A Small Business Guide to Running a Loyalty Program Stats, benefits, actionable tips, and things to look for. Brought to your by SignalMind Table of Contents Stats and benefits of customer loyalty programs Key ingredients in the digital age Running a profitable loyalty program Other things to consider ? 38% of small to medium businesses are using loyalty programs to deliver special offers and rewards ? 21% of businesses anticipate adding a loyalty program in the next year ? 47% of customers wish more stores offered mobile apps to collect and redeem loyalty points ? 47% of customers would choose to shop at a store that offers a loyalty program over the ones who do not ? 73% of users are interested in interacting with their loyalty program over mobile devices. Loyalty programs: stats and benefits Yet, many business owners are expressing concerns over the effectiveness of their loyalty programs: ? Are we giving out discounts to people who might spend the money anyway? ? Are we attracting the wrong kind of customer - the deal- chaser? Some businesses (high-end restaurants or boutique shops) are resistant to implement a customer loyalty program as discounts may not fit with their branding strategy. Many are weary of discounts because of a previous negative experience with a social deal site. While discounts and promotions serve as a great incentive for customers to join a loyalty program, the real benefit behind offering a loyalty program comes from the ability to cultivate your own list of targeted and highly engaged recipients to market to. The key ingredients of a successful loyalty program are: ? High incentive for members to opt-in ? Ability to keep track of customer purchasing behavior ? Rewarding true loyalty without relying on discounts ? Ability to reach out to customers with tailored offers ? Easy process for members to join and use. Let?s talk about these points in more detail. Key ingredients of digital loyalty programs High incentive for members to opt-in Capturing enough interest from your audience to opt-in is often a challenge. Loyalty programs offer a unique built-in advantage, as the potential members are naturally interested in signing up and hearing from you. Keeping track of your customer behavior Another hidden and overly underutilized advantage of the loyalty program is visibility into customer behavior. Good stats and granular member list filtering mean opportunities for effective marketing campaigns (sending highly relevant and personalized offers). A good loyalty program should enable you to: ? get a list of customers who have not been to your store in the last X number of months (perhaps they could use a coupon offer to come back?) ? see which customers have birthdays coming up ? get a list of your most loyal customers (who spend a lot and/or come in frequently). Being able to better understand what your customers are doing, as well as filter your member list for personalized marketing is what this is all about. Multi-channel access The odds are that both your staff members and customers would need to access the loyalty program from various device types: ? Smart phones are great for on-the-go consumers to sign up and access their account information, as well as for employees to access customer information. ? Tablets or tablet-based kiosks make it convenient for new members to sign up (while making the business look technologically advanced). ? Tablets and desktops connected to the internet are a cost- effective option for staff members to access the loyalty program, without incurring additional hardware cost. Ability to reach out to members with tailored offers As we?ve mentioned earlier, your loyalty program customers want to hear from you. And with the right platform you?ll have access to your members? contact information and their spending behavior. This creates a great opportunity for effective marketing with targeted offers, tailored to individual customers as well as to the ups and downs of your business: ? Send discounted offers to infrequent customers only (who have not visited in the last few months) ? Send upsell offers to your best customers ? Promotions for slow days or slow seasons only (when your shop needs whatever business it can get to stay afloat) ? Birthday offers. Currently the majority of emails are read on mobile devices. Therefore it makes sense to take a ?mobile- first? approach by optimizing email campaigns for mobile devices first, and for desktops second. Fortunately, most desktop email users are also more receptive to a simpler, cleaner layout. Easy for members to sign on and use The importance of the ease-of-use for the loyalty program members is a no brainer, and there are a few things to consider: Apps versus web-based As ubiquitous as apps are, they are not always the best channel for mobile interactions. Apps require to be downloaded, creating a potential roadblock for users who are not sure about the on- going relevance of the app. And rightfully so ? for a typical app less than 50% of users use it more than once. A web-based interface is easier to access as no download is required. The same web-based interface can be reused between multiple devices (making it easier to maintain and make changes to). Yet apps can provide a stronger branding and engagement experience, assuming they manage to offer unique and amazing interactive value to users. Convenient for members to sign on and use Plastic cards As a replacement to punch-based cards, we are seeing many of today?s loyalty program providers offering plastic cards (with the provider?s branding on), along with the scanners and other devices that are installed at the shop locations to scan the cards and process punches. While the process may look cool and technologically advanced at first, the reality of carrying yet another plastic card in an already bulging wallet or on an over-crowded key chain is not attractive to today?s consumer. Along with the plastic card, the loyalty program should provide an alternative method of identifying the customer (such as by email address or a phone number). Also, a program that solely relies on cards provides little engagement for users who cannot access their balance or rewards. Running a profitable loyalty program Discounts and offers are a great incentive for members to join. Yet, the danger of discount incentives for the business is that these incentives affect frequent customers (those who would be buying anyway). And therefore having a loyalty program makes no financial sense to the business, right? Loyalty does not pay? The key here is getting these two things right: ? Ability to market to your customers with tailored offers based on their spending behavior or "status" ? The program should not overly rely on discounts Running a profitable club program 1. Don?t overdo discounts. This seems obvious, but the monetary value of any discount you offer comes straight out of your profit margin, and unless the discount is quite large, it doesn?t provide much of an incentive. I can offer 5-10% off, but that?s not usually going to motivate repeat business significantly. Or I can offer 50% off, ala Groupon and other social discounters, and create a net loss unless that customer returns for several more transactions. Sometimes discounts are great, but your best customers will not be compelled to return by price alone. 