Customer Loyalty Programs For Small Business: How To Create A Rewards Program That Works
Were you aware that the average adult is enrolled in roughly 15 loyalty/rewards programs? (I’ve had many a polite staring match with clerks trying to push their store’s customer loyalty program. Needless to say, I’m not at all surprised by this statistic.) Loyalty programs, in one form or another, have been around for many years. Though they’ve evolved through time, these systems have increasingly become an important weapon for business owners to retain existing patrons.
Technology is rapidly encroaching every area of our lives and customer loyalty is no exception. The advent of cloud computing has revolutionized businesses’ ability to store customer data, and then use this data to increase their margins. This article will go over the types of loyalty programs and lay out how to create a rewards program for your small business.
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What Is A Loyalty Program?
And hey, what is customer loyalty, for that matter? Simply put, customer loyalty is the tendency of customers to return to your business, rather than being a one-time shopper. Customers may be motivated to give you their loyalty (i.e. repeat business), for various reasons, including the rewards you offer returning customers—which can include discounts, free items, cash-back, and other perks. Accordingly, loyalty programs are rewards programs put in place by the owners of an establishment to encourage customers to return.
Every rewards program is unique to the company that implements it, but they operate on roughly the same premise: the more a customer shops at your establishment, the more rewards they receive, and the more incentive they have to come back and continue shopping at your place of business.
Rewards programs typically require customers to hand over some minimal personal information. Often it’s just an email address or phone number, but sometimes customers may also need to provide a physical address or other information. In return, they can start earning benefits the more they shop. Modern electronic rewards programs specifically benefit business owners because they can mine a large portion of previously untapped customer data.
Why Does Customer Loyalty Matter?
Loyalty software benefits small business owners as well as their customers. Obviously, the more customers shop at your establishment, the more sales you’ll make. But the benefits of customer loyalty go far beyond just “more sales.”
Drives Customer Retention
Strictly speaking, a returning customer is more valuable than a new customer. Customer loyalty programs promote customer retention—the ability to keep customers over a period of time—which keeps down your marketing costs and drives profits. Here are a couple of important statistics about customer retention (source: Forbes):
- It costs five times more to attract a new customer than it does to retain an old customer.
- Increasing customer retention rates by 5% increases profits by 25% to 95%.
Keeping your customers coming back time and again puts money in your pocket. And who doesn’t want that?
Provides Data To Make Smart Business Decisions
Not only do loyalty programs increase customer retention, but they also provide valuable data that you can use to inform your business practices, including how you market to customers, which products drive loyalty, and more. Businesses use these systems to collect customer information, track sales, and keep an eye on their retention and churn rates.
You don’t want to fly blind when it comes to your business strategy, and customer loyalty programs can fill in some important blind spots. Many loyalty programs can integrate with your point of sale system as well, and some POS systems have built-in loyalty programs.
Automatically Segments Customers For Targeted Offers
Loyalty programs for small business allow your company to segment customers and target specific offers to specific groups of customers, depending on their behavior. For example, you can email your “high spenders” targeted offers for more luxurious products, and have a separate email list with offers that target customers who are motivated by time-sensitive deals. Sending customers offers that are tailored to their preferences and habits significantly increases the chance that you’ll hook their attention—and their repeat business.
The best part is that these programs segment customers automatically, which means there is no extra legwork or marketing expertise required by the small businesses who use them.
Types Of Loyalty Programs
There are a wide variety of loyalty program styles out there and each has its own unique advantages and disadvantages. Let’s go over a few of the main styles:
- Cash Back Or Rebate Programs: This type of rewards program is pretty self-explanatory: customers earn money back from their purchases. Once they reach a certain dollar amount or a certain time limit has been reached, they can redeem their rewards for cash. The rebate is usually based on a percentage of the total purchases during the time period in question. This type of program is easy to understand but it lacks the element of instant gratification for your customers and it can also be expensive to implement.
- Discount Programs: This system offers a discount off the original price of any given item that can be applied to customers at the checkout counter. Discount programs are easy to understand and process but may give customers the impression that your regular prices are too high.
- Frequency Programs: Many of the businesses that use this type of rewards program employ paper punch cards to keep track of their customers visits. (Buy 5 subs and the 6th is on us!) While these punch cards are low cost, they don’t track any customer information and are more open to fraud.
- Points Programs: With these rewards programs, customers are given points, often in exchange for the amount they spend in your store. The point system is a great way to avoid discounting your merchandise, but you may need to find a way to remind your customers of their status in the rewards program.
- Tier System: This sort of rewards program is great for keeping customers engaged on a consistent basis. To join the system, a customer must make a simple purchase. The more frequently a customer makes purchases and the cost of those purchases will determine the level of rewards they receive. This sort of program works really well for businesses with expensive merchandise. Different loyalty systems can be mixed and matched together to create your own unique loyalty program that works best for your specific business and customer needs.
- Non-Monetary Rewards: Customers have needs beyond just saving money, and a rewards program can help address these also. You should reach out to your customers regularly with exclusive notifications about upcoming products or services, opportunities to donate rewards to the customer’s favorite charity, special birthday rewards, incentives to share deals on social media, and more. All of these types of personalized rewards not only provide an incentive for customer loyalty, but they also build your brand.
Many rewards programs integrate multiple types of rewards. For example, a program could offer its members both discounts and points. In fact, the more versatile and customizable your rewards program is, the better.
