Matt: Hello and welcome to the very first Flying with episode that we will do in English. My Hungarian is probably the same as my today’s guest’s Polish, meaning we know a few words. Today’s episode is going to be all about customer retention and loyalty. My guest is Marton Koshik Kovak, who is the founder of Love Loyalty app. Marton, welcome to the show. I hope I’ve got your last name right.

Marton: Yeah, thanks a lot for having me. I really appreciate it and I’m happy to be here. You got it right.

Matt: So, I had a quick tutorial from you. It wasn’t that difficult as some of the names. So Marton, I’d like to start with a story I’ve already told you before. I think it shows why the subject we’re going to discuss today is so critical to merchants.

I was attending a Shopify meetup in Stockholm and I had a chance to talk to some agencies that are supporting local brands and merchants there. They shared a story that was kind of shocking to me. The cost of acquisition of an e-commerce customer in Sweden or Finland is at the moment so high that brands are turning to opening physical stores and doing proper brick-and-mortar business. That’s how high this cost can be.

I think some people may think that this is an edge case, but the reality is that customer acquisition costs are getting higher and higher in e-commerce. E-commerce is not just something we add to regular business—it’s driving most retail businesses now.

Marton: Yeah, I was super surprised to hear that as well. I mean, that’s such a radical increase and change. But yes, that’s the case. We hear from many merchants that acquiring new customers is super expensive. Just one statistic: in the last two years, customer acquisition cost in the e-commerce world increased by 40% to 50%. That’s quite a huge increase, and I think that’s partly why there’s a lot more focus now on retaining customers.

Matt: Exactly. Twenty years ago, you could just start an e-commerce business and target only new customers. But now, aware brands know that you need to take care of existing customers. It’s cheaper to sell to your existing customers rather than acquiring new ones. But there’s still a lot of things you can do to improve retention and loyalty.

Marton: Definitely. I think there’s nothing wrong with traditional points programs, and for some brands those work really well. But what we always try to do is look at this whole area from the end customer’s point of view.

The first step that is super important for the customer is to be able to connect with the brand and purchase a good product. That’s the basic. After that, they really want a seamless and flawless experience when purchasing. Providing just a simple points program and trying to make them come back based on that is super hard in today’s world, as customers have many choices. You really have to be smart about how you think about loyalty.

Even if you start with a simple points program, brands really have to experiment on what matters to their customers. They need to understand what value they should provide—should it be discounts, free products, or early drops on specific products? Definitely, over the years it got more complex as brands need to make real connections with their customers to make them stay.

Matt: Are there any innovations in this area recently? I believe that memberships might be something new that we haven’t seen before.

Marton: Yes, I think it’s coming from the same fact that customers really want to connect with brands. Once they’ve connected with a brand, they don’t really care about a points program as much as about the brand itself. The membership is like paying for a membership plan, which means being part of a smaller community connected to the brand.

In today’s landscape, the whole loyalty and retention stuff really leans toward memberships. This means offering or selling customers yearly or monthly membership plans that give them benefits, discounts, customized perks, or early access to products that only members can access. This is kind of an innovation that’s starting to gain traction nowadays.

Matt: Yeah, I feel like it makes a lot of sense. We had recently a conversation on branding and being a brand advocate. I believe that being a member of some brand’s club is something people might want to aspire to and make a statement about, confirming their identity. So it’s a very interesting angle here.

We have memberships, points programs, and tiers. How do I know which one to choose? You said it’s worth experimenting.

Marton: I think the right setup can be different for brands. Obviously, there are industry differentiators and it depends on the size of the brand and how well known it is. But I think all brands should experiment with what kind of loyalty programs to use. Should it be a points program, VIP tiers, memberships, or many times a combination of these different tools?

For example, for a brand that recently started out, I think introducing a simple points program that’s easy to understand—like “you spend $1, you get one point”—is the easiest way to go. Then see how your customers are really using it, whether they’re redeeming their points, whether they’re coming back at all, and change based on those insights. You really need to experiment around it.

Matt: That brings me to another question. How do I know if a loyalty program is working for me? What are the metrics and key factors I should consider when evaluating effectiveness?

Marton: If it’s really effective, you’re going to see your sales numbers growing and higher revenue. Usually, loyalty tools or retention tools have an analytics page where you can check how much revenue they generated. Based on that, you can check what percentage of your all-together revenue this is.

You need to check what percentage comes from returning customers and whether those returning customers are redeeming their points or signed up to the loyalty or membership program at all. When it comes to memberships, you can check how many of your customers are members and how many are paying for a membership. That’s obviously super important to check.

The main metrics are: generated revenue, return on investment. Usually, these programs show the return on investment. For points programs, the point redemption rate. A 10% point redemption rate after two or three weeks is actually not bad. It’s a good benchmark.

It’s also a bit more manual analysis, but using screen recordings or checking what customers actually do with their points is super important. Check whether they’re checking their point balance at the account page, whether they’re reading about the points program, or checking what rewards they could earn. I think it’s also super important to talk with those who are retaining and redeeming their points to see what their real motivation is, and change the program based on that.

Matt: I believe talking to your customers is always the most valuable source of information and insights. I have one more question. Can you share some stats on what’s the average return on investment on implementing a loyalty program, and what is a healthy percentage of customers enrolled in the program?

Marton: It’s hard to tell at the moment because with Shopify using new customer accounts, almost everyone who purchases signs up as a customer and many get loyalty points just for signing up. So it’s a bit hard to measure.

But I’d rather talk about what is a good metric of getting them to retain with the loyalty program. Currently, the average repeat customer or returning customer rate in the whole e-commerce world is between 10 to 30%, depending on the industry. I think if you get your loyalty program right, this can be even doubled—so having 50 to 60% repeat purchase rate. That’s a great goal to have.

But even just increasing it by 20% with the loyalty program makes a lot of impact and difference. For example, a brand having a 40% returning customer rate can do 50% more revenue compared to a brand who has only 10% returning customer rate, without any new customer acquisition cost. So it’s really worth putting effort and investing in setting up the right tools for retention.

Matt: So, what does it mean to set the loyalty program right? What’s the framework or playbook for someone who would like to do it the correct way?

Marton: When a brand didn’t have a loyalty program before and they don’t have data on what works, I think first trying out a simple points program with VIP tiers is a great way to get started. You will have to add rules on what you give points for to your signed-up members.

Here, I usually recommend to brands just starting out that they give points for actions that don’t require a purchase. For example, signing up to the newsletter, following the brand’s Instagram, or any kind of social media, or giving your birthday at your account. Giving points for these actions and seeing that you get your point balance up even before you make a purchase can be super motivating.

When they make their first purchase, they will already have points they can use for discounts, which is super motivating and makes them more likely to come back. Even with memberships, which are in a more mature state of a company’s life, what we usually do is let brands upsell memberships right at checkout. When they upsell that membership—say it means a 10% discount on all products—we apply that 10% on that first purchase when they purchase the membership as well.

The point is that it’s super important that customers see the value of being signed up to the loyalty program at the first purchase as well. As for a benchmark or how they should set up the app, obviously you will need to experiment. But usually, a good standard is that if the customer makes the first purchase, they should get an amount of points that would mean a 5 to 10% discount on the next purchase. I think that’s a good standard.

Matt: Yeah, I really like the bit you said about asking customers for non-purchase actions. I think it gives you additional value and can generate user-generated content for your marketing purposes. It can also provide you with insights. You can ask customers to answer surveys where you gather information and improve areas of your e-commerce. That’s a really interesting topic.

We have this covered. What are the next steps? Let’s say you know that you have this program set up right and you want to double down on it. You want to increase the number of members or activate those who are idle. What tactics can you share?

Marton: So, I think first, if you set up a loyalty program, you should definitely wait a few weeks to see how it goes. For example, we had a client who started with the loyalty program and after two weeks there was just about half a percent or 1% redemption rate. We didn’t understand what the problem was.

