How to Establish Rewards Programs for a Small Business

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If your small business is looking to establish a loyal customer base, then creating a rewards program may be the answer. A rewards program (or loyalty program) can encourage customers to return to your business to make more purchases because they receive special perks for doing so. Understand the benefits and drawbacks of having a rewards program and figure out what style of rewards program is best for your business.

What Is a Rewards Program?

A rewards program is a marketing tactic that makes returning customers feel like they are a VIP. The goal of a rewards program is to offer customers who make multiple purchases special perks, such as discounts, exclusive access, bonus points (or double points) or a birthday gift on their special day. By enticing customers with rewards, businesses can encourage repeat purchases and can build brand loyalty.

There are many options for the types of rewards programs a small business can offer. In order to determine what’s right for your business, it’s essential to conduct detailed research into who your customers are and what they care about. Look back at your customer profile and assess their needs. By understanding what your customers want most, you can develop a rewards program that speaks to their problems.

For example, if your customers are widely price sensitive, then having a rewards program that offers discounts and coupons may be the best strategy. However, if your customers crave quality over anything else, then providing them with exclusivity may be the best choice. For example, they could have access to new products two weeks before regular customers. It’s important to know what your customers value as a reward.

Know the Benefits of Having a Rewards Program

A rewards program can help your business to develop loyal customers. The exclusive offers you provide them can influence their purchasing decisions so that they choose you over a competitor. There are many benefits to establishing a rewards program in your small business, including:

  • Reduced cost of customer acquisition: A rewards program is a cost-effective way to earn more sales because you don’t have to spend money on acquiring new customers. It’s the same customers who help you increase sales by making repeat purchases.

  • Increased customer retention: Customers make purchasing decisions based on a number of factors, such as price, value and experience. If your rewards program meets the specific needs of your target market, they will be more inclined to remain a customer for longer.

  • Higher referrals: When customers are happy with a product, business or service, they share their impressions with family and friends and on social media. A rewards program that offers customers additional value can entice them to tell others about your business. Word-of-mouth marketing is an effective way to reach new customers because the referral comes from someone they trust.

  • More customer insight: A rewards program is a good way to learn more about your target market. By sending your rewards members surveys or tracking their purchase history, your business can get a better idea of what products or services they value most. This enables your business to provide them with exactly what they are seeking, thus increasing your shopping cart value.

Review the Drawbacks of Having a Rewards Program

While customer loyalty programs can help give your sales a boost, they can also come with some negative effects. Before implementing a loyalty program, it’s important to weigh the drawbacks with the benefits to ensure this move is right for you and your customers. Some drawbacks of having a rewards program include:

  • Profitability: Many rewards programs provide their members with discounts, freebies and credit or delayed-payment rewards. While these are enticing to consumers, they can be difficult to financially manage on the business end. Even something like a free night's stay at your bed and breakfast can cost you several hundred dollars.

  • Market saturation: There is no shortage of rewards programs on the market in every industry. In fact, many of your competitors may offer loyalty programs as well. If you’re offering your customer rewards, they need to be truly exceptional in order to stand out from the crowd.

  • Unpredictable behavior: If a customer purchased from you in the past, it may not necessarily mean that he will purchase again in the future. It’s difficult to predict which customers will actually end up returning to your business and which ones are just one-time consumers.

Identify the Kind of Rewards Program You Want to Use

Rewards programs come in different shapes and sizes and depend on your industry, the type of products or services you offer and what your consumers value most. Some consumers may care more about earning enough points to get a free product, while others may want you to waive an annual fee.

Types of rewards programs include:

  • Punch cards: This is a simple option that many small businesses use. Customers get a sticker or a hole punch on their card every time they make a purchase. Once they have purchased a set amount of product, they get a free product. Because this is not an electronic system, there is no way to gather customer data through this method, like an email address or phone number.

  • Membership cards: Used by many grocery stores and clothing retailers, members can collect rewards points and bonus points based on their purchases. In return, cardholders can get free food or other products or the option for cash back or gift cards.

