Are Customer Loyalty Programs Right for Your Business?

Do you have a customer loyalty rewards program? So many consumers say their favorite stores are ones that offer incentives to shop. This got me thinking about the concept of customer loyalty programs and how they are working for businesses. Whether the stores are grocery, retail chains or food establishments, it seems as if customer loyalty programs are more popular than ever. And with the marketplace being more competitive than ever, perhaps customer loyalty programs really do keep customers for the long-term. Let’s look at how the programs work and how you can start one for your business. heart love customer iStock_000022981253XSmall

Loyalty Programs: Do They Work?

What is a loyalty program? Quite simply, it is a process of offering customers incentives and rewards for continuing to shop at your store. A great example is the rewards cards that chain grocery stores and pharmacies offer that guarantee a special price for those that hold the card. Another example is a “frequent buyer” card for coffee shops and restaurants. The incentive is usually something like, “buy nine cups of coffee, and get the tenth cup free.”

Membership in U.S. customer-loyalty programs reached 1.8 billion in 2010 (up from 1.3 billion in 2007). The data showed that the average U.S. household signed up for 14.1 loyalty programs.

Researchers at Stanford measured how an incentive program at a golf course affected buying behavior What they found is that the incentive didn’t make much difference to customers who were already committed players (even with a discount offered). However, the program did make a difference among users who were not regularly by encouraging them to play extra rounds of golf when they ordinarily would not have done so.

Most research indicates that loyalty programs can help your business and keep customers coming back for more. However it is not the incentive alone that keeps shoppers loyal. A host of other things ensure that, such as excellent customer services; appropriate price points; and having the right products in stock. Without these core elements of retail, customer loyalty programs will not make a difference in your overall sales and customer retention.

Creating a Loyalty Program

If you’re planning to start a customer rewards program, the biggest thing to remember is to make sure the rewards you offer are seen as valuable and exclusive. The Wall Street Journal offers the following categories that create value for the customer.

  • Economic (discounts)
  • Hedonistic (participation in games or points exchanged for a product)
  • Social-relational (special privileges like priority service)
  • Informational (exclusive information about new products or services)
  • Functional (priority checkout or home delivery)

Before you jump into creating an incentive program, first consider whether it’s necessary to your business. If you are a small retail store that already benefits from a loyal customer following, an incentive program may not be necessary for you. But if you are not seeing the same customers repeat their shopping experience, perhaps it’s time to try a rewards program and see if discounts or exclusives are the best ways to get certain customers coming in the store.

Have you used a rewards program in the past? What was your experience?

Ivana Taylor is the publisher of DIYMarketers and the President of Third Force, a strategic marketing firm. She's the marketing expert and book editor for Small Business Trends and a frequent contributor to AMEX Open Forum.

Posted in Best Practice
5 comments on “Are Customer Loyalty Programs Right for Your Business?
  1. Shep Hyken says:

    Are loyalty programs really loyalty programs? Or are they marketing or discount programs? As mentioned in this article, the best companies have a loyalty program that offers more than points and other incentives to come back. They offer value. In the end, it is value that makes a customer truly loyal.

  2. patmcgraw says:

    Ivana, a great topic and one that more businesses need to seriously consider. But when they do, I hope they will think beyond discounts and focus on value. Keep in mind the benefits of frequent flyer programs – like early boarding. It costs nothing and is seen as a very valuable perk.

    Think special events like JJ Jill used to do (and may still offer). Loyal customers were invited to special events where new merchandise is featured, the attendees are limited so there can be personal interaction between the staff and the shopper, etc. Hold it at a time that is usually slow – like a Wednesday evening – so you aren’t chasing away business. And publicize it so those that aren’t invited see it and want to become part of that club!

    Go outside the box to related services – like when the local health food restaurant partners with the local yoga center for a special night focused on healthy food, mind and body.

    Toss in a few ‘random acts of kindness’ – unexpected rewards that are personally relevant to the customer. A birthday card. A thank you note.

    Discounts can be matched by anyone…but unique, creative benefits can attract new customers and turn current customers into loyal advocates.

    • Ivana Taylor says:

      Hi Pat — Thanks so much for not just commenting, but for adding additional thoughts and ideas that really round out the article. I especially like the complementary partnership idea you mentioned between the health food store and the yoga studio. These are exactly the unique value-added programs that local, small businesses can easily do that not only add value but create a unique experience and build local community – not just loyalty.

  3. Corey Savage says:

    I’d agree that it takes more than coupons and discounts for someone to be loyal. People that are simply shopping for the best deal will go wherever the price is right and aren’t necessarily loyal to any one store.

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