Basically, they’d set up the app so that only a fourth purchase made sense for customers to redeem the points. So it was all a settings problem. I think first it’s important to have a good setup, and I really suggest any brand to do it together with the company who provided the tool for retention.

If you have it set up, wait a few weeks and then analyze the results. Usually, these tools show some kind of analytics, and even if something is not there, you can still ask for it from the tool provider. After that, you can see where the problem is—whether it’s redemption rate, people not opening emails about their point balance, or not many new members.

Based on the analytics, you can see which step of the customer journey is not working well when it comes to loyalty, and then you can change based on that. But it’s also important to talk with the customers. If they signed up, why didn’t you redeem your points?

It all comes down to a lot of analytics and talking with customers. Sitting down for a meeting with the provider of the retention tool is super important because they see the industry standards. They see what works and what didn’t work for similar-size brands in similar industries and locations. They can build up a loyalty program for you based on that and suggest changes.

For example, with many big brands that we’re working with, we do monthly audits where we offer to check their metrics. If there are problems or they’re not satisfied, or if we think they could be improved, we come up with a plan on how to improve them and change it based on that. So it’s super important, even if you get it right, to always analyze and then change a bit based on that.

Matt: That’s very interesting. Can you share some stories or cases where the implementation didn’t go well and what were the reasons behind it?

Marton: Yeah, I mean, I think there was a brand that I don’t want to name. They were excited to have a loyalty program set up and they decided to set it up for themselves. They wanted results in one to two weeks. The revenue generated from the app was only about $800 after 3 weeks, which is super little for this size of brand.

They were wondering what the problem was. We looked into it and what we saw is that their setting was that people or customers could only start to redeem points once they purchased for like $130 or something like that. Even though their average order value was between $20 to $30.

So if you think about it, a customer had to come back four or five times before they would even be able to start redeeming their points. That’s why the redemption rate was so low and the app wasn’t generating much. This was an implementation or setup problem, and this is why it’s super important to get the basics right and think it through.

Other than that, honestly, we once—now it’s already solved and it’s working—but once there was a customer who migrated a million customers. The app just stopped working for them or started to have troubles. But obviously, this was not the brand’s fault. It was on our side, but we fixed it, and now it works with as many users as you can imagine. I think these are the two examples that came to my mind.

Matt: Thanks for the honesty by the way. That’s very valuable. Yeah, but I believe technical issues are very common when building a product. I don’t think it’s even a sin of new brands or new products. It happens at all stages.

Marton, I wanted to ask one more thing. Are there some industries or brand types that are the obvious choice for loyalty programs, and are there some brands or industries that won’t see any results and it makes no sense to implement this kind of solution?

Marton: Yeah, of course. I mean, I believe that since many of the solutions are not that expensive, it’s usually worth implementing them for all types of brands. In every sector, you can find something that works and something that retains people, even if they just come back two times a year. If you sell a membership, they won’t leave. So I think it makes sense for every sector.

But obviously, there are some sectors or industries where it makes more sense, and where we see most of our customers coming from. Those are usually: beauty, health, cosmetics, fashion, supplements, food and beverages. Where you can imagine that people are buying at least once a month.

Obviously, these are the sectors that are mainly using loyalty programs. The sectors that aren’t, or where we see not many of, are like electronics or electric goods like phones and stuff, probably furniture, once-in-a-lifetime purchases like cars, etc.

Before we built Love Loyalty, we had a product options app that helps brands sell customized goods. They were selling all types of stuff like pools, saunas, and super customized furniture. Then we started Love Loyalty, and you can imagine how hard it was for us to get those customers using our new app because it was completely the opposite.

Matt: I mean, for pools and saunas, you have some probably complementary products that you need to refill?

Marton: Yeah, probably the brands in this field that are using our app are using it because of that.

Matt: All right, so what about building or combining the online with offline? Can you leverage your physical stores into building loyalty as well?

