With U.S. inflation at an all-time high, it comes as no surprise that consumers have started to pull back their spending and become more selective on how they spend their cash. That means, as a small business owner, the need to acquire new customers – and retain existing customers – is critical. One great tactic to get customers to continually enter your door is by implementing a customer loyalty program.
Customer loyalty programs are systems where businesses offer rewards or incentives for customers who make frequent purchases. And while the idea seems simple enough, according to Bond’s 2019 Loyalty Report, which samples 55,000 customers in over 900 loyalty programs, 73% of consumers say that they are more likely to recommend brands with good loyalty programs, and 79% of consumers say they stay because of a good loyalty program. Which poses the question: should you start a loyalty program for your business?
Keep reading to discover if your business would benefit from a loyalty program, and what type of program you should implement!
Benefits of customer loyalty programs
Aside from the obvious benefit of a customer loyalty program (having loyal customers!), customer loyalty programs can also do the following:
- Increase referrals: if you have a strong customer following, these customers are likely to tell their friends and family about you too – which could increase your new customer business.
- Increase brand recognition and trust: ever heard of ‘cult following?’ Cult following refers to a group of fans or individuals who are highly dedicated to a person, product, or idea. The stronger your customer base is, the more likely they are to create user-generated content (like reviews – which you can read more about here) promoting your brand – making your brand more visible to others who may not know who you are.
- Increase share-of-wallet: this refers to the amount of money a customer spends at your store each time they visit. Depending on what type of loyalty program you implement, customers may want to spend more in order to receive the incentive you advertise.
The quiz
Take our quick ten-question quiz below to see if your business would benefit from a loyalty program:
- Are most of my customers first-time visitors?
- I offer products or services that would enable customers to visit my business more than on an emergency basis.
- Would my business benefit from more returning customers, or do I just want new customers?
- Do I have the infrastructure in place to make a loyalty program?
- Am I prepared to offer an incentive to my customers?
- Do I have enough existing customers to start a loyalty base?
- Do I have a hard time making my brand recognizable in my community?
If you answered ‘Yes’ to more than 50% of the questions above, you may want to consider making a loyalty program for your business.
Types of loyalty programs
There are plenty of loyalty programs out there, which gives small businesses the leverage of picking an option that works best for your business model. Check out the different models we have listed below to see what form of loyalty program would fit your business:
Points Programs: this is the most common type of loyalty program, and for good reason: accumulating points ‘gamifies’ your loyalty system to where if a customer earns enough points, they can cash in for a prize: like a free product, cash back, or a discount.
Points often can be earned by spending a certain amount (e.g., $1 = 1 point), leaving a review, or just by visiting the store. If you implement a points-based system, however, make sure you have the infrastructure to do so you can accurately track how many points an individual has. Nowadays, many electronic POS systems have loyalty program add-ons, so ask your provider what your options are.
Cash Back is another popular type of loyalty program. Cash back programs are similar to points programs in that your customers are encouraged to spend more money in order to get money back (i.e., spend more save more). Big corps like Costco and Discover practice cash back techniques by offering a certain percentage of cash back on certain purchases – for example, Costco offers their customers 4% cash back on gas purchases for the first $7,000 of gas bought, then 1% thereafter.
Punch Cards are more commonly associated with mom and pop shops, but they serve a great purpose in getting repeat business. Punch cards are incredibly easy to create (just print your program on a business-sized card), and ‘punch’ a hole in the card each time a customer completes a specific action (like buying an ice cream cone). However, just as easily punch cards can be made, they can be abused – like having people punch their cards at home – so be sure you have tactics in place to protect yourself, or make the incentive cheap enough that you aren’t losing money in the process.
Fee-based loyalty options are becoming the future for retailers as it provides instant gratification for the customer. By charging customers a specific fee upfront, you enable your customers to participate in the program whenever they want throughout the course of the program. For example, individuals who participate in Amazon Prime have one year to reap the benefits, with unlimited Prime movie watching, two-day shipping, and participation in Prime days.
With these membership-based programs, however, customers expect the best experience no matter the price – so make sure your program is solid before you move forward with this system.
Game-based We’re all familiar with McDonald’s yearly Monopoly game: with each purchase, you earn a sticker to put on your Monopoly board. Get all like-tiles (like the railroads), and you receive a prize – be it a free soft drink, or $50,000.
Your game-based loyalty system doesn’t have to break the bank; there are plenty of other ways you can also gamify your program to increase repeat customer visits. Think about doing store scavenger hunts, having customer solve puzzles, or offer a weekly ‘stamp’ to put in a passport to get people coming back. The possibilities are endless!
No matter which program you pick, creating a loyalty program for your company will certainly have its benefits. According to one study by Yotpo, 68% of loyal customers will join a loyalty program if presented to them. If you’re unsure about starting a loyalty program, remember that you can always start small and grow your program as needed – so what do you have to lose?