Loyalty programs are attractive to customers and business owners. Shoppers appreciate saving money and earning rewards they’ll use. In fact, according to surveys by IRI Consumer Connect and Hawk Incentives Research, over 70 percent of consumers choose a store based on a loyalty or discount program and nearly 80 percent look for deals in reward programs before making a purchase.
Business owners embrace customer loyalty programs because they encourage repeat business, build brand loyalty, drive increased sales, track customer spending habits, and earn referral business, all by making customers feel valued and offering them tangible, personalized incentives. These incentives range from coupons and discounts to redeemable points, free merchandise, early access to products, and other perks, like free shipping.
But how to choose which type of program is right for your business? It’s important to keep three things in mind as you consider the options:
- Remember the goal of a loyalty program—to give customers a reason to return and make repeat purchases, choosing you over the competition.
- Find a balance between offering incentives—free products, discounts, and experiential rewards—and still earning a profit.
- Decide which program fits your existing point-of-sale (POS) structure and is simple for both you and your customers to use.
Types of loyalty programs
Although there are many types of customer loyalty programs out there, the following six are the most common and, in general, the most easily adoptable by customers and businesses.
Points — A points-based system encourages frequent, short-term purchases from businesses like retailers, coffee shops, beauty shops, etc. Customers are familiar with this tried-and-true system of earning points that can later be used for discounts or free items. Points programs are flexible, customizable, encourage spending through aspirational purchases, gather customer data for analysis, and can be used across loyalty cards, mobile phones and apps, and email.
Loyalty card — Loyalty cards encourage low- to high-value, frequent purchases. Card holders are more likely to increase spending at a location with a loyalty card. Repeated use of the card earns its user special discounts, coupons, or points toward products. Card programs can be combined with other loyalty systems and discounts; however, it can be frustrating for customers if they forget their card and frustrating for the business if they are forced to provide replacement cards.
Coalition — A coalition system is advantageous for small companies without brick-and-mortar stores. This system is operated by more than one business and offers customers a system that allows them to earn and spend their rewards at multiple businesses. Advantages include expanding reach and exposure to attract new members and sharing financial liability with other companies. You may lose out on customer business, though, if they shift their loyalty to another brand in the coalition.
Cash-back — Companies looking for high-commitment, frequent shoppers often offer cash-back or rebate programs where shoppers can use a percentage of their total purchases and redeem for real value. It’s an easy system for customers to see the value of loyalty, although it may not appeal to infrequent and new shoppers. This loyalty program can be expensive, if managed ineffectively.
Mobile — With more and more banking and shopping habits moving to mobile, it makes sense that customers would also use a mobile loyalty program. An app or QR code in a digital wallet gives total control over customer interaction and data to business owners, which means personalized engagement with customers and targeted offers for specific audience segments.
While customizing a mobile rewards program can be expensive and time consuming, nowadays many mobile payment platforms, like Square, are integrating loyalty programs into their services.
How to start and run a loyalty program
For many small businesses, the most effective and cost-efficient way to select, implement, and manage a loyalty program is with the help of a rewards program technology company. There are many such companies out there, including Belly, Spring Rewards, Fivestars, Whisqr, Punchcard, and Spendgo, among others.
Some of these digital loyalty programs require you purchase and install additional equipment, like a tablet, at your POS that lets customers enter their information to earn and check on their rewards balance. These programs allow you to create email campaigns, send personalized text messages about sales, track customer data, and integrate with your social media accounts.
Other services work through customers’ existing credit or debit cards instead of requiring them to carry around an additional card. These services also issue relevant incentives to shoppers based on previous purchase history. Rewards are easily redeemed on customers’ phones and don’t require the purchase of any additional equipment.
For the value that customer loyalty programs offer businesses, it’s worth taking the time to research and consider what’s most convenient for your customers and what gives you the most flexibility to change the program as your business grows—which it certainly will with your expanding, loyal customer base!
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