Loyalty programs are seemingly everywhere these days. Visit any consumer business—whether a coffee shop, a clothing store or a florist—and there’s a good chance you’ll be asked to sign up for its rewards program. It could be as simple as a punch card that offers a freebie after a certain number of visits, or giving special perks to certain loyal customers.

It’s no surprise that so many businesses, large and small, have introduced loyalty programs in recent years. Studies show that such programs reap rewards for the businesses by helping to spark repeat business. A 2013 study by BIA/Kelsey and Manta, for example, found that 61% of small-business owners generate more revenue from existing customers than new customers.

“New business development remains important, but prominent research asserts that acquiring new customers is more expensive and less lucrative than repeat business,” the study’s authors write. “In fact, it can be up to ten times more costly to acquire a new customer. Further, a repeat customer spends sixty-seven percent (67%) more than a new one.”

While customer loyalty programs are now abundant, many small businesses still haven’t created one. (The BIA/Kelsey and Manta study found that just 34% of small businesses have a loyalty program in place.) Moreover, many existing loyalty programs aren’t very effective, because the businesses didn’t design or execute them very well.

How can you create a loyalty program that gives your customers what they want, while also paying off wildly for your business?

Start with your end goals in mind.

The most effective loyalty programs are those that help both the business and the customer achieve their goals. It’s essential to understand what those goals are so you can create incentives that spark actions that help to achieve them.

A coffee shop’s goal, for example, may be to get customers to buy higher-priced espresso drinks or to encourage customers to also spend money on non-coffee purchases, such as pastries or bags of coffee beans. If the goal is to encourage customers to, say, buy breakfast at the coffee shop, the rewards program should be designed to encourage that.

Give loyal customers a unique, special reward.

Once you know your end goal, it’s much easier to determine what incentives and perks will motivate customers to act in a way that helps you achieve that goal. But don’t be skimpy, warns Nicole Leinbach Reyhle, owner of Retail Minded, a company that provides educational resources to independent retailers. If a business gets too “cheap” in its rewards, customers won’t participate and the program will be ineffective.

On the same token, businesses should make sure not to overspend on the loyalty reward. It’s important to strike the right balance between giving customers an attractive reward, but also making sure it has a compelling ROI for the business.

A 2014 report by the Boston Consulting Group (BCG) says loyalty programs that simply offer customer discounts or freebies aren’t generally as effective as those that give customers loyalty points that they can accumulate and redeem later on. A point-based system, the  authors write, gives a business more “ability to pace how quickly customers reach reward levels, the luxury of a floating currency that the company controls, and a simple means for expanding the number of reward mechanisms.”

Businesses should also provide rewards beyond the traditional “earn-and-burn” model, BCG advises. They should consider how to make their most loyal customers feel special when in store, such as by giving them free extra benefits or more personalized service. Stores might give their best customers special gifts in-store or even access to special events. A day spa might give its customers a nicer waiting area with perks like tea and snacks and greet them by name.

Many customers today, particularly Millennials, expect more than just discounts in their rewards program. They want special treatment and recognition, according to BCG: “Recognition programs provide differentiated services and offerings to customers on the basis of status. They drive incremental revenues from top customers who expect—and value—recognition from the brand. Many provide special surprise-and-delight benefits to top customers at low cost but high perceived value.”

Actively communicate the rewards program.

The biggest downfall for many loyalty programs is that the business does a miserable job of promoting it, Leinbach Reyhle says. They might get customers to sign up, but then fail to remind them to take advantage of it. That’s a huge mistake: Nobody will benefit from the rewards program, including the business, if customers don’t use it. “The businesses that really excel at loyalty programs are the ones that continually make it a conversation,” she says. “Make sure your employees tell customers about it; make it part of the check-out routine.”

Spell out the rules clearly.

What you don’t want is repeat customers becoming frustrated—or even angry—because they misunderstood your loyalty program’s rules. Make sure the specifics are simple enough and spelled out, so customers clearly know how to qualify for and claim their rewards. For example, customers should know if there’s an expiration date on claiming or using their rewards. The rules should be clearly communicated (perhaps even in writing) so that all customers and employees can easily follow them.

Embrace mobile technology, with care.

A growing number of smartphone apps can help small businesses better engage their best customers and offer them a more compelling and dynamic loyalty program, according to the New York Times. Punchh, for example, is a software developer that has worked with many businesses to develop smartphone-driven loyalty programs. Mobile loyalty apps can let loyal customers “check in” when they’re at a business to identify themselves, so the employees know that customer should receive whatever loyalty rewards or treatment they qualify for. Such app also can allow the business to greet that customer by name. Small businesses can also use such apps to host contests and games among their loyal customers and send push messages to their phones that alert them of special events or deals that only they qualify for.

While mobile technology is certainly making loyalty programs more sophisticated, it may also make sense for some businesses to have a more traditional paper-based loyalty program for customers that aren’t very tech-savvy.

Tie the rewards program into other marketing.

Integrate the loyalty program with other types of marketing. For example, a business can promote its loyalty program in its email marketing, ads and in-store signage. Businesses can offer a bonus reward to customers who sign up for the program and on special occasions to remind customers about the program and encourage them to come back to the business.

Loyalty programs are evolving, and customers are expecting more personalized treatment and special perks from the businesses they spend their money at regularly. Now is the time to consider how to create a new loyalty program, or expand upon your current one, to ensure your customers are feeling the love.

 

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