each friend referred
● Award store credit instead of refunds to encourage re-purchase
Implementation options:
● Use a points & rewards extension: Given that Magento Open Source does not have a native points system, a dedicated extension is the most effective solution. These extensions provide a comprehensive suite of features for managing point-earning rules, redemption rates, and customer balances.
● Combine with referral tracking tools: If you're building a referral program, a tool that can track clicks, sign-ups, and purchases from referral links is essential. This allows you to accurately reward both the referrer and the new customer.
● Enable store credit in Magento (Adobe Commerce or via a module): Magento's Adobe Commerce edition has a built-in store credit feature. If you are using Magento Open Source, you will need to install a module or extension to enable this functionality.
Objective: Increase visibility and optimize the program over time.
A loyalty program is only as good as its visibility. If customers don't know it exists or how it works, they won't participate. This final step is about actively promoting your program and then continuously tracking its performance to ensure it's meeting your business goals and providing a great customer experience.
How to promote:
● Create a dedicated loyalty program landing page: This page should be the central hub for your program. It should clearly explain the rules, benefits, and how customers can earn and redeem rewards. This page can be easily linked from your website's main navigation, footer, and other promotional materials.
● Use banners, popups, and post-purchase messages: Use these elements to catch a customer's attention at key moments. A pop-up on the homepage can introduce the program to new visitors, while a message on the order confirmation page can remind a recent buyer of the rewards they just earned.
● Mention loyalty rewards at checkout and in emails: Remind customers of their loyalty benefits during the checkout process and in your email communications. This can be as simple as a line in the shopping cart summary or a dedicated section in a post-purchase email.
How to track:
● Monitor repeat purchase rate, tier movement, and reward redemption: These metrics provide a clear picture of how your program is performing. Are customers making more repeat purchases? Are they moving up the loyalty tiers? Are they redeeming their rewards?
● Analyze AOV and customer lifetime value over time: The ultimate goal of a loyalty program is to increase AOV and CLV. Use these metrics to measure the program's long-term impact on your business.
● Tools: Magento Reports, GA4, or BI tools: Magento's native reports and Google Analytics 4 (GA4) can help you track these metrics. For more in-depth analysis, consider using a business intelligence (BI) tool to connect your loyalty data with other business data and get a more comprehensive view of its performance.
Building a loyalty program in Magento 2 is an effective way to boost customer lifetime value and retention. By following these steps, from defining your strategy to promoting and tracking your program, you can create a compelling loyalty program that rewards repeat purchases and brand engagement. While Magento 2 provides a solid foundation with its native features, extensions can significantly enhance your program with advanced options like points, referrals, and gift cards.
