Does your business have a loyalty program?
If your small business does not have a loyalty program or a rewards system, consider this: it
costs five times as much to attract a new customer as it does to get a current customer to come
back and do business with you again.
According to recent marketing research, almost 80 percent of us carry one or more loyalty cards
in our wallets. There are frequent-flier programs, frequent-buyer programs and frequent-dining
coupons, as well as prize giveaways and charity donation schemes. They are all designed to
incent customers to spend more, shop more frequently, increase their purchases, or refer other
customers to the business.
Basically, there are four types of loyalty programs:
 Membership Programs, in which customers get special pricing or other perks for joining a
“club.”
 Rewards Programs, in which gifts, awards, discounts or freebies are "earned" according
to customers’ volume of business.
 A Community Concept, in which connections are created through sponsorship of teams
or events, or by holding classes, trainings, workshops or exchanges.
 Intertwined Business Processes, involving upselling, cross-selling and other techniques of
locking in repeat business.
Many small businesses offer simple punch or stamp cards that incent customers to pull in for
another car wash, stop by for another cup of coffee, or schedule an additional massage treatment.
Customers accrue points toward free merchandise, discounts, rebates or additional services when
they use the cards. Another easy, cost-effective technique is to create a website or develop a
mailing/emailing list and provide loyal customers with tips, special information, advance notice
of events, coupons or special discounts.
More elaborate loyalty programs offer varying levels of rewards depending on customers’
purchasing patterns, volume or history. Some programs are structured so that those who spend
the most in a certain period or purchase specific high-margin goods or services receive the
largest rewards.
An important benefit of loyalty programs is that they enable businesses to gather real-time data
about customers and their purchasing habits. Companies can segment and identify the most
valuable customers and target their marketing spend and promotional efforts accordingly. Once a
company pinpoints its top 20 or 30 percent of customers, it can then focus on boosting retention
rates, profitability and satisfaction among this top tier.
Typically, the outlay for a rewards program costs between two and ten percent of each “loyal”
customer's total spend. One of the challenges in developing an effective small business rewards
program is knowing what drives customer satisfaction and engenders genuine loyalty among
these customers. While most loyalty incentive programs are effective at boosting incremental
transactions, true customer loyalty is built on brand equity and customer satisfaction, not simply
incentives and perks. Transactional behavior may mirror loyalty, but the key to boosting equity
is to increase customer satisfaction, the feeling that drives behavior rather than just the behavior
itself.
Fundamentally, loyalty is about building trust and developing long-term relationships based on
good service and business integrity.
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