Customer Loyalty Reward Programs: A Way to Increase Revenue

Salesman

The other day I went to Costco to replenish several items in our home. As I was checking out the cashier called someone over who pulled up my purchase records. Turns out that if I upgraded my membership I could earn money back on my purchases; enough to more than pay for the upgrade. Why not?

Now why would they offer to give me money back on my regular purchases? Because they know that now I will choose Costco over the grocery store or another discount warehouse. They increase their volume without advertising or marketing. This is a customer loyalty/reward program that works. It effectively costs them nothing and they’ve increased the odds that their current clients will buy more.

Panera Bread Bakery-Cafes had a loyalty/reward program where you could get a free cup of coffee after the purchase of ten cups. They had to discontinue the program because someone created counterfeit cards and offered them on the internet.

So, what can we learn from these examples? First, it’s a great idea to offer a customer loyalty/reward program. It’s less costly to keep current clients than it is to find new ones. Add to that the idea that you should try to capture all of the business you can get from your current clients and you’ve got the foundation for a loyalty program.

Second, make sure it’s something easy to implement and explain. If it’s too complicated no one will use it because they won’t understand it. Moreover, you don’t want to create a plan that is costly.

Third, create a program that can’t be hi-jacked. Consider the Panera example. The loyalty card was too easy to duplicate so someone did. Unfortunately, there are unscrupulous people out there.

Interestingly, participation in loyalty/reward programs is up in this recession. According to Colloquy research,

“U.S. consumer participation in rewards programs is on the rise across all demographic segments, . . . Consumers are leaning on loyalty programs to stretch household budgets further by earning rewards for their purchases.”

What does this tell us? That using loyalty/reward programs can be an effective strategy for increasing revenues even in a recession.

Beyond the lessons learned from the examples above is the understanding that in order to have customer loyalty you must provide an excellent client experience. It will do you no good to have a program if your product, service, and/or customer service is sub-par. Think about it. If the experience isn’t good there isn’t a program in the world that is going to keep clients coming back for more. So, in reality, customer loyalty/reward programs begin with customer service.

Before considering implementing a loyalty/reward program, do a quick reality check. Do you have something that your clients need, want, and like to come to you for? Do you provide outstanding customer service? If the answers are yes, then you can devise a loyalty/reward program that is solid and effective.

Provide outstanding customer service, have a quality product or service, and tack on an attractive program. Using this strategy, you will be able to not only penetrate your current clients, but retain them over the long term. Even in a recession, you CAN increase your revenue using customer loyalty/reward programs.

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Diane HelbigAbout the Author: Diane Helbig is a Professional Coach and the president of Seize This Day Coaching. Diane is a Contributing Editor on COSE Mindspring, a resource website for small business owners, as well as a member of the Sales Experts Panel at Top Sales Experts.

28 Comments ▼

Diane Helbig


Diane Helbig Diane Helbig is a Professional Coach and the president of Seize This Day Coaching. Diane is a Contributing Editor on COSE Mindspring, a resource website for small business owners, as well as a member of the Top Sales World Experts Panel at Top Sales World.

28 Reactions

  1. It is a great way to keep customers for long-term. They will come back again to the stores and tell people positive things about your business. Thank you.

  2. Diane,

    What kind of style is Panera Bread Bakery-Cafes? Does the company have locations all over USA? Could you compare it with some other chains?

    In your opinion, which company is the most innovative regarding loyalty rewards programs?

  3. diane,
    thank you for the post. I am especially thankful for your clarification that the experience is a required element. All too often, clients mistake loyalty and reward programs. When they are not the same. REward programs entice customer to repeat an desired behavior (purchase, store visit, etc), while loyalty programs look to create a personal and emotional bond with the brand.
    The purposeful management of the customer experience creates the Loyalty. Once we have Loyalty, we usually don’t require heavy use of Rewards.

    Thanks again, it was a pleasure to read.

    Rudy Vidal
    http://www.rudyvidal.net

  4. Diane,

    It is a great reminder to include the customer service element which is often missing in programs.

    I would perhaps add to keep it simple if you are just starting a program, don’t forget to track results and get feeback from your customers so you can ensure the program remians relevant.