Marton: Yes, our app also supports POS. And definitely, with the most innovative solutions, you can easily not only earn your points when you go into a store and purchase something there, but you can also redeem your points that you made online. So most brands who take loyalty seriously offer the loyalty program in physical stores as well.

One drawback that we have here is not for the loyalty part or points program part—because it works seamlessly—is that currently Shopify doesn’t support brands to sell memberships in physical stores. So if you have a membership already because you purchased it online, and then you go into a physical store and buy something, you get the discount there or any perk that your membership applies to. But you cannot purchase the membership there.

This is something that I hope there will be a workaround for, because we see many clients in need of this.

Matt: I see. All right, I would like to switch gears to a slightly different subject now. I would like to talk about choosing the right program, the right app or solution. I can name at least five loyalty programs that our customers use: Yotpo, Loyalty Lion, Growway Wave, Smile, etc. And I believe there are dozens if not hundreds of them in the Shopify app store.

When we first talked and you shared some insight about your app, I was thinking: okay, so you have a couple thousand customers, you have like 200 five-star reviews. My first thought was, hey, these guys are either crazy or they have some balls on them, or both. And then I thought that this result showed that you guys must be doing something right. I’m wondering about the story behind your product. How did you come up with the idea that there’s still room for a loyalty app in a market that’s already so crowded?

Marton: Yeah, thank you. I think we are a bit crazy for sure. But the reason why we started this loyalty app is that, as I mentioned, we previously built another app, and we knew we wanted to build something on a bigger market. So we searched the market on purpose. We checked where there’s still room for improvements.

How it started is that first we talked with our customers from our previous products. We also have two Hungarian apps, and we talked with those customers as well. The problem that we talked about in the beginning came up a lot: customer acquisition costs are getting higher and higher.

We also asked these brands what they do about it or how they try to cope with it, and they mentioned that they’re using loyalty programs. We checked the results with brands who were pretty close to us, and how the loyalty programs work out for them. Most of them didn’t work out. They were either too expensive and didn’t generate as much revenue as they hoped for, or their customer support was not helping them.

I believe, as I said, that the best way to get it right is to work together with the loyalty provider. But that didn’t happen. From the customers’ point of view, it was super hard to understand how the loyalty program works. They didn’t find their point balance even though they were returning customers. They didn’t know how to redeem the points. They didn’t know the value of their points.

We checked the solutions, tried them, and it seemed that most of the solutions were outdated and not the right fit for most brands. Most of them were using popup widgets. Let’s say you’re a customer going through the flow of purchasing a product. It just doesn’t make sense to have to click a small bubble on the bottom of the page, open it, and then click like five times until you get a code which you can copy and then apply once you go to checkout. It was just too complicated.

That’s why we came up with the idea of doing something here in this area. We talked with a lot of brands, talked with a lot of customers of brands, and sketched up ideas. Then we arrived at the idea of Love Loyalty.

Basically, the main thing that we do differently is that we are adding loyalty placements throughout the entire customer journey. Brands have the option to choose from more than 15 placements on the storefront so they can experiment which work best for them. Starting from a placement in the product page, through the cart page, to checkout and thank you pages, account page, loyalty page. We have many touch points on the storefront where customers can understand the value and meaning of the whole loyalty program. This way, brands can experiment on how their customers resonate with it.

This turned out to work well. Instead of using popup widgets and inefficient UX solutions, we made it simple and it makes sense for the customer about how it works. I think one of the most important things is that for non-Shopify Plus brands, we enable them to redeem their points in the cart with just two clicks and view their point balance there. It makes a lot of difference.

We do the same with memberships, which we recently launched, putting it in front of the customer where they see the value of it. You know what I told you about upselling the membership at checkout with one click? We’re just trying to simplify the whole process, and brands really understand that this is what their customers need for retaining them.

Matt: That’s really both inspiring and impressive. To be honest, I can’t believe that it’s not a standard in this industry. Breaking the user flow is a no-brainer—you shouldn’t be doing that. I wonder how come most loyalty apps are doing it wrong. I believe it’s just that they’re copying each other and not listening to customers.

