Developing an effective loyalty program

Retaining customers can be tricky, but with an effective loyalty program your business could see a pickup in sales, increased brand awareness and lower marketing costs.

Read on to find out more about the types of loyalty programs out there, which ones suit your business and how to best implement them.

Buy 10 get 1 free

This is the most straightforward program, being that once a customer purchases a certain quantity of your product/service, you give them one free. This may work for businesses in the food industry, e.g. offering a free coffee for every 10 purchased, but for many others this method prevents you from obtaining any customer information and makes it impossible to tailor your marketing strategy.

Points system

This system involves customers accruing points each time they do business with you, which can be redeemed for a type of reward. Rewards can include discounts, free products and invitations to members-only events, for instance a sneak preview of an upcoming launch or an exclusive masterclass.

If you decide to go with this method, keep it simple and easy for customers to register. You can keep a set of blank swipe cards at the point-of-sale or have your sales team sign on customers via an online form, but whichever way you choose, ensure you have an electronic database to keep track of records. For retail and services business in particular, this database can serve to identify customers if they've forgotten their loyalty card.

You should also determine how purchases translate into points, and the simplest way to go about this is allocating one point for each dollar spent. After a certain level of points, the customer receives his/her reward.

Some examples of points calculations you should avoid using are:

  • 16 points equals one dollar
  • 25 points equals 15% off your next purchase
  • 100 points equals a $20 gift voucher to be used only in the next three months

Tier system

This is the system used predominantly by airlines, as it encourages repeat purchases as well as allows you to obtain customer information.

Qantas' Frequent Flyer program, for instance, has five tiers of membership - bronze, silver, gold, platinum and platinum - that members can qualify for depending on how much they fly. Once they have travelled a certain number of flights or log a certain number of miles, they earn enough points to move to the next tier.  The points can be redeemed for flights, upgrades or for products in the Frequent Flyer Store.

As they progress through the tiers, ensure that the benefits they receive are similarly increasing. For example, those in Tier 1 receive a free product on your birthday, but those in Tier 2 will receive that plus a discount coupon and an exclusive event invite. This will ensure that customers are motivated to spend more to get to the highest tier.

Unlike the first two loyalty programs, the tier program operates on a long-term basis to retain clients. This may be beneficial for some, such as businesses offering more expensive and complex products such as insurance or airline tickets, but for others it may not be as suitable.

Partnership

Also known as coalition programs, partnering with a business in a complementary industry can be an effective way to promote and grow your business. For instance, if you own a restaurant business, consider partnering with a local motel to offer a discount package; if you own a pet salon, think about teaming up with a veterinary practice to offer grooming and health deals. 

This expands your service offering as well as creates mutual benefits for both you and your partner business. Importantly, you should ensure that partnership deals are relevant to your target audience - you can find out more about their preferences by conducting a survey or by simply asking them at point-of-sale what their interests are and how often they do a certain activity.

Whatever loyalty program you choose, remember to keep it simple and easy for your customers to understand. Avoid spamming them with unnecessary communication, and most importantly, make sure you carry out the rewards you promise. Cancelling or downgrading a reward a week before the claimable date isn't good business practice and will only hurt your reputation.

Once you establish an effective program, you'll be able to build strong customer relationships in the long run and gain new ones through word-of-mouth and excellent reviews.

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