CUSTOMER RETENTION

Loyalty Breeds Customer Devotion

Since 1981, customer loyalty programs have exploded. Consumers under 30 may not remember a time when they went to a supermarket and bought groceries—or fixed a car or checked into a hotel—without showing a customer loyalty card.

But do these programs actually work, especially for small businesses? Can you implement one—cheaply and easily—in your company?

For big corporations, the value of customer retention programs is hotly debated. Consumers now have a wide range of choices from major brand names, yet those programs don't necessarily make customers more faithful to an airline, for example, when they can't actually secure reservations using frequent flier miles.

But for small companies—especially retail and service businesses—these programs can be an effective and simple way to keep customers coming back, both online and in-store, notes Rhonda Abrams, President of The Planning Shop, publishers of books for successful entrepreneurs. The key is to keep your program simple and be clear on what you’re trying to achieve.

The best reason for a small company to implement a retention program is to keep clients coming back. As a small business, it’s hard to compete with the big-box stores or corporations with large advertising budgets. Offering a simple reward punch card at your sandwich shop—for instance, one free sandwich for every 10 purchased—may keep a customer from going across the street to the fast food joint.

Abrams offers the following loyalty program tactics proven to work well for small businesses:

• Pre-purchase discount—A gym offers a 10% discount when a customer pre-purchases a series of exercise classes. Pre-purchase discounts are cost-effective and cash-flow positive for any business. You get money in the bank now, the benefit is immediately apparent to the customer and if the customer fails to use all their products or services, you’ve increased your profit margins.
• Cash reward after reaching purchase level—A beauty supply store offers a $6 credit after the customer purchases a certain amount of merchandise. The discount probably is less than 10%, but customers like getting a cash amount to use when they fill in the card. Often, they’ll also purchase something they might not have otherwise. That increases sales and keeps customers coming back.
• “One free” after reaching purchase level—The long-term airport parking lot gives fliers one stay after they stay 35 days; you get one free pair of pantyhose after you buy 16. Free products or services are a little less motivating than cash, but still quite effective rewards.
• Other gifts, upgrades, special treatment—Giving extras to your most loyal customers may cost relatively little but have great impact. In fact, better service is what now motivates many airline program participants—such as earning upgrades to business class or sitting in the front of the coach section. For small companies, frequent buyer programs could mean free alterations at a boutique or dry cleaners, free desserts with meals or other unexpected bonuses.
• Punch card loyalty programs—They’re easy and cheap to implement, especially if you do it online. Just figure out the sales level you need to justify the reward or discount, print out cards and purchase a specialty hole punch with a unique shape to discourage fraud. If fraud is a major issue, you can keep the cards at your place of business rather than give them to the customer. In addition, giving customers loyalty cards to carry with them acts as an ongoing advertisement for you. Think about how often customers will see your card when they keep in their wallet—at least a few times a week.

“One note: Regardless of the type of loyalty program you implement, you still must offer good products and great service,” Abrams says. “Remember, you’ve got to be loyal to your customers if you want them to be loyal to you.”