  5. This is an AWESOME and incredibly timely article…Anyone in business successfully knows that you get far more bang for your buck being nice & rewarding an existing customer than trying to woo a new one.
    If your customers are happy – they do the work for you and become wonderful “volunteer” ambassadors. This makes sense and doesn’t always have to be expensive to do. The key is having a way to track it and then judicious implementation.

    A little creativity goes a long way – my dentist has a loyalty rewards program of sorts…and what has that done? Actually enhanced my satisfaction for what is normally not the most pleasant of tasks… Any industry can find a way to reward customers and it doesn’t always involve spending a lot of money.

    Think outside of the box, think about what YOU would enjoy if you were your customer and you’ve got a great place to start from!

    Awesome, thanks Small Biz Trends & Diane Helbig

  6. I love Giant Eagle’s free gas program. Each time I shop I get a statement of how much I can save on a gallon of gas. I generally save them up until I get a free tank and then cash in. I buy many more things at Giant Eagle because I will get that savings. If I figured up the total savings, I probably would do better buying some things elsewhere but I feel good about it. And they have hooked me completely.

  7. I love reward/loyalty programs because they give me discounts (similar to coupons) without the hassle. Add in the fact that saving money is the “fashionable” thing to do these days and you have the recipe for a great customer retention program.

  8. Let’s be clear; from a marketers perspective, these are really customer discount programs, not loyalty programs. They seek to incentivize customers the way any other price-promotion does. To your point above, true customer loyalty is built one customer at a time through memorable customer experiences based on far more than just price.

    For small businesses, trying to compete on price is a very problematic proposition. There will always be somebody else with deeper pockets. The key to success is built around clear differentiation, genuine engagement with customers, and memorable customer experiences.

  9. I’m with you Kathy. I shop more at Giant Eagle now so that I can take advantage of the Fuelperks discounts. And now they have sucked me in even more by offering the Foodperks program too. For every 10 gallons of gas you purchase, you get a 1% discount on your in-store grocery purchase. So now I find myself not only shopping at Giant Eagle more but getting gas at GetGo more also. Very smart for them.

  10. Interesting post about loyalty programs. I really enjoy hearing about examples like this, because these are the ones that would personally ensure my loyalty to a brand. For example, I have the Cinepex Scene card – I go to the movies once every couple weeks, but only go to Cineplex theatres so I build up points – I’ve already gotten a free movie, which just increases my loyalty to them and the program.

    I think you’re right though – you can’t just have a loyalty program and a bad product or customer service. The two go hand in hand – if I didn’t like Cineplex to begin with there’s no way I would make use of a loyalty program.

    Great post!

  11. I like them when they don’t sell my name.

    I particularly like the new aggregator sites that let you manage all of your loyalty programs (mostly travel) from one site. Ahhh.

    One of my favorite business people, Jeff Walters of Strategy Outfitters, was one of the team that helped Southwest Airlines create its loyalty program and has some great quotes from his work in the customer loyalty world. He wrote a book that I helped a bit on as an editor called Measuring Brand Communications ROI that covered some of this.
    http://www.strategyoutfitters.com

    Loyalty programs done right are one of the best ways to keep your customers coming back. Who doesn’t love that.

    Panera Bread is a great example. One of the things that kept people coming back was the free wifi. Which they now put a cap on so you can only use it for 30 minutes. I know why they had to do it — people camped out all day. But that was a great loyalty program, in and of itself. They just needed to find a better way to keep people buying all day.

    Starbucks is doing a promo where they give you a $2.00 iced drink when you bring your receipt into any store after 2pm. So if you got your morning fix, you are very likely to go back in the afternoon. Not a card, but a loyalty approach.

  12. actually, Panera did not discontinue the program! They are simply reissuing plastic cards that are harder to duplicate. They even still honored my paper card with a free cup.

  13. The fastest way to erode a valuable customer base, is to poorly manage any sort of program that is seen as an added benefit.

    Some examples are – Too Many Emails – relevant or not – know your customer.

    Rewards programs that are too difficult to follow, or collect upon. This can possibly turn into a customer service issue, which could eventually send the once loyal customer packing.

    Poor implementation of a program – Same as above, possibly turning a loyal customer into someone that had purchased without thought, and now the only problem they have is with a program, that they didn’t even need.

