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Grow Your Business Sales & Marketing

Do Rewards Programs Work? Most Businesses Don’t Know

Do Rewards Programs Work? Most Businesses Don’t Know Credit: Dreamstime

Seems like you can’t swing a canvas grocery bag without hitting a “shopper rewards” program, but it turns out their ubiquity doesn’t necessarily mean they work.

That’s the finding of a new study that looked at customer rewards programs throughout the hospitality industry and determined that while nearly every restaurant and hotel chain has one, few have determined if they are translating into higher sales or actual customer loyalty.

“Most people we talked to said their company offered the rewards program because they felt they had to keep up with their competitors,” said Michael McCall, a professor at Ithaca College. “Very few could tell us whether the programs were actually having an impact on their business.”

Figuring out what customers value

Even though companies use rewards programs to collect detailed data about their customers’ spending habits, the process of translating that data in useful promotions and special offers is still unrefined. The most successful rewards programs, McCall told BusinessNewsDaily, are the ones that make the customers feel like they’re getting a lot of value, and those that foster an emotional connection to the company.

“You have to figure out something that customers value that won’t cost you a lot,” he said.

McCall suggested, for example, that rather than taking $100 off a client’s hotel bill, a hotel might instead pick the customer up at the airport in a limo. The effect, McCall said, is that the customer will feel special as a result. With a room discount, they are just getting what they were going to pay for anyway, albeit for a lower price.

Discounts do not instill loyalty in customers, while special perks do, McCall said.

Rewarding the best customers

It is also important, he said, for loyalty programs to focus on the best customers, not necessarily the most frequent ones.  A typical airline rewards program, for example, will be far more useful to a person who takes the cheapest flight to Atlanta several times a year. A big-spending customer who flies first class to London once in a while will not be as richly rewarded, even though they may be the more valued customer.

Finding ways to reward those premium customers is a better use of the investment a company makes in a rewards program.

Small businesses, McCall suggested, might want to forgo rewards programs in favor of a little old-fashioned customer service .

Remembering a customer’s name and what they like to buy would be an inexpensive way to encourage repeat business with officially branding it a “rewards program,” he said.