As competitive pressures increase, small business loyalty programs are an effective way to keep people coming through the doors over and over again. Whether simple punch cards, app-based, software, or e-commerce systems, there are tools any sized small business owner can deploy, reaping some added benefits over and above loyalty in the process. However, if a small business rewards club program is going to be effective, paying attention to must-haves, KPIs, and to the program itself is imperative.
Jump to:
- Benefits of Loyalty Programs
- Essential Features
- Key Metrics to Track
- Comparing Options
- Integrating E-Commerce
Unexpected Benefits of Small Business Loyalty Programs
Keeping customers glued to your side and generating repeat business are the primary objectives of small business loyalty programs. However, there’s more to them than just this, says Andrew Stern, CEO of Quilt Software, an NYC-based provider of software solutions for small specialty and independent retailers.
“They change the economies of running a small retail business,” he explains. “The data they generate helps store owners understand buying habits, refine inventory and target promotions in ways that reduce waste and protect profit margins.”
Richard Grove agrees. The owner and principal consultant at The Small Business Consultant, an Atlanta-based firm that works with entrepreneurs and small to medium-sized businesses, says the ability to capture customer data can also direct future marketing efforts. Additionally, says Grove, small business rewards clubs:
- Increase the average order value. Customers tend to spend more when nearing a reward.
- Generate referrals. Achieved through building in “bring a friend” incentives.
- Refine targeting. Of customers and the offers you provide.
“A local client implemented a simple POS-integrated points system,” Grove recalls. “Within 90 days, repeat visits increased 28% and targeted birthday promotions generated high redemption rates and goodwill.”
Essential Features of Successful Small Business Loyalty Programs
The key? Keeping it simple, says Stern, explaining customers must instantly understand how it works, the value and how they’ll benefit. Other essentials include:
- Relevance: Don’t base rewards on what is easiest to offer, give people what they want.
- Speed: Rewards taking too long to earn will cause people to lose interest. “Set achievable milestones that fit customers’ buying patterns,” Stern advises. “If you know most shop with you once or twice a month, they shouldn’t have to wait an entire year to see a benefit.”
- Profitability: It must work for the store’s bottom line. It’s not effective if it’s costing more to run than it’s bringing in.
- Integration with POS and customer database: This enables the personalization of offers and real-time tracking, providing an accurate record of what’s been earned while capturing data necessary for better decision making.
Operational considerations are also important, adds Grove. “Failing to promote the program or not training staff can render even a good design ineffective.”
Key Metrics to Track for Small Business Loyalty Programs
Grove and Sterns say small business rewards clubs/loyalty programs should aim to:
- Increase customer retention and their return rate. Bringing them back more often and within a specific time period.
- Boost purchasing frequency. Inspiring customers to buy more often.
- Raise the average order value. Customers may be motivated to spend more per trip if they’re working for a reward, says Stern.
- Improve the customer’s lifetime value (LTV). Increase the customer’s long-term worth to a business.
- Encourage strong redemption rates. “Low redemption usually means the offer isn’t motivating enough. A bump in average sale per customer is a good sign, but it also must be balanced against profitability, since overly generous rewards can quietly erode your bottom line,” says Stern.
“[KPIs] can be tracked with loyalty software, but even without software, small business owners can measure progress manually,” says Grove. “[This can include] using simple methods like spreadsheets, receipt timestamps, or asking customers to provide their names or email addresses on a punch card for future follow-up”
Comparing Small Business Loyalty Program Options: Pros and Cons
Punch or Stamp Cards
- Pros: Basic. Popular. Easy to explain and use.
- Downsides: Won’t capture customer data or help you track performance.
Manual Sign-Up Lists
- Pros: Enables the building of marketing lists and some follow-up, says Grove.
- Downsides: Requires consistent, ongoing manual effort.
POS-Integrated Rewards
- Pros: Easy tracking. Automated promotions. Identifies the best customers, what rewards motivate them, how the program is influencing their purchasing behavior, says Stern. “[For example] a bookstore can track which genres of books a customer typically buys and give them more personalized marketing content when a new book hits the shelves.”
- Downsides: Higher setup costs.
App-Based or Full Loyalty Software
- Pros: “Rich analytics, automation and personalization,” says Grove.
- Downsides: Cost and complexity may not suit all businesses.
Integrating E-Commerce with Small Business Loyalty Programs
Located in Malvern, Pennsylvania, Mobile High 5 provides mobile marketing through its loyalty program powered by SMS (short message service) text engagement, says Barbara Casey, CEO. This program can integrate with various e-commerce platforms and also run onsite in brick-and-mortar stores, connecting to customers however they shop.
Most loyalty programs rely on email engagement; problematic since Casey says 80% of recipients won’t see the rewards or offers.
“When SMS is the form of communication, 98% will see that message within minutes and a percentage of those will act on your offer within hours,” she says. “With email, you have to wait for your customer to see it. With text, since it always comes through — even on a locked screen and regardless of Wi-Fi — it gets seen when you want it to be seen.”
Additionally, an effective e-commerce loyalty program will:
- Use unique, not generic, coupon codes. Enables tracking from text to conversion.
- Make it easy. Minimal hurdles, an uncomplicated structure.
- Be actively monitored. Optimizing and monetizing over time requires paying consistent attention to what offers customers are reacting to and how.
What to look for? CTR (click through rate), conversions, coupon use, how long after an offer is sent out people act on it, time of day results and retention, says Casey, explaining their product provides this data and more.
Choosing the Right Small Business Loyalty Program for Your Needs
How to determine the right-for-you small business loyalty program? Consider:
- The type of business: Punch or stamp cards might work best for a fast-paced/high-volume coffee shop, says Grove. A boutique, high-end retailer may want a tiered, data-driven program that can personalize offers.
- The customers/product mix: Have steady regulars and a “straightforward” product mix? A punch/stamp card or inexpensive digital tracker may be all you need, says Stern.
- The complexity: An expansive product range and in-store and online sales might call for systems that can track and analyze buying behavior, says Stern. Ditto if a store has different types of customers it wants to target with varied offers.
- Time and budget: Cumbersome and/or costly programs will quickly lose momentum while chipping away at the bottom line, says Stern.
“Many small businesses start with a low-cost option and then graduate to a digital system as customer volume grows and data becomes more valuable,” Grove says. “The key is matching the program’s structure to both your operational reality and your customers’ expectations.”
PAMELA MILLS-SENN is a freelance business and trade writer based in Seal Beach, California.