    Think of Loyalty Programs as VIP customers, because generally, the customers will now regard themselves as VIP.

    Some examples I can think of that made me switch brands:

    Peet’s coffee has a customer of the week, and they get any drink whenever they want… correction, a free small cup of coffee… once a day… “I thought we weren’t doing a customer of the week this week” – “weren’t you already in here today?” SPECIAL, you bet – before I just walked in paid, now I walk in and get a hassle for a week. Eventually there were other issues that have me now going to Peet’s once a month… maybe, from a prior high of 2.25 x / day. $2600+ in lost revenue, from a series of bad experiences that were totally unnecessary.

    Buying prepaid boat time at a marina, and then being told that the generous deal we were given, must have been a mistake, because they would never make a deal that good. You’re right. Refund of $900 in unused time please.

    Staples – sends me an in store rebate check for ink cartridges recycled, and a % of purchases made monthly over various thresholds. Large check expired 30 days later. Ouch, like having money taken out of my pocket. I now return ink cartridges and buy paper at Staples with the rebates. I now also purchase those soon to be recycled ink cartridges at Costco for a significant savings over what the rebate would have been, and still get the rebate on other things.

    Do you see where I’m going here. If you are going to do it, make sure you CAN do it, and you CAN DO IT RIGHT.

  14. Diane,

    Great post and definitely enjoyed. I think the customer loyalty rewards are a great idea and definitely stimulate people towards them. Anytime you feel like you are being “rewarded” for shopping at a certain shop, you feel like you are valued.

  15. Diane, thanks for the post! I love receiving gift cards to the point that I’ve developed a loyalty program to help others create memories. Ask anyone about their favourite gift – it will bring a smile to their face.

    Loyalty progrms need to create an experience to keep customers comming back.

  16. Customer Loyalty Programs can include Online promotions, including sweepstakes, online instant win games, and contests.These online promotions have become a proven source of building customer loyalty for companies.

    Sweepstakes, including Online Instant Win Games have shown to be consistently effective in developing customer loyalty and provides that instant gratification while gaining the customer‘s attention.

  17. Holy crap. This freaking is solely awesome. I just found some brand new mafia wars cheats. They really work not like the majority of the other crud out there! Check my website for it .

  18. hi; i have a store on bonaire, a small island in the caribbean. we are doing okay but want to expand. i start reading about the reward program and decided to use that as our next new project.
    can you recommend me three (3) program. It should be simple stand alone easy going and not too expensive. Preferibly one from the east coast (miami) which is closer to us (3 hrs flight)
    again, it should be easy simple and stand alone.
    thank you and we look forward to yuor reply.
    Tarci

  19. HI Tarci,
    I do not have any in particular as the article was about the idea in general. I would suggest that you take a look at your clientele and try to determine what would be of value to them – and within your budget. Creating your own program will help you stand out – a differentiator.

  20. I am wondering about the overall cost of a loyalty program. Are there numbers out there supporting that a customer loyalty and rewards program for a small business and retailer is actually a benefit to the business? I think the evidence in and of itself seems to be a good thing, but are there numbers supporting the business case? How much should a small business budget (take away from acquiring new customers) for a loyalty program?

  21. Thanks for this post – I blogged it on my page. Interested to see if anyone else has had success in creating a local community-driven loyalty network. I’m starting one now.

  22. Excellent Article – In fact we launched a new patent-pending technology that will enable Small businesses to create loyalty programs using their IPAD, iphone or Android, and it worked with any mobile phone (unlike most mobile loyalty programs out there).
    Check us out at Looping.com , its free to use. Let us know your feedback

    thanks

  23. In the travel business, customers are shopping price more than ever. I created an Internet niche for mid to high end cruises, escorted and custom tours about 4 years ago. The first few years I sold on price without sacrificing service. Since the recession, everyone has jumped into the price wars. Now, I am focusing on loyalty rewards for customer retention and to entice new clients. If you were spending $10,000 on a vacation, what would you offer as a “hook” to keep clients coming back and attract new ones?

  24. Hi Jeff, that’s an interesting question. I’d love to get some other input on it. The one thing that comes to mind is maybe a free upgrade on something, or passes to something special like a show.

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