2. Look for positive incentives with lower incremental costs. The savviest loyalty programs add bonuses rather than take discounts out of the expected customer spend. For instance, a free dessert item that you make in quantity, or a nice carrying case that they might not have bought separately. The same goes for services ? take for instance the auto repair shop that offers a free car wash or tune up and inspection, or the spa that offers a hydrotherapy session with the next visit. If you tend to have some extra inventory, equipment or work capacity that is not being fully utilized anyway, maybe these are ideal candidates for rewards. Running a profitable club program 3. Elite Status is effective and nearly free to offer. How many times have you overheard salesmen bragging at an airport about their Double Executive Titanium status? Let?s face it, most of us would like to get special treatment for our hard-earned money. By offering upgrades in Status after certain point levels, you reward repeat business implicitly. You can make a status upgrade include a reward gift, or use it to differentiate your services. For instance, a Gold status diner might get preferential seating in a restaurant, a customer at the cleaners may get same-day turnaround, and a Platinum status contractor at the nursery gets to skip the line and pick up orders immediately. Learn from Starbucks ? their loyalty program was deemed as one of the most addictive ones, yet their Gold status does not give the loyal members almost anything but the ?special status?. Whatever you offer elite status members, make sure to instruct your staff to acknowledge this status and treat these customers accordingly ? that perk alone will make a difference. Other things to consider Punches versus points In the old offline paper-based world punch cards seemed like the optimum solution for tracking purchases of frequent customers ? anything more sophisticated would be tough to handle in the pre-mobile pre-internet era. We?ve gotten used to the simplicity, but should we digitize it (along with all the that come with the punchcard-based loyalty program)? The downside of the punch-based system is that not every ?punch? is created equal. A small cup of coffee is not the same as a large triple-shot latte. The value of a 60-minute massage is much higher than the value of a $20 manicure. Customers who spend more should be rewarded accordingly (if solely for the matters of good customer service). Loyalty programs that can only reward visits (or ?units? bought) present a real challenge to business owners looking to recognize their customers fairly as well as encourage purchasing of higher ticket items. The downside of the points-based system is the perceived complexity of understanding points (and what they mean in terms of the actual rewards). Other things to consider Fraud prevention When considering a customer loyalty program, abuse prevention is a top concern for many business owners. Things like employees giving out freebies to friends and family members, or smart customers somehow gaming the system. Yet, introducing fraud-prevention mechanisms into any solution inevitably adds complexity and additional steps for customers and staff members to go through, often creating bottlenecks in fast-paced rush-hour situations where (literally) every second counts. Offering a way for customers to enter punches or redeem rewards via mobile devices can be a fun and engaging experience. Yet when you shift control into your customers? hands, you need tight security which in turn creates operational roadblocks (passwords that are hard to deal with on the mobile devices, texting security codes that slow things down at rush hour). Tips on remedying abuse and fraud concerns: ? Limit the input of transactions or punches to authorized staff members only ? Structure your loyalty program around status-based incentives or bonuses instead of items customers would buy anyway. Other things to consider Owning your member data With the growing popularity of customer loyalty programs, we are seeing an alarming trend: business owners often do not own their member data! Growing a marketing list is at the heart of just about every business development plan out there. Having that list not only makes marketing possible, it also provides a safety net in the highly volatile world of small retail businesses. Rainy day? Slow season? Bad economy? Having a customer list to market to can be that parachute needed to survive the tough times. As we?ve discussed earlier, cultivating a marketing list should be a central point of your loyalty program. Unfortunately, with a few popular loyalty program options, there are a few things to look out for! Other things to consider The loyalty program provider is using the business to grow their own community When joining the program, consumers become members of the loyalty program?s community. Such members are not ?exclusive? to say, Joe?s Pizza, or Susie?s Spa. Members are shared within the user base of that loyalty program vendor. When joining, consumers are aware of the fact that they are signing up for provider?s loyalty community (with Joe?s Pizza as a participant), and they would be using the same plastic card and/or app (with the provider?s branding on it) to earn points or punches at Joe?s Pizza?s, but also potentially at Joe?s competitors. Often the loyalty provider markets to its user lists directly, and Joe?s customers may use the loyalty program to receive offers from Joe?s competitors. Price-motivated users join to be a part of some loyalty community where they can watch for rewards from multiple businesses. They may have zero loyalty to your business, as they are simply shopping for discounts and freebies in the area (think Groupon-light). In fact, the main message on the provider?s website is often targeted to the consumers, explaining the consumer benefits of their service. While businesses are the ones paying their loyalty program provider a monthly fee to use the service, the actual customers of such loyalty programs seem to be the end consumers, not the businesses paying for them. Other things to consider Not owning your customer data Unfortunately, you take a look at the provider?s Merchant Terms of Use, you can often find things like ?all customer data is owned exclusively by [provider]?, ?the [business] is not allowed to separately store or download customer data?, ?the [business] is allowed to market to customers only through the use of [provider] services.? With these legal terms, what happens if the business needs to discontinue the relationship with their loyalty program provider? No easy way out In the unlucky event that the relationship with the loyalty provider goes sour (or the provider goes out of business), the small business owner would lose their marketing list AND their loyalty program member list. Transferring your loyalty program away to another provider without transferring your member data would instigate a huge disappointment to existing customers who may be in the middle of earning a reward and would now be starting from scratch (and joining again via a new provider). Considering that many small businesses don?t use any other CRM or marketing tools, in the event they lose the loyalty program the business would lose the only customer list they have. Other things to consider Essentially, while doing all the heavy lifting of encouraging their own customers to sign up, and paying the loyalty program provider for this service, the business somehow ends up not owning their most important asset ? their customer list. We are, by no means, stating that all loyalty program providers out there follow the above philosophy, but the trend is definitely there, and is something to be aware of. Are you interested in offering an effective loyalty program for your customers? 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