Marton: Yeah, exactly. I think maybe 10 years ago when the first loyalty apps came out, they just started that, and basically everyone thought that yeah, this is the standard for loyalty. So we should do loyalty like this. We just followed a different approach.

Matt: One more thing that comes to mind: are there any other functionalities or features that one should look for in a loyalty app? I’m thinking that I would like to have my loyalty program integrated with Klaviyo or other tools in the Shopify ecosystem.

Marton: Of course. So I think obviously first, if you’re looking for a loyalty tool, there should be a points program. There should be a VIP program, usually a referral program. Memberships is a good choice. But other than that, I think it’s super important that it integrates well with other apps, especially with email tools like Klaviyo or Shopify Flow. Our app does this.

Emailing is super important. But I think what’s also important is that if you want your app to work smoothly, choosing an app that is following or keeping up with Shopify’s latest technologies is super important. Our app is completely embedded in Shopify. We use Shopify’s UI components. We use its latest technologies. Unlike the others, we use metafields to store loyalty data, which makes the app super fast. It loads instantly on the storefront. It makes it safe and reliable.

I think you need to get the basic features right, find an app which integrates with many other apps—not only email, but like review apps or subscription apps—and that it works well within Shopify. There are a lot of apps that are not focused on Shopify but are multiplatform solutions. I think it’s always better to find a solution that really is focusing on Shopify if you are on Shopify.

Matt: I can confirm from my own background. We are as an agency doing Shopify only, and it just works well for our growth and for our customers. We have this focus very well defined, and it definitely accelerates growth.

Marton, as we are coming to an end of this conversation, I would like for you to think about three action points—the most valuable insights for merchants—things they can do right away in terms of building a loyalty program for themselves.

Marton: Yeah, I think the first one should be to find some customers who have already retained or who are returning and talk with them. Just talk with them about why they came back and try to find out what would motivate them to come back even more. Whether it’s discounts, specific products, free products, or stuff like that. Talk with users who already came back to purchase because if you are following the same strategy that made them come back, then more and more people can come back.

Then test out what type of loyalty program you need. So even if you have a points program set up, I would just definitely think that you know, trying out different solutions might help you improve the retention metrics. Experiment with what combination of a points program, VIP tiers, or memberships works well for you.

The third one is also connected to finding the right solution: find a tool where the customer support is really caring and takes you seriously. Because if you really want to succeed in your retention metrics, I think it’s a must to be as close to the tool provider as possible. They are the ones who are understanding it better.

Matt: Marton, one thing I would like to ask before we go: is there some counter-intuitive piece of advice that you might like to share? Something that would be, you know, unexpected?

Marton: So, obviously, experiment with or test every far-fetched loyalty idea or retention idea that you have. This can mean offering your members a super interesting perk. Like, for example, if you are a fashion brand, offering a perk to have a 10-minute chat with one of the designers of the brand. This is something that is interesting, but it might work. You might see like a 20% or 50% increase in your member numbers if you offer such perks. So trying every idea that you have until you get it right.

Matt: Okay, Marton. So if somebody wants to learn more about Love Loyalty or get in touch with you and talk some details, how can they reach you and find out more about your app?

Marton: So, if you want to connect with me, I’m easy to find on LinkedIn if you write up my name. On LinkedIn, I’m always trying to share some information about our app or some tips that might be helpful. That’s a good point. Or just install Love Loyalty and write to the chat support. We get back instantly, and we are happy to set up a call with anyone and suggest the right loyalty program for them, or at least try it. We’re happy to have these calls for free. We set up the app free of charge for merchants. So LinkedIn and live chat—those are the two best ways to reach me.

Matt: All right, Marton. Thank you very much for the call, for the conversation, and I hope to talk to you soon. I think it was really insightful and really inspiring. I think not only merchants but possibly some people who want to build their own product in the Shopify ecosystem would benefit from this conversation hopefully.

Marton: Thanks a lot for having me.

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