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.
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?