Do’s and Don’ts of Customer Loyalty Programs

Establishing a loyal customer base is no simple matter. Most customers are much like five-year-olds in their purchasing preferences: they want what they want and they want it now. Interestingly, some retailers have found ways to latch onto this, giving customers the ease of purchasing and other benefits they want while profiting from it—a quid pro quo relationship that can build up profits quickly and easily. And when consumers find the company that offers them that perfect purchasing niche, they will return again and again. This inclination, combined with a few incentives and benefits, can create loyal customers who will be more likely to purchase from your business first and foremost, every single time.

Below are a few Do’s and Don’ts to remember when establishing your Customer Loyalty Program.

Do Know Your Customer’s Needs

Whether your business is a small boutique or a larger chain retailer, or even a service-based business, an effective program for customer loyalty must offer incentives that will specifically benefit your customers and encourage them to return, whether that means tailoring the benefits to each customer’s needs, offering a small range of options in benefits depending on customer preferences, or offering a broad type of benefit that all customers would enjoy.

For instance, grocery retailers who offer coupons that are tailored to the customer purchases see a 10-20 percent redemption of those coupons, compared to a 1 percent redemption on generic coupons. For more broad-based programs, look at Amazon.com Prime members, who receive free two-day shipping on most orders (those specifically through Amazon or specially selected Amazon retailers), among other benefits. Prime members pay a yearly fee for this service, but it’s effective in seeing them return and the fee is low enough to be reasonable. Another broad-benefit Customer Loyalty Program is a grocery store’s deal with a gasoline station. For certain purchases that are marked throughout the store and based on a percentage of the total amount spent, the grocery store card holders receive a discount on gas purchases—something everyone could use in this economy.

Don’t Overcomplicate It

If customers can’t directly see or feel the benefit, then the program is ineffective. Additionally, if calculating percentages and loopholes and adding up special circumstances is too complicated, then it’s also going to cost you more time and devalue the experience for the customer. An effective Customer Loyalty Program is simple and direct, and it provides value to the customer. Keep in mind, your program doesn’t have to be based on percentages of money back, for instance, which can cut into profit margins. You can be creative. A special discount or gift after a certain number of purchases, a special shipping program as with Amazon (a lot of people order online these days and this would be a smart way to compete with this specific company if you’re a retail store), or even an invitation to special events just for loyal customers.

Do Make Sure You Can Sustain It

While rewarding your customers with a money back incentive may seem like the easiest way to go, you have to be careful that the program doesn’t build-up and backfire by cutting into your profits. As I said, it’s not always money back or even direct money incentives that will most benefit your customers. Many restaurants, for instance, use a card stamping or punching system so that a patron will receive a free meal or a free drink after so many purchases. In this way, customers have to bring in so much profit before a benefit can be received, instead of immediate rewards.

One rule to live by: the loyal customer should have some kind of reward at least once every 12 visits. So, if you intend to offer a gift, make sure it’s one that is both valuable and whose cost would be covered by 12 purchase visits on average from a regular customer. The key is to make your customer feel special and rewarded for continuing to frequent your business.

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A couple of final notes for any effective Customer Loyalty Program are: following up, reminding your customers of their benefits, and monitoring the effectiveness of your program. Once your customers sign up, you can’t just forget about them and expect them to remember. This goes back to making them feel valued: set up a regular email schedule with benefit reminders or with sales exclusives so that they remember how much they love your business. With that, you should also monitor these return customers to better understand how much profit might be resulting from their repeat visits. You can always tweak your program to be more effective, and you can and should ask for customer feedback on what they would like as benefits or rewards for their continued business.

While establishing customer loyalty is not easy, it’s worth the time. Not only will you increase profits through repeat business, but these customers become an invaluable marketing tool. They are your ambassadors to the world, singing your praises to others with purchasing power. If you treat them with the respect that role deserves, you will not be sorry.