Customer Loyalty Programs: A Must-Have Retention Strategy
Small businesses are increasingly focusing on customer rewards and loyalty programs as a retention strategy. / Credit: Loyalty image via Shutterstock

As a consumer, you probably belong to at least one customer loyalty program. Whether it's a grocery store shopper's club, a retail coupon mailing list, or a sandwich shop punch card, loyalty programs have long been a part of the customer retention strategy for large brands. Now, local small businesses are increasingly adopting similar programs to keep their customers coming back.

"As consumers get more and better information regarding how to compare various products and companies, it is critical to compete on price and value," said Patrick Bosworth, CEO and co-founder of revenue strategy solutions provider Duetto. "Loyalty programs provide an opportunity to learn the preferences of customers and design communication strategies that will resonate with them."

"Never before have consumers had so many choices of where to shop," added Chris Doherty, vice president of branding and consumer consulting firm Daymon Worldwide. "Retailers [need] to rethink not just how they market products and services, but how they engage with their customers and become more relevant in their lives." [How to Keep Customers Coming Back]

The key word here is experience: The most effective programs create loyalty-building experiences that precede the shopping visit and extend far beyond the point that the customer leaves their store, Doherty said. The Internet and mobile technology have enabled continuous customer engagement, which allows a business to become a greater part of its customers' everyday lives. The ability to strengthen these customer relationships is what makes loyalty programs such an attractive retention tactic for businesses.

"Loyalty and incentive programs have become 'must-haves' due to the associated performance metrics for businesses that implement them, and the fact that consumers have come to expect a loyalty offering or savings opportunity from the businesses that they engage with," said Doug Spear, executive vice president of marketing and customer loyalty solutions firm Linkable Networks.

If you're considering a loyalty program for your small business, here are a three high- and low-tech options for implementing one.

Arguably one of the most popular types of loyalty initiatives, an in-store rewards program generally offers a coupon, free item or other incentive to customers who have earned a certain number of points by shopping there. Amit Kleinberger, CEO of frozen yogurt franchise Menchie's, has seen tremendous sales growth after starting a rewards program in 2010 offering $5 back for every $50 spent.

"Our customer loyalty program, known as mySmileage, has impacted our business significantly," Kleinberger told Business News Daily. "Over the years we have experienced greater customer participation; however, our overall goal with our loyalty program is to engage with our fans. To date, we have 4.7 million card holders and the total spent in mySmileage for 2013 was $67 million."

Kleinberger noted that, in today's business world, everyone is offering something, so it's important to keep your prize within reach of the consumer. For retail businesses with a lot of varied inventory items, a supermarket-style club card that allows for discounts on select products is another way to keep customers satisfied.

For a simple, low-tech loyalty program, direct mailer coupons can be a great way to get local consumers into your store. However, for the program to succeed, you need to make sure you have a strategic, personalized mailing system.

"Target a specific customer demographic with a tangible product and message based on a specific element on the individual's life," said Brian Wirth, marketing manager of pizza franchise Hungry Howie's. "Welcoming someone to the neighborhood, wishing a happy birthday, or noticing that it's been a while between visits are all great examples of personalized direct mail programs. They focus on reaching customers during times or events that pertain exclusively to that individual. This form of advertising makes a customer feel special while subconsciously building loyalty to the brand."

As with any loyalty program, measuring your mail campaign results and keeping meticulous customer data records will help you ensure that the program is working. Wirth recommended using social media, mobile devices and location-based tools in conjunction with direct mailers to gather consumer information, analyze trends, and further build up relationships with customers.

Credit card technology has become more and more sophisticated in recent years, and the number of different ways to use them as a customer loyalty tool has subsequently increased. One method that's growing in popularity is card-linked offers, where customers earn discounts and coupons by using a registered credit card. With the right tools, this type of program can be one of the most measurable, effective ways to entice customers, especially as an e-commerce business with online advertisements.

"Card-linked functionality simplifies the consumer experience by turning their existing payment cards into cross-retail loyalty cards," Spear said. "Since most businesses accept payment cards and most consumers have multiple payment cards in their wallet, card-linked offer technology essentially drafts behind the existing infrastructure and commerce dynamic with no additional technical integration for businesses, and no new loyalty cards or credentials for the consumer to deal with."

"Card-linked offers are a much more convenient way to offer discounts, which is really powerful from a merchant perspective," added Silvio Tavares, CEO of payment card industry group The CardLinx Association. "You can personalize your offers for consumers based on their spending and websites they've visited in the past. You now have the ability to measure [the effectiveness of] an ad and see if it led to a purchase on that customer's card."

Whichever type of loyalty program you decide to implement, make sure you've done your research and really know what your customers are looking for.

"The path to loyalty-building begins with customer knowledge," Doherty said. "Establish a means for identifying your customers at the point of sale. That provides a way for you to understand your customers, to learn what makes them unique and what motivates their behavior. You can then leverage that wealth of information to personalize your interactions and demonstrate that you value their business."

Originally published on Business News Daily.