  • Opt-in email: There is no physical rewards card or loyalty card with this option. By providing their email address, customers enter the loyalty program. They can get tiered discounts or exclusive offers sent directly to their inbox. Many companies also send a birthday gift to the consumers.

  • Partner program: Combining forces with noncompetitive businesses is a good way to establish a partnership loyalty program. For example, a health food store may have a rewards card in combination with a fitness studio since they share the same target market. Credit cards like Visa, American Express and Mastercard develop partnerships with many businesses to offer travel rewards or a hotel rewards program, for example.

  • Referral program: Capitalizing on word-of-mouth marketing is key for many small businesses. In this rewards program, consumers receive a perk every time they refer someone to your business and that person makes a purchase.

Determine Which Actions You Want to Reward

In addition to figuring out which kind of rewards program you want to institute, it’s also critical to decide when you will reward your customers. While making a purchase is an action that gets a reward, there are also other actions you should consider rewarding. These include:

  • Making multiple purchases

  • Signing up for the program

  • Reaching a purchasing benchmark

  • Writing an online review

  • Sharing your social media content

  • Purchasing from a different channel, such as online or at a farmers' market

  • Referring a friend

Establish Your Parameters

Rewards programs require specific guidelines to protect businesses and to help customers understand where they can find value. Be sure to share your rewards program policy on your website and social media as well as every time a customer signs up for your rewards program.

Your policy should include:

  • What actions receive a reward

  • Which rewards customers can get

  • What tiers for rewards points exist

  • Whether there is an expiry for a reward

  • If special offers and rewards are transferable to other members

  • How customers can increase their rewards points

  • How to redeem rewards

  • How to inquire about the rewards program

Ensure Your Employees Understand the Specifics and Value

A key element to ensuring you have a successful customer rewards program is your employees. Before rolling out your rewards program, devise training for your team and ensure they understand the importance of this initiative. Your employee training should showcase the value of the rewards program to the business and to the customer. You can even incentivize employees to sign up customers for the program by offering your employees their own rewards.

In your training, be sure to go over how employees should promote the program to customers. What benefits should employees mention, and at what stage of the customer journey should they mention them? Also, be sure to go over how an employee should sign up a customer. The signup process needs to be streamlined and easy so the customers don't get frustrated and change their mind.

In addition, discuss whether your employees can take part in the rewards program for customers. Are employees able to use their company discount and still get rewards, and is there a limit to which rewards they can get? If you don’t allow your employees to take part in the customer rewards program, be sure to clearly state this in your training.

Promote Your Rewards Program

In order to inform your customers about your rewards program and encourage them to sign up, you will need to develop a marketing and promotions strategy. Your rewards program campaign can include:

  • Email marketing to your customer list

  • Opt-in sign up on your website home page

  • Blog posts discussing the benefits of your rewards program

  • Social media posts

  • Retargeting online ads to past website and social media visitors

  • On-premise signage at the point of sale as well as other key locations in your store

  • Opt-in sign up on your online store when checking out

  • A link to sign up on each customer receipt

Be sure to provide your customers with multiple opportunities to sign up for the rewards program. Your employees should ask customers at each interaction they have at the point of sale. In addition, there should be multiple avenues on your website to sign up for the program.

Learn From Previous Examples

Be sure to research local competitors in your area to see what kind of rewards programs they have implemented. It’s important to create a rewards program that offers something valuable so that your customers will be interested in signing up with your business rather than with a competitor. For example, if a competitor has a punch card where customers need to make 10 purchases to get a free product, you can consider having a punch card where customers only need to make five or eight purchases in order to get their freebies.

In addition to looking at the local competition, learn from Fortune 500 companies and other large businesses. These organizations have considerable budgets that are spent on market research, so following their lead can have positive outcomes for your business if you share a similar target market.

Successful programs include:

  • Starbucks Rewards

  • Best Buy Rewards Zone

  • Intercontinental Hotels Priority Club Rewards

  • Sephora’s Beauty Insider Loyalty Program

  • Staples Rewards Program

  • Walgreens Balance Rewards

Take a look at the specifics of each program to see which elements you can apply in your business. Make sure the program you develop is appealing to your specific target market and offers them something of value that they cannot get at a competitor.