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Guide to customer loyalty programs

Engage customers and increase traffic to boost your profit.

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Offering a loyalty program is an excellent way to promote your brand while gathering valuable data about your customers’ shopping habits. However, launching and maintaining a program can take time and energy, and you might need to invest in new software.

Customer loyalty programs can increase sales by strengthening bonds with your customers — a worthwhile investment.

  • It’s five to 25 times more expensive to acquire a new customer than to retain an existing one, according to Harvard Business Review.
  • Loyal customers eventually spend 67% more than new ones, according to statistics from Small Biz Trends.

What is a customer loyalty program?

Small business owners use customer loyalty programs to incentivize customers to return to their shop, becoming regular customers rather than just one-time visitors. Rewards programs can range in complexity, from simple punch cards to more elaborate cash-back offers. Customers essentially earn deals and discounts by choosing your business.

Rewards programs typically require the customer to submit some personal information, such as a phone number, email or physical address. So, not only can customer loyalty programs lead to more sales, they gather data about your customers and their shopping habits.

Types of rewards programs

Rewards programs all work to incentivize customers to buy more, and shop more often. Keep in mind that you can pick more than one. In fact, the strongest customer loyalty programs might combine multiple rewards.

Program Description Benefits Drawbacks Example
Frequency cards Customers get a punch or stamp.
  • Low investment of money and time
  • Liable for fraud
  • Don’t track customer info
A local coffee shop gives you a paper card, and issues one punch for every coffee drink you buy. After collecting 20 punches, you get a free drink.
Points Customers rack up points, which they can redeem for discounts or free gifts.
  • No need to discount merchandise
  • Promotes long-term loyalty
  • Need frequent reminders of how many points customers have
  • No instant gratification
With Zappos VIP, you get 1 point per $1 spent. Every 100 points equals $1 credit.
Cash back Customers earn rewards with every purchase, to redeem for cash when they reach a certain amount.
  • Easy for customers to understand
  • Money is an incentive with universal appeal
  • No instant gratification
  • Can be expensive up front
Goodyear offers up to $150 in rebate cash when you buy a select set of four tires.
Refer a friend Provide customers with a discount code to send to friends. If a friend makes a purchase with the code, the original customer gets rewarded too.
  • Convenient way to spread brand recognition
  • New customers can earn a reward without being members, though they’ll have to become one to use it
  • Reach is limited to the number of friends a customer has
  • People might use it for a one-time discount, without returning
When you purchase a Huel subscription, you get $15 off if you refer it to a friend who redeems the same coupon.
Brand pairings Customers earn discounts to use at your shop when they make a purchase with a partner brand.
  • Could drum up new business and generate brand awareness
  • Relies on the partner brand to generate sales
When you buy a bottle of wine at a mom-and-pop shop, you get a coupon for $5 off dinner at the restaurant across the street.
Fringe benefits Customers who become members of your program are eligible for discounts at other establishments.
  • Don’t have to discount your own merchandise
  • Doesn’t directly incentivize them to frequent your store
As an AAA member, you get discounts at Six Flags, Hertz, the UPS Store, Universal Hollywood, Hard Rock Café and more.
Non-monetary perk Reward customers with free services or donations when they reach a specific number of points or status tier.
  • Don’t have to discount your merchandise
  • Could be a drain on other resources, like time or human resources
Banana republic offers free basic alterations if you reach the highest tier of its credit card rewards program.

Pros and cons

A customer loyalty program can help attract new customers while retaining current ones, which should increase your overall sales at the end of the day. It can also differentiate your brand from competitors. Still, weigh the drawbacks and benefits before committing, including:

Pros

  • Save money on marketing. Enthusiastic customers are more likely to share their rewarding experience on social media or by word-of-mouth.
  • Promote a positive brand perception. Build trust with shoppers, spur referrals and reinforce that their buying decision was a good one by treating them to perks.
  • Glean valuable data. Identify the shopping habits of your regular customers and use this insight to improve your service and product offerings.

Cons

  • It might cost you extra. A good rewards program needs to present actual value, which means you’ll probably need to discount products or provide free services.
  • Requires time and energy to set up and maintain. Tracking and analyzing data requires resources other than money alone, so you’ll need to make sure the increased customer traffic is worth it.
  • Risk of fraud. Customers may try to take advantage of your loyalty program, looking for loopholes — so keep an eye out for fraudsters.

How to create a customer loyalty program

Here’s how to launch a customer loyalty program for your small business:

1. Decide which type is best for your company.

Think about the buying habits of your target market. Which type of products do they generally buy? What other shops do they frequent? How many loyal customers do you already have? You can also ask customers directly what type of loyalty program they’d be most likely to sign up for.

2. Research software to help get your loyalty program off the ground.

When it comes to the nuts and bolts of how to facilitate your loyalty program, you’ve got options. Some point-of-sale (POS) systems come with built-in loyalty programs. Though this can make for a seamless way to get started, it may not be feasible if you’re locked in a contract with a POS system that doesn’t include a loyalty program.

