Could Your Business Have a Loyalty Program?


Loyalty is about building trust and developing long-term relationships based on good service and business integrity.

If your small business doesn’t have a loyalty program or rewards system, perhaps you should consider the fact that it costs five times as much to attract a new customer as it does to get a current one to come back and do business with you again.

According to recent marketing research, almost 80% of people carry one or more loyalty cards. 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 get 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: Customers get special pricing or other perks for joining a “club.”

Rewards Programs: Customers “earn” gifts, awards, discounts or freebies, according to their volume of business.

Community Concept: Connections are created through sponsorship of teams or events or by holding classes, trainings, workshops or exchanges.

Intertwined Business Processes: These involve up-selling, cross-selling and other techniques of locking in repeat business.

Many small businesses offer simple punch or stamp cards that entice 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 a customer’s 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% of customers, it can then focus on boosting retention rates, profitability and satisfaction among this top tier.

The typical outlay for a rewards program is between 2% and 10% 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.

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.