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Updated Oct 24, 2023

Customer Loyalty Programs: A Must-Have Retention Strategy

Choosing and promoting loyalty programs is an essential marketing tactic for many businesses.

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Jennifer Post, Business Operations Insider and Senior Writer
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Consumers have never had more choices about where to shop, and retailers need to work harder than ever to earn repeat business. A loyalty program not only makes customers feel valued but allows retailers to collect important information about their shoppers.

What is a customer loyalty program? 

“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, co-founder of hotel 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.”

Did You Know?Did you know
Loyal customers typically shop more and spend more than new customers.

Benefits of customer loyalty programs

Loyalty programs aren’t just a boon for customers. They give your company 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, former CEO of business management software company Booker. That data can help personalize your email marketing.

Types of customer loyalty programs

Businesses considering a loyalty program have a daunting array of options. Here are three that can work for SMBs. 

Rewards and discount programs

A rewards program is one of the most popular types of loyalty initiatives available. They typically work by awarding a coupon, free item or another 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.”

Direct mailers

Direct mailer coupons can be a simple, cost-effective way to bring local customers into your store. However, for these programs to succeed, you need to have a strategic, personalized mailing system. It’s not too hard to get started with direct mail.

“Target a specific customer demographic with a tangible product and message based on a specific element on the individual’s life,” Brian Wirth, a digital marketing strategist who has worked with restaurant and adult beverage brands, said. 

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

Card-linked offers

Card-linked offers – for example, providing cash back for making a purchase with a specific vendor – are a convenient way to offer discounts, according to Silvio Tavares, a former credit card executive who’s now president and CEO of VantageScore, a credit model company. 

“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.”

Card-linked offers are an effective and easy way for customers to realize discounts, but they need to be aware the offer exists first. Be sure to promote those discounts ahead of time to bring customers in. Otherwise, you may be simply offering a discount to customers that would have shopped with you anyway.

“In other words, the consumer may have already intended to come to the business and didn’t require a discount to do so,” said McCarter.

TipTip
Not accepting credit cards can hurt a business's profitability.

Above and beyond with loyalty programs

According to McCarter, loyalty programs should go beyond just rewards and discounts. The best customer membership and loyalty programs solve customers’ problems and create a convenient purchase experience. Additional elements might include a custom app and 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.

How to promote your customer loyalty programs

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, a former vice president at branding and consumer consulting firm Daymon. 

Go mobile.

Mobile technology has enabled continuous customer engagement, Doherty said. This 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. In some cases, it makes sense to build a mobile app for your business.

Know your customer.

“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.”

Leverage the team.

Entry and mid-level employees often have the most interaction with your customers. Make sure they know about your customer loyalty programs and ensure they pass along the news as often as they can. 

Advertise. 

Customers can’t take advantage of a loyalty program unless they know it exists. It’s your job to ensure they do. Reach customers where they are. Depending on what your business does, that might mean displaying loyalty program information on a website, a billboard or an in-store display.

Loyalty programs are a staple of business

Businesses have always had loyalty programs. The difference is that now many providers have made them into a more precise science than they used to be. These new offerings are some of the best ways for businesses to become familiar with their customers and make sure they keep coming back. 

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Jennifer Post, Business Operations Insider and Senior Writer
Jennifer Post has spent nearly 10 years advising small business owners on best practices for human resources, marketing, funding and more. She devotes her time to ensuring entrepreneurs are equipped with not only the knowledge necessary to launch and grow a successful business but also the software products and tools that are essential for everyday operations. These range from CRM and credit card processing solutions to legal services and email marketing platforms. Post, who has a bachelor's degree in journalism, has shared her expertise through Fundera, The Motley Fool, HowStuffWorks and more. Most recently, she has focused on risk management and insurance, two key areas business owners must understand to sustain their enterprises.
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