In that case, browse providers like TapMango, Clutch, Kangaroo, Open Loyalty, and other third-party providers that can integrate with your POS system.

3. Set measurable goals.

Give your team clear goal posts for how you want the customer loyalty program to affect sales. For example, if the average customer visits your shop four times a year, aim to increase that to five times a year.

You might also set goals for how many customers sign up in a given week or month, the average transaction amount, and the average number of units per transaction.

4. Train your staff on how it works and how to engage customers.

Your employees are the face of your rewards program. Make sure they understand and can answer any questions about the perks and benefits of your loyalty program. Encourage them to actively promote it when interacting with guests.

5. Advertise it to customers.

After the framework is in place, use your marketing tools to tout the loyalty program so customers know it exists. Send out an email, text message or flyers advertising the perks of signing up, and consider hanging up signs around your shop to familiarize customers with the benefits.

How much does it cost to set up a customer loyalty program?

The price of customer loyalty programs ranges from free to over $200 monthly, depending on the software you choose and the features it includes. However, most stand-alone loyalty program software will cost between $50 to $150 each month — though you might have to pay a one-time setup fee ranging from $50 to $100.

That said, some POS systems include a built-in loyalty program in the overall membership price. For example, with Toast you’ll pay $75 monthly to cover all POS processing and a customer loyalty program — though you’ll fork over $1,000 up front to get started.

Pro tip — each reward should cost about 10 times the retail value.

For example, a $5 drink would be free after the customer spends $50. Or if you’re using a points system, if 10 points equals $1, then a customer would get $10 off their next purchase after earning 100 points. This should be used as a general guideline, according to Clover.

Which POS systems offer customer loyalty programs?

These POS systems offer built-in loyalty programs, so you can leverage customer engagement without integrating different types of software.

SquareSquare

Guests can sign up at checkout — online or in person — by entering their phone number. And they’ll get a text each time they earn rewards.

Cost: From $45 monthly

  • Compare average spending between customers with customers that use and don’t use the loyalty program.
  • Get a bird’s eye view of your customer’s loyalty history, including linked cards, membership start date and lifetime points.
  • Businesses that use Square Loyalty see a 40% increase in customer visit frequency, according to its advertising.
Read our review Go to site

ShopKeep ShopKeep

Customers connect their cell phone number to ShopKeep Loyalty, earning points for every dollar they spend.

Cost: From $199 monthly

  • Look up customer points in real time to see how many they can redeem.
  • Track the total amount of money discounted at checkout for all customers.
Read our review Go to site

LightspeedLightspeed

Get a unique web app, branded with your company logo, where customers can track their points. Plus, target customers with specific rewards, according to their shopping habits.

Cost: From $169 monthly

  • Send custom deals on birthdays or other special occasions.
  • Design flexible rewards tiers to further incentivize loyal customers.
Go to site

ToastToast

When customers create an account on Clover’s Rewards app, you’ll be notified from the moment they enter the store.

Cost: From $0 for a Payments Plus plan, though hardware starts at $69.

  • Choose between a punch card or points-based loyalty program.
  • Pull up customer profiles on your POS screen to redeem rewards.
  • Create more complex rewards programs by upgrading to a paid tier.

Read our review

CloverClover

When customers create an account on Clover’s Rewards app, you’ll be notified from the moment they enter the store.

Cost: From $0 for a Payments Plus plan, though hardware starts at $69.

  • Choose between a punch card or points-based loyalty program.
  • Pull up customer profiles on your POS screen to redeem rewards.
  • Create more complex rewards programs by upgrading to a paid tier.

Read our review

VendVend

Create a VIP customer group to reward loyal shoppers with regular discounts, special pricing and more.

Cost: From $129 monthly

  • Add customers automatically or invite them to sign up via email.
  • Employees can view and apply each customer’s rewards balance at checkout.
  • Export customer data to your email marketing tool.

LoyverseLoyverse

Free POS software for smartphones and tablets, complete with a points reward program and customer engagement tools.

Cost: Free

  • Track how often customers visit and what they spend.
  • Add notes about customers to keep track of personal preferences.

Stand-alone customer loyalty programs

If you’re looking for a customer loyalty program that integrates with the POS software you already use, you might consider:

  • Antavo
  • Belly
  • Bobile
  • Boostly
  • CandyBar
  • Clutch
  • FiveStars
  • Goody
  • InviteReferrals
  • Kangaroo
  • Loyalzoo
  • Open Loyalty
  • RepeatRewards
  • Revetize
  • Smile.io
  • Sparkage
  • Stamp Me
  • Talon.One
  • TapMango

Bottom line

A strong customer loyalty program can encourage shoppers to come back for more, saving you money on marketing costs and building a solid following over time. If you’re still figuring out how to integrate it with your POS system, read up about payment processors for small businesses.

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