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Grow Your Business Sales & Marketing

Customer Loyalty Programs: A Must-Have Retention Strategy

Customer Loyalty Programs: A Must-Have Retention Strategy
Credit: Roobcio/Shutterstock

Today's consumers have a range of choices about where to shop, and retailers need to work harder than ever to earn repeat business. Offering a loyalty program not only makes customers feel valued, but it allows retailers to easily collect important information about customers.

"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."

But loyalty programs aren't just a boon for customers – your business gets access to tons of valuable data for opt-in marketing campaigns.

"When a customer signs up for a loyalty program, a business is given full access to information like name, contact information, shopping preferences, purchase and visit history, and more," said Josh McCarter, CEO of business management software company Booker.

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

A rewards program is arguably one of the most popular types of loyalty initiatives today's businesses offer. They typically work by awarding a coupon, free item or other incentive to customers who have earned a certain number of points by shopping there.

"Businesses should absolutely offer rewards and discount programs to customers," McCarter said. "Rewards and discount programs give customers more reason to come back again, especially in the competitive retail and services markets."

For a simple, low-tech loyalty program, direct mailer coupons can be a great way to get local customers 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, digital marketing strategist at pizza franchise Hungry Howie's.

General nontargeted direct mailers have proven to be increasingly less effective as consumers have other ways to engage with business. However, targeted mailings to VIP clients with special offers still can be effective, according to McCarter.

Card-linked offers – for example, cash back for making a purchase with a specific vendor – are a convenient way to offer discounts, said Silvio Tavares, president and 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," Tavares said. "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."

While card-linked offers can be effective, work is required on behalf of the business to ensure the consumer is aware of the offer, said McCarter. Consumers often only find out about the discount after they receive their bill, and thus the value of using a discount to drive a consumer to the business isn't fully realized.

"In other words, the consumer may have already intended to come to the business and didn't require a discount to do so," added McCarter.

Loyalty programs should go beyond just rewards and discounts, according to McCarter. The best customer membership and loyalty programs solve customers' problems and create a convenient purchase experience. Additional elements might include a custom app, VIP perks, like priority scheduling, exclusive options or line skipping.

"Small businesses also need to remind customers of these benefits with targeted emails following visits to encourage them to make the purchase decision again," McCarter said.

Remember, the most effective programs create loyalty-building experiences that precede the shopping visit and extend far beyond the point that the customer leaves the store, said Chris Doherty, vice president of branding and consumer consulting firm Daymon Worldwide. Mobile technology has enabled continuous customer engagement, he said, 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.

"The path to loyalty-building begins with customer knowledge," Doherty added. "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."

Additional reporting by Nicole Fallon. Some source interviews were conducted for a previous version of this article.

Jennifer Post

Jennifer Post graduated from Rowan University in 2012 with a Bachelor's Degree in Journalism. Having worked in the food industry, print and online journalism, and marketing, she is now a freelance contributor for Business News Daily. When she's not working, you will find her exploring her current town of Cape May, NJ or binge watching Pretty Little Liars for the 700th time.