Types Of Rewards Delivery Methods
So if physical punch cards are out, how exactly do modern loyalty programs deliver customer rewards and track reward activity? Usually, they will use one of the following methods:
- Email/Text Opt-In: Most modern programs simply have an email or text opt-in that identifies customers by their email address or phone number, and then delivers rewards via email or text. The customer may have to enter their email address or phone number during each purchase to receive rewards. Or, with loyalty-integrated POS systems such as Square, the customer’s information is automatically linked to their credit card, so they don’t need to enter anything.
- Mobile App: Many programs also give customers the option to use a mobile app to view and redeem their rewards. The app will often have a scannable QR code. Some mobile loyalty apps are dedicated mobile apps custom-built for a particular business, or a business may belong to a rewards network app, where the customer can use a single app to earn rewards at multiple businesses belonging to that network (example: OpenTable). There are even punch card apps, which simulate a punch card on the customer’s phone.
- Scannable Cards: Other loyalty programs utilize scannable cards that integrate with the POS. With consumers’ reluctance to add another card to their wallet, scannable rewards cards will usually utilize a smaller keychain-friendly card that the customer can keep on their keys. However, this is a more expensive solution that is usually used by larger companies.
What Kind Of Customer Rewards Should You Offer?
Generally, businesses should use an electronic customer loyalty program that includes customer data, automatic segmentation, and email marketing. Programs should also support mobile and multichannel—meaning customers can redeem points on their phone, on your website, or at your store. However, what type of customer rewards you should offer depends a lot on what type of business you have.
Coffee shops, for example, do well with points programs wherein customers receive points for each purchase, which they can redeem for a free item when they have enough. Many coffee shops also use punch cards (frequency program), though as mentioned, this type of low-tech rewards program doesn’t carry the same benefits as a digital program.
Stores with higher average tickets, such as many retail stores and restaurants, may primarily use discount programs, where customers can eventually earn a significant discount on a meal or item.
Again, the best rewards programs can combine different types of rewards, including non-monetary rewards such as free birthday items, exclusive giveaways, etc.
Structuring the rewards to the needs of your business is important for creating an effective program. If you’re still not sure what kind of rewards to offer, it’s a good idea to research what kinds of rewards competitors in your industry are offering. Also, you can reach out to customers directly with a survey about what types of rewards they would be interested in receiving.
How Do You Get Loyalty Program Software?
Aside from paper punch cards, the main two ways you’ll use loyalty program software is through your POS, or using a standalone solution.
POS Systems With Built-In Loyalty Program
The pros of using an in-house loyalty program offered by your POS is that it can be easy to implement since you already use the POS. Plus, you know the program will be compatible with your POS. Usually (but not always), loyalty is offered as an additional monthly add-on. Built-in POS customer rewards programs can be somewhat basic (though again not always), so you’ll want to find out everything it does before you commit to that extra monthly charge.
A few POS systems with strong loyalty programs include:
- Square (with Square Loyalty add-on)
- Loyverse (free POS with excellent free customer loyalty program)
- Vend (loyalty included at “Pro” subscription level)
- Toast (with Toast Loyalty add-on)
- Lightspeed Retail (with Lightspeed Loyalty, included in “Advanced” subscription level)
- ShopKeep (with ShopKeep Loyalty, available to merchants with a ShopKeep Advanced package)
Even if your POS doesn’t have an in-house loyalty program, it likely integrates with third-party loyalty software programs, which may integrate with your POS so well that it won’t really matter that the program isn’t made by the same company as your POS system. In fact, virtually all cloud POS systems integrate with some type of loyalty software. For example, Clover integrates with various loyalty apps that you can purchase in their app store; Shopify also integrates with numerous loyalty apps, including dozens of free customer loyalty programs.
Standalone Loyalty Software
There are also various standalone loyalty program software programs that are not sold with a POS. But again, most of these solutions are compatible with POS systems, and to get the most out of your loyalty program, you’ll want to make sure it integrates with your POS. However, in some cases, a business might use a simple credit card reader in lieu of a POS system, but could still benefit from using a third-party/standalone loyalty app.
Often, standalone loyalty software apps provide more powerful and nuanced functionality than what you might get as an add-on offered by your POS. Though there are free customer loyalty apps available, advanced loyalty software can potentially cost a lot—for example, an advanced customer rewards system like FiveStars will set you back $299/month.
Here are some popular standalone loyalty solutions:
This is not by any means a comprehensive list, as there are not dozens but hundreds of different customer loyalty software programs. Note that in addition to a loyalty program, many of these applications include other customer engagement features, such as gift cards, digital marketing, mobile ordering, and more.
Is A Customer Loyalty Program Right For Your Small Business?
Any business owner worth his or her salt will tell you that having loyal customers is vital to keeping a thriving business. Not only is retaining existing patrons less expensive than acquiring new ones, repeat shoppers are known to spend up to 67% more when they visit your establishment. A loyal customer is a customer you can count on returning to your business and spreading free advertisement about your brand by word of mouth. (One of the most effective forms of advertising, I might add.)
There are numerous different types of rewards programs, and with all the options available, the odds are very good that you can find one that meets your needs and falls within your budget.
Want to learn more about how to create a rewards program for small business? Check out some more resources we’ve put together: