Customer reward programs have become a competitive necessity in some industries. Some popular examples of customer rewards programs today include Amazon Prime, special coupon prices at grocery chains, airline’s frequent flyer programs, and discount cards at retailers such as Barnes and Noble. Overall, companies spend upwards of $2 billion dollars a year on rewards programs; they are big business!
That being said, does it make sense for you as a small business owner to start a rewards program for your customers? Well, it depends on what industry you are in, first of all. For restaurants and retail stores, it’s almost a necessity to have some sort of customer rewards program just to be competitive. PLUS, statistics show it is six times less expensive to generate a sale from an existing customer vs. attempting to find new clients.
If your business deals with customers on an infrequent basis, such as a repair service or landscaper, it probably is not worth it to implement a customer rewards program. However, it is important to keep in mind that the purpose of a rewards program can be to encourage customers and clients to refer others, and not just to gain repeat business.
The cost of customer rewards programs does not have to be exorbitant. Small businesses can find creative ways to implement customer rewards programs, without greatly affecting their profitability.
Tip #1: Use gift cards instead of holding a sale.
A sale will get people to buy, but doesn’t encourage them to return. A free gift card, however, will typically have a much higher chance of boosting sales than just holding a traditional sale.
For example, the staff of a clothing boutique could ask people who come into the store if they have shopped there before. If not, the sales person can offer them a gift card with a face value of $5. There is a high likelihood that people will begin to shop and more often than not, buy something with a higher value than the $5, due to the perception of having been given “free money”. That is the psychological effect of gift cards, coupons and rewards programs.
Tip #2: Use social media.
Customer rewards programs have come a long way since punch cards. While punch cards can still be an effective approach, designing a customer rewards program around social media is a cutting edge approach that you may want to try. Foursquare is probably the primary social media platform that companies are currently using when designing customer rewards programs by offering special rewards to those who check-in to their business’s location. We have also seen some companies give special rewards to the “Mayor” of their location on random days, which incentivizes customers to utilize social media. The Brooklyn Museum, for example, offers a free yearlong membership to the “Mayor” on certain days.
Another option for using social media is to send coupons or offer a special reward to those people who mention your product in their tweets, using Twitter. If your target customer base includes the 18-24 year old demographic, you must use social media in some aspect for your customer rewards program!
Tip #3: Use your rewards data.
Rewards programs are gold mines of data, if they are designed to capture your customer data. Tracking the buying habits of your customer base can give you a major leg up in shaping your business strategy. Punch cards probably won’t help you gather loyalty data, but most e-commerce systems contain precious information on your customer’s buying habits that can help you design your promotional messages. Larger companies like Amazon and Google have successfully adopted this strategy, and it’s one that is highly important for small businesses, who have limited funds to use for advertising and marketing.
Have you implemented a customer rewards program and found it effective? Please share your story with us in the comments section!