The loyalty program: Your secret to business success

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Numerous things keep small business owners up at night: financial worries, customer retention concerns, million-dollar ideas, and wondering if the front door's locked. A quality customer loyalty program can cross two of those items off your list. (Hint: It's not the front door.)

Nearly everyone is familiar with rewards programs in one form or another. But loyalty programs carry numerous perks beyond giving you a free cup of coffee or a discount on groceries. Let's take a look at what loyalty programs are, why they matter for startups, and how you can implement a successful loyalty program sooner than later.

What are loyalty programs?

Does your local grocery store have a card that gives you exclusive discounts? Or maybe the sandwich shop down the street gives you a card punch toward a free meal every time you buy an embarrassing amount of food. Both of these are examples of loyalty programs.

A loyalty program is a type of marketing that rewards customers for supporting a brand. Loyalty programs come in several forms, each one varying in its approach:

  • Loyalty card: Loyalty card programs give customers a punch card or scannable card that offers access to unique discounts, deals, or free items. The grocery store and sandwich shop mentioned are both examples of loyalty cards.
  • Loyalty points program: A loyalty points system gives customers points for their purchases. Points are calculated through a system — such as a mobile app or the retailer’s site — giving customers the chance to see their points. Customers can redeem these points for discounts or free goods once a specific amount of points are accrued. Visa's credit card cashback rewards is an example of this.
  • Tiered rewards program: A tiered rewards program offers customers deeper discounts or perks as they climb up the ladder — generally achieved by spending more money on your brand. Starbucks uses this approach in conjunction with loyalty points, giving users more discounts and unique perks as they climb each tier.
  • Community-based loyalty programs: A community-based loyalty program is usually offered with another type of program, connecting customers with a localized group of like-minded shoppers. For example, Sephora gives discounts and has a community for user-generated content and conversations.
  • Subscription programs: A subscription program is different from the others on this list as it charges your customers a fee. A subscription program benefits customers immediately for being paid members, like Amazon Prime's free shipping and streaming services.

While the above loyalty programs vary in their approach, each one serves the same purpose: promoting your company, building brand loyalty, and driving repeat customers. But this is only scratching the surface of loyalty program perks.

Why loyalty programs are important

Loyalty programs are a powerful form of marketing for many reasons. Sure, a targeted ad or optimized piece of content can help promote your brand. But a loyalty program can do that and all of this:

  • Drive repeat customers: Loyalty programs are all about rewarding repeat shopping, so it's only natural they drive repeat customers. Think about a place you enjoy shopping. There's a good chance there's some kind of rewards program attached that keeps you coming back.
  • Build brand loyalty: Repeat shopping and customer appreciation build brand loyalty over time. A quality rewards program can go a long way and give customers a reason to choose your company over a competitor. 
  • Attract new customers: Just as rewards programs build brand loyalty, they also attract new customers using those same satisfying perks.
  • Enhance your omnichannel marketing strategy: Omnichannel marketing helps you reach your customers wherever they are, whether online or offline. A loyalty program is an integral part of this experience. It can reward people for shopping at your physical locations (if you have any) and online, seamlessly promoting your brand in all its forms.
  • Increase customer lifetime value: New customers almost always cost more to acquire than retaining existing ones. A quality loyalty rewards program will keep people with your brand longer, thus increasing their overall customer lifetime value.
  • Drive customer engagement: Loyalty programs can drive customer engagement, especially if gamification is involved. Starbucks is an excellent example of this, as it often has events that involve loyalty members, and rewards those who participate.

The best part about rewards programs is that they benefit both the business owner and the consumer. It’s a win-win situation.

How to create a customer loyalty program

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Customer loyalty programs don't happen overnight. Even the simple punch card system at a mom-and-pop shop requires extensive research and planning.

Follow these tips to increase your chances of creating an effective loyalty program that rewards both you and your customers.

Research your audience

You likely know your audience at this point, as that's a vital part of business success. Dig into your existing consumer research and identify what matters to your customer base.

Don't hesitate to poll your audience either. Reach out to your customers via email, your monthly newsletter, or even on social media. Ask them what kind of perks or rewards program they'd like to see. Even a quick online poll on your social media channels can yield some useful data.

Map out ideal customer behavior

A loyalty program is only half of the equation. Your customers need to participate and do something to make it work. This is where you decide what kind of customer behavior you want to drive.

Since each loyalty platform can elicit different customer actions, don't blindly pick one. Here are some options to consider:

  • Repeat purchases: Repeat purchases can be significant for your bottom line. If you're ultimately interested in only getting repeat customers, a loyalty card or points program can be especially useful. It provides immediate rewards for those who return.
  • Promote a new product: A loyalty points program can be a powerful incentive for promoting a new product. You can offer more points for any purchase of that particular product.
  • Drive word-of-mouth referrals: Referral tie-ins can be applied to most rewards programs, and are particularly easy to attach to a points program. If you're looking to drive word-of-mouth referrals, give customers a boost in points or a freebie for anyone they invite to the program.
  • Attract new customers: Most rewards programs will help attract new customers, but a great loyalty card that offers a free item after a few visits is especially enticing.

Pick a rewards program type

With your audience's needs and wants in mind, and your ideal behavior selected, it's time to pick a rewards program type. You know your audience better than anyone — especially if you ran a survey and got direct feedback. 

Think about what kind of loyalty program would be well received by your audience. If you have a younger customer, any gamification would likely be a huge hit. But, you also can't go wrong with a loyalty card or points system.

Remember: you can combine multiple reward types. Nearly any program can be supplemented by a community program, bringing you and your customers closer together.

Market your loyalty program

While loyalty programs are a form of marketing, they still need a marketing push to get off the ground.

Market your loyalty program like you would a new product or service. Create different types of content that will allow you to reach a broad audience, fill your social media channels, and consider running local ads in the paper.

The best loyalty programs only succeed when people use them. A big marketing push can be costly and time-consuming, but the result can boost brand loyalty and long-term customer growth.

Loyal customers, successful business

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As a business owner, you'll always have concerns and things that keep you up at night. But a loyal customer base that helps you turn your small business dreams into big business reality can be yours with a compelling loyalty program.

Research your audience to fill in any gaps you have, think about the actions each rewards program can drive, put together your loyalty program, and then market it until the world knows it exists. Your hard work will be rewarded with devoted customers and a thriving business.

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