Small Business Customer Loyalty

5 Keys to a Profitable Customer Loyalty Program

5 keys to profitable customer loyalty program

While the most basic goal of any loyalty program is to get customers excited about coming back to your business more often, the power to increase wallet share is why even a simple stamp card or punch card can drive so much value to your business.

To demonstrate, imagine a town with only two restaurants: a Subway and a Jimmy John’s. Let’s say I eat out for lunch 20 times per month - and since I like both restaurants I would split my time and cash equally between the restaurants. At $10/visit/location, I end up spending $100/month at both Jimmy John’s and Subway. However, if Subway rolled out a Subway loyalty program, I’d move all my visits over to Subway. If I am in the mood for a sandwich out, I would want to make sure I get my points for Subways rewards program.

This shift is known as increasing share of customer wallet. By incentivizing your customers to stop splitting time between your business and your competitor's business, loyalty programs can help increase customer revenue.

The key to success for any loyalty program is customer engagement. The best way to encourage high customer engagement is to ensure that your program is simple to use and offers rewards that appeal to a wide variety of customers. The modern loyalty program comes armed with a plethora of extra features, some of which drive extra value and others which sound good but just increase your program's cost and complexity. Below are some tips and tricks for creating a profitable customer loyalty program for your business.

1. Offer a Simple Reward Point Program

While there are certainly more advanced ways to reward your customers, something as simple as a punch card or stamp card can go a long way in terms of getting customers to come back to your business more often. Many loyalty softwares make the mistake of taking the simple concept of a punch card and complicating it by adding convoluted “earning” rules, bonuses, and tiers. Over-complication is the quickest way to not only decrease participation in your loyalty program, but also increase the cost associated with it. A hidden cost of every loyalty system is the time needed to educate customers and employees. Minimize the time investment needed by assigning a set number of points for every time your customer comes in to visit. Your employee can explain the program to your customers in mere seconds. This won’t slow up your line, and it won’t require you to hire software engineers to figure out how integrate your program to your point of sale or take up your valuable time maintaining complex integrations.

2. Offer Both a Loyalty App and Loyalty Card

If a key objective is to maximize the number of customers engaging in your loyalty program, you need to make it easy for your customers to use. Having both a convenient mobile loyalty app and a plastic loyalty card ensures that, no matter the preference of your customers, they are included and engaged in your program.

3. Offer Influential Customer Rewards, Not Passive Rewards Cards

A loyalty program provides the opportunity to mindfully engage with your customers and influence their behavior to become more profitable. Credit card linked loyalty reward cards that passively give your customers cash back do nothing to influence their behavior and are often forgotten.

Instead of offering passive discount cards that actually cost your business money, offer great rewards that change your customer’s behavior. Companies can use well-thought-out reward programs to influence what customers buy, when they buy, and how often they buy.

Influencing what customers buy: A good example of impacting this behavior is the gas rewards card which lets customers earn reward points for purchasing fuel, but offers rewards for high margin in store purchases like free Coca Cola products. In this manner, a fuel rewards card can attempt to alter customer purchase behavior so that it becomes routine to grab a Coke when they purchase a tank of gas. Many businesses are even able to get brands like Coca Cola to pay for the right to be your offer.

Influencing when customers buy: The Starbucks Loyalty Program could use Starbucks rewards to encourage customers to buy a cup of coffee not only in the morning before work, but also in the afternoon. Starbucks could accomplish this by offering a customer reward that was only redeemable (or cost the customer less) if redeemed during the slower afternoon hours.

Influencing how often customers buy: The Southwest companion status allows customers with enough points to get a free extra ticket for any flight purchased. How many Southwest credit cards have people signed up for while chasing companion status? How likely is a customer to worry about flight prices if they are chasing the companion status? How many extra flights are booked because they need earn that status? Customers love this rewards program because it is a highly valuable offer, while Southwest Rapid Rewards generates considerable profit because of its power to influence customers behavior through their loyalty program.

4. Incorporate Automated Email Marketing

One of the easiest and most profitable ways to further influence your customer’s behavior is via email marketing. Email marketing works: the Direct Marketing Association reports that email marketing has the highest ROI on average of any channel at $40 return per dollar spent. The biggest advantage of a digital loyalty program over a paper punch card is your ability to capture customer contact info and behavioral data. Ensure your loyalty program has a way to reach back out to your customers with reminders of big events, new products, and special offers. You can also take advantage of automated email campaigns that email target customers who have not visited your location in a few months.

5. Use Your Loyalty Program to Sell Gift Cards

If you are already offering gift cards, there is no better way to distribute them than a loyalty program. By capturing the contact info of your best customers, you’re able to heavily market to them in November and December when most gift card sales happen. With gift cards, your business receives money up front, 20 - 30% of gift cards are not redeemed, and about 40 to 50% of guests spend more than the gift card. In addition, gift cards given as gifts from your loyal customers to their friends, family, and coworkers can be a great source of generating new business.

Engaging with your customers via a loyalty program can provide your business with an invaluable opportunity to connect with your customers on a more personal level. By keeping your rewards program simple, enticing, and straightforward, you poise your business for an uptick in customer visits, increased wallet share, and, ultimately, more loyal customers.

Interested in implementing a loyalty program at your business? Contact us here to see how Belly can help.