What is loyalty program benefits and its importance?

Author: Brad Nakase, Attorney

Email  |  Call (888) 600-8654

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.

Please tell us your story:

2 + 4 = ?

See all blogs: Business | Corporate | Employment

What is profit formula and how to calculate profit formula?

A business profit is revenue minus expenses. The profit formula in accounting calculates the net gains or losses incurred by the business for a period by subtracting the total expenses from the total income: Total Income – Total Expenses - Profit

What is invoice reconciliation?

Invoice reconciliation is the process of matching bank statements to incoming and outgoing invoices. The purpose of invoice reconciliation is to confirm that the data entry is correctly matched with every invoice.

What Makes a Verbal Contract Valid

A verbal contract is valid when contractual elements are satisfied, such as evidence of an offer, acceptance of the offer, and consideration which is an exchange of value between the parties.

Marketing Transport Company

The easiest way of growing your list of clients is to schedule a meeting with businesses that do a lot of shipping and introduce your transportation company. Then, engage an internet presence to market your transportation business.

What Can You Do with a Toxic Business Partner?

A bad partnership could lead to profit loss and toxic company culture. The first way of dealing with a toxic business partner is to schedule a meeting to discuss your concerns calmly.

Disruptive Business Model

Disruptive business models are disruptive innovations that bring new business ideas or technology to existing markets. A disruptive business does not fit the profile of a standard business model. Amazon is considered as one of the world's most disruptive companies.

How to Get a Business Loan with Bad Credit

For small business owners with bad credit, the easiest place to get a business loan is with the SBA. Although not easy, entrepreneurs with bad credit can get a small business loan.

How to Get a Small Business Grant

You can get a small business grant from the Small Business Administration. Also, check your local government for small business stimulus grants.

Pros and Cons of Etsy

Etsy Pro: Your products are given a large audience, and you easily sell your merchandise. Etsy Cons: You can only sell handmade or vintage merchandise, and there are many competitors.

What is a Breach of Contract in California?

A breach of contract in California arose when a party to a contract failed to achieve a legal duty the contract created. When a party to a contract fails to fulfill the terms of a binding contract, they are liable for damages for breaching the contract.

Business Equipment Leasing Pros and Cons

One advantage of equipment leasing is that you don’t need to come up with all the cash to buy the equipment. One disadvantage of equipment leasing is higher overall costs than outright purchasing the equipment.

LLC vs DBA

The main difference between an LLC and a DBA is that an LLC is a business entity, and a DBA is a registered fictitious business name. Sole proprietors, general partnerships, and LLC can register for a DBA.

What is an LLC and how does it work

An LLC is a business entity that protects the owners with limited liability protection. An LLC also offers pass-through taxation, which means the company’s profits and losses pass through to the owner’s personal tax level.

What Is a Disregarded Entity?

A “disregarded entity” refers to an entity with one owner and not organized as an entity such as a corporation, LLC, or partnership. For federal tax purposes, the disregarded entity and the owner, who is a natural person, are not treated separate.

California Breach of Fiduciary Duty

A fiduciary is a professional person who owes a legal and ethical responsibility to another person. Examples of people with fiduciary duties are lawyers, financial advisors, corporate officers, corporate directors, etc. A breach of fiduciary duty occurs when the professional person fails to do what was legally and ethically required of them.

List of 12 Biggest Business Startup Costs

It is a good idea for every entrepreneur to consider the costs associated with starting their business. Financing is stressful, but estimating startup costs goes a long way to ensuring a business succeeds.

Is it legal to sell homemade food in California?

California is one of the only states to allow individuals to sell homemade meals, including meals that contain meat. So long as you have California required permits and licenses, it is legal to sell homemade food in California.

10 Tips on How To Start A Food Truck Business

Running a food truck business is an exciting and trendy opportunity for any entrepreneur with a passion for food. If a business owner chooses the right financing options and follows the above tips, then he or she has every chance of success.

What is a demand letter?

A demand letter is a letter that is commonly written by a lawyer on behalf of a client setting forth facts supporting a demand for money. A demand letter is usually the first step in resolving a dispute between two opposing parties.

What is working capital cycles?

In business, a Working Capital Cycle is the period that a company waits to receive payment to create available cash. A long cycle means tying up capital for a longer time without earning a return. Short cycles allow your business to free up cash faster.

What Happens When Business Partners Disagree?

Before going nuclear, when business partners disagree, the partners should talk about how to move forward. If talking fails, the partners may discuss a buy-out. However, if there is wrongdoing by one business partner, a lawsuit may be an option.

Bank Statement Business Loans

A business bank statement loan lender relies only on the company’s bank statements to qualify the borrower.

How to Prove a Verbal Contract

To prove a verbal contract is by getting witnesses to testify that the agreement was made. Also, proving a contract existed can be supported by documents such as receipts, invoices, delivery, statements, text messages, and emails.

What are business performance metrics, and why it is important?

Business performance metrics is a quantifiable measured value that shows the company’s progress and growth. Business metrics track the business progress and performance. A quantifiable measurement may include customers, revenue, and profits.

Is Sabotaging a Business Illegal?

Yes, sabotaging a business is illegal regardless of who is saboteur, e.g., business partner, competitor, family member, or customer.

See all blog: Business | Corporate | Employment

© Copyright | Nakase Law Firm (2019)