For years, businesses have been using punch cards to track customer loyalty and offer rewards. But now there’s another, more technically advanced, option for businesses. The FiveStars app, created by FiveStars, a San Francisco-based startup that sells marketing software, is aimed at helping small to medium sized businesses retain customers.
This is done by identifying past customers who haven’t revisited the business recently. It then tracks individuals purchasing histories and offers those customers personalized rewards through email or text messages.
FiveStars founder Victor Ho explains to Inc:
“We identify these people, figure out what they like, and send them a custom promotion. If we just get them to come back once, they’ll become a really sticky customer.”
The company’s founder isn’t the only one who believes in the effectiveness of this approach. The startup, which launched out of tech accelerator Y Combinator three years ago, just announced a $26 million Series B funding round led by Menlo Ventures. This brings the total capital raised by the company thus far to more than $42 million.
FiveStars currently works with more than 5,300 storefronts throughout the country. Businesses pay $200 per month to use the service. To date, the company has handed out more than $10 million in customer rewards, which has led to about 1.8 million in-store visits.
By identifying customers who have done business with a company before, but not recently, businesses create loyal customers. And those loyal customers can often be more valuable than new ones. Here’s why.
FiveStars says 20 percent of a small business’s customers often make up 80 percent of its revenue. So focusing marketing efforts on these customers instead of trying to get new customers can actually be more cost effective.
The company is still growing and coming up with new ways to encourage customer loyalty. But the basic idea behind its success so far seems sound.
By learning about existing customers and their habits, businesses can personalize the shopping experience for them. It’s a more proactive approach than the traditional punch card. And it’s an approach investors and small businesses are already lining up to support.