What is loyalty program benefits and its importance?

Author: Brad Nakase, Attorney

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Yara is owner of a fragrance and soap shop that sells luxury bath products. Because she has a number of competitors, Yara wants to make sure customers return to her store rather than patronize others. She decides, therefore, to implement a customer loyalty program, which will offer benefits to existing and returning customers. She assigns point values to each of her products, and every time a customer reaches 100 points, they get a gift bag of product samples. Yara hopes that the product samples will encourage customers to return and perhaps purchase one of the new products they try. When she asks some of her customers how they like these benefits, they express how happy they are to visit Yara’s shop. They explain that they feel valued and are always excited to receive the cute gift bag with miniature samples. Yara has thus created loyal customers.

What Is a Customer Loyalty Program?

Beginning a customer loyalty program can take a lot of time and consideration, but in the end is a very rewarding project. After all, by making customers feel valued, a business can help maintain its place in the market.

Because creating and managing a customer loyalty program can take a lot of effort, time, and money, this article will review the pros and cons of loyalty programs so that a business owner can determine whether it is the right move for their company.

Companies of all types and sizes create loyalty programs to reward existing customers, which will keep them coming back to the business by motivating them to do so. For example, perhaps customers earn points for every purchase they make at a business, and after they spend a certain amount, they get a free gift or discount.

Depending on a business owner’s particular industry and the products or services they sell, he or she can create a unique loyalty experience that benefits both the company and its customers.

What Are the Pros of Customer Loyalty Programs?

  1. Customers Will Have a Reason to Come Back

If a business has suffered from poor customer retention in the past, then creating a loyalty program can be a great method for encouraging customer to return to the business. Customer loyalty programs have the ability to motivate customers to become loyal buyers. In this case, the customer feels that their patronage is valued, so they continue to buy from a business that offers rewards for loyalty.

Even if a customer likes a company’s services or products, they do not necessarily have the motivation to return regularly. A rewards system helps keep the business on the customer’s mind. For example, a coffee shop may give customers a punch card, and after ten punches, the customer gets a free cup of coffee. A customer will see the punch card in their purse when they feel like a cup of coffee, and they will choose to go to that shop because they are interested in working toward that free cup.

Using a rewards program, a company can engage with customers by sending them monthly email reminders about how many points they have earned. This reminder may motivate the customer to make more purchases.

  1. A Loyalty Program Could Increase Transaction Amounts

When customers are motivated to get a free gift, discount, or other incentive, it is more likely they will make bigger or more frequent purchases. According to the Bond Loyalty Report, 66% of shoppers spend more money to make the most of their loyalty program benefits.

Thus, offering customers the chance to take part in a loyalty program could help boost a business’ sales.

  1. A Loyalty Program Could Help Promote a Business’ Brand

Beginning a reward program can help a company work on its branding. This could involve using the business slogan in the program name or decorating a punch card with the company colors or logo. This is an opportunity for the rewards program to reflect and promote branding.

In addition to using the business branding in the loyalty program, a business owner may also promote it on platforms such as:

  • Social media
  • Business website or blog
  • Business mobile app
  • Email newsletters
  • Direct mail campaigns
  • In-store marketing

Advertising his or her company’s loyalty program can help a business owner raise awareness of their brand’s values and mission.

It is also possible to make use of user-generated content that is related to the company’s loyalty program. For example, perhaps a customer takes a picture of their reward, which the business then posts on Instagram with a hashtag denoting their rewards program. As the rewards program grows in popularity, a business owner can use it as a way of promoting their company’s brand.

  1. A Loyalty Program Could Help Attract New Customers

While the purpose of starting a loyalty program is to reward existing and returning customers, a business owner can also use the program as a way to attract new customers.

Prospective customers who observe that a company has a loyalty program may be more inclined to make a purchase because they know they will get something free or discounted in the future. Also, loyalty members may enjoy the benefits of the program so much that they recommend it to friends and family.

This means that when a business markets its program to potential customers, it should be sure to promote its loyalty program. This could mean offering information on a landing page, creating sponsored social media posts, or advertising the program through direct mailers.

What Are the Cons of Customer Loyalty Programs?

  1. Customers May Not Be Satisfied

A small business owner’s goal should always be to ensure their customer’s satisfaction. If a customer is not happy with the business’ services or products, then they might turn to a competitor instead.

While a loyalty program should motivate customers to buy from a particular business, there may still be instances where they are not happy with the offers.

For example, a customer may misunderstand the rewards system, such as when they believe they have more points than they actually do. It is important that a business owner is prepared for this kind of unfortunate situation. If customers are displeased with a business’ loyalty program, then they may angrily post about it on social media or tell friends and family. Either way, it can damage a business’ reputation.

  1. A Loyalty Program Requires Monitoring

Offering a loyalty program to frequent patrons us a great way of gaining customer loyalty, but it requires extra effort from the business to create and maintain it. For example, a business will need to have a digital system to keep track of customer data, including the amount of rewards points they have saved up. Also, a business will need to send out letters or emails to patrons that have earned rewards. This means that a business must devote time and resources to this project rather than other area of the business.

If a company does not take the time to maintain their customer loyalty program, customers may feel let down or annoyed. It is therefore important that a business owner ensures the company has sufficient time and resources to dedicate toward the loyalty program before starting it.

  1. Could Be Time-Consuming to Create

Creating a rewards program for loyal customers takes time away from other business activities. Also, if a business sets up a digital loyalty program, then this requires constant monitoring. How much time and resources a business dedicates to its loyalty program will depend on the type of loyalty points system one uses. To avoid spending an unreasonable amount of time on a rewards system, a business owner should think about using an automated service. The following are examples of companies that offer customer loyalty, referral software, and point of sale solutions:

  • CandyBar
  • Currency Alliance
  • Fivestars
  • Kangaroo Rewards
  • Loyalty Gator
  • LoyaltyLion
  • Poket
  • Preferred Patron
  • Social Spiral
  • Thanx

  1. A Loyalty Program Could Hurt a Company’s Finances

If a business owner would like to start a loyalty program, he or she should make sure that they are not losing money in doing so. For instance, if a business owner gives away too many discounts or free products, it could end up harming the company’s finances. If this happens, the business will need to alter its loyalty program, which in turn will upset customers who had enjoyed it.

Because of this, it is important to be careful when creating a loyalty program. By planning ahead, a business owner can avoid the unfortunate scenario of having to change a rewards program by taking away expensive rewards.

If a company is giving away too much money in rewards, thereby threatening operations, good customer retention rate does not matter. In the end, a business should reward its customer while still earning sales for the company.

Conclusion

A loyalty program can help set a business part from competitors and can help boost sales in the long term. A business owner should consider how a rewards program may benefit both their company and customers.

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