Build customer loyalty in your business

A few months ago I bought a bunch of flowers from a small florist. As I paid, the cashier handed me a customer loyalty card, offering me a $10 discount after 10 more purchases. I buried the card in my wallet and it never again saw the light of day. I remembered this transaction recently, which got me thinking about how to build customer loyalty in small business. It also got me thinking about the effectiveness of customer loyalty programs.

The power of retaining existing customers

We generally accept that it costs more to find new customers than to keep existing ones. Estimates vary wildly of the difference in marketing costs. Indications are that it costs between 3 and 10 times more to acquire new customers than to sell to existing ones. Whatever the true number, clearly it’s better to build loyalty with existing customers than to always be searching for new ones.

Frederick Reichheld, author of The Loyalty Effect and Loyalty Rules!, states that:

A 5% increase in customer retention yields a 75% increase in customer net present value.

In short, repeat customers represent great value to your business and boosting your customer retention by just a small margin can have a hugely positive impact on your bottom line.

What to do?

Many small business owners ask “How can we encourage customer loyalty?” The answer could well be a customer loyalty program. Large scale loyalty programs have been around for many years in various forms such as those used by large supermarket chains, frequent flyer programs and credit card companies.

There’s a huge amount of research available on loyalty programs from firms such as Colloquy, Aimia, Citrus and more. Key findings include:

  • In 2015, American consumers had 3.3 billion memberships in customer loyalty programs, averaged out to 29 loyalty programs per household
  • 85% of global consumers surveyed (in 11 countries) reported being members of at least one customer loyalty program in 2015
  • £1 in every £100 of household spend linked with loyalty in the UK twenty years ago. Today, £1 in every £7 spent earns rewards
  • 80% of Australian customers buy more from companies with whom they have a loyalty membership
  • 55% of Australian customers will buy from a company with a loyalty program rather than one without, for similar products or services
  • Small businesses have in the past had to make do with inconvenient and cumbersome “old tech” paper-based or manual systems which simply aren’t practical or scalable and have no leverage, e.g. the coffee card that entitles you to 1 free coffee in every 10 purchases. But new mobile technology now offers an amazing array of choice in the loyalty sector.

How about a loyalty program?

Many loyalty programs are available in the market – the challenge is to find one that is a good fit for your small business. It’s important to realise that loyalty programs aren’t just for big retailers, banks, airlines and credit card companies. Small businesses such as shops, restaurants, cafes, hairdressers and even those in service industries can all benefit from the right loyalty program.
It is vital to really think about your business and see how a loyalty program might work for you and your customers. The ultimate goal is to make your customer your greatest advocate – they become repeat customers and value your service so much that they talk about you online and refer people to your business.

Here are my suggested Top 10 questions to help evaluate a loyalty program for your small business:

  1. How long has it been running?
  2. How many businesses and customers use it?
  3. What is the form of reward and how is it redeemed?
  4. How long am I obligated to redeem the reward?
  5. Is it quick and easy to sign up my customers?
  6. Is it simple for me to implement and manage?
  7. What technology do my customers and I need in order to use it?
  8. Are there other partners involved in the loyalty network to make the offering more attractive for my customers?
  9. How much will it cost me to implement and run the program?
  10. What is the expected benefit in customer retention and purchases for my business?

Keep them coming back

Customer loyalty can be fleeting – making a great impression with quality products and an excellent customer experience is just the first step. Implementing a customer loyalty program could be part of the magic that keeps them coming back – just make sure it’s the right one for you!