Attracting new customers is tough. And too often businesses concentrate all their efforts on this endeavor, when they should be focusing on driving repeat business. Current customers spend 67% more than new customersso why not develop a winning program to reward these valuable customers and encourage frequent repeat sales? In this series, we’ll be exploring ways to create a loyalty program that will position your business for success.

Did you know it costs a business about 5-10X more to acquire a new customer than it loyalty programs to keep customers coming backdoes to sell to an existing one?  By encouraging repeat business, you can continue to grow your revenue consistently and sustainably. However, even though most households in the U.S. have memberships in an average of 29 loyalty programs, they are actively earning and redeeming in less than half. Follow these tips to create a loyalty program that will keep customers engaged and coming back.

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Points Program

This tried-and-true loyalty tactic is the most common among retailers. The key to making this work is ensuring the way to accrue and track points is as transparent and intuitive as possible. People are more likely to become inactive in your program if they have difficulty understanding or remembering how they are collecting points, or what the goal is. Many businesses tie points directly to dollars spent, which is helpful for tracking and remembering but can make the reward seem too insignificant or unattainable in relation to the number of points required to achieve it. For this reason it can help to incentivize enrollment with a “welcome discount” or a small gift/add-on. You can also try offering a variety of rewards, so they have the option of redeeming a small quantity of points for corresponding rewards, or larger sums for more substantial ones. This allows customers to select the option that they see the most value in, and makes them more likely to continue their active participation in the program.

Tiered Program

Made popular by big brands, including most airlines and hotel chains, tiered programs turn the points system into a game for customers. In this system there are clearly-defined “status levels” that are unlocked. For airlines this is miles or for Starbucks, the number of drinks purchased. It’s important to have escalating levels of perks for each level.  Make sure that the level of “work” is reflected by the reward. If customers have to accumulate a million points for a relatively small reward it will be quickly dismissed, and won’t be as effective.

Some of the best tiered programs provide smaller perks that can be enjoyed during every interaction with your business. To go back to the Starbucks example, while getting a free drink every time you purchase 15 is nice, the company makes it even more compelling for “Gold” members who can enjoy free milk and flavor upgrades that typically cost $.50 – $1.00 to non-Gold members. It’s a small price for the company to pay, but a nice perk for the member.  For salons this could be offering a different type of complimentary service, starting with a standard manicure and escalating to a blowout when various tiers are unlocked. But you could also offer “Gold” or “Tier 2” members free quick-dry, nail art, or nail polish upgrades on every visit, and “Platinum” or “Tier 1” members 15% off all products, and use free intensive hair treatments/upgrades every time they get a cut, color or blow out.

Membership “Clubs”

This approach is immediately different as it requires a customer to buy into a paid membership program. There is definitely a trade off here, as you’re likely to see fewer signups than with a free program, but your members will be more engaged and frequent customers. Large retailers like Costco and Amazon have provided a lot of value to customers who enroll in their paid subscriptions.

However, as you would most likely expect, the value has to be significant to prompt customers to purchase a membership. Free, unlimited two-day shipping on all orders is a great perk for Amazon Prime members. Skipping the line, free shipping (or 2 hour delivery for local businesses), free companion passes for friends, VIP access to new products, extended hours, exclusive events, free upgrades, etc. are all great offerings to jumpstart this type of VIP membership program. Similarly, make sure your the term of membership is long enough (generally about a year) to provide perceived value to customers. As with any loyalty program, providing more information on how to join, what the perks are, how to receive and redeem rewards should be prominently displayed both in-store and on your website.


Continue to Part Two: 4 Creative Rewards to Keep Customers Engaged