The Benefits of a Loyalty Reward Program

Repeat business is key to the success of a small company, where even a 5% increase in customer loyalty and retention could deliver as high as a 95% return in the form of an increase in profits. That leaves small-business owners with one pressing, perpetual question: how do you encourage customers to come back?

In a competitive market, where many companies are vying for customers, it's important to seek out creative ways to retain your current customers while you continue your efforts to attract new ones. For instance, offering a loyalty rewards program has become increasingly popular, and according to research from Reuters, as many as 80% of U.S. adults belong to at least one program.

With companies of all sizes and across many industries offering loyalty programs, you likely have questions. What are the benefits of a loyalty rewards program? And how can I establish one for my company?

The best loyalty rewards program models for small businesses

A loyalty rewards program encourages customers to do business with a company by rewarding them with special offers or freebies for their continued engagement. These programs can come in many forms, and the best option for your business will depend on your offerings, customers, and competitors.

Here are three models that are commonly used:

Earn points for purchase: In this loyalty program model, consumers earn a specified amount of points for each dollar spent. Customers can then redeem the points to earn free gifts or special promotions on products or services.
Tiered programs: Here, customers are incentivized to move up levels of commitment or activity to receive more valuable rewards, such as when a customer gets their 10th service free or at a reduced rate.
VIP programs: These models offer exclusive members-only perks and services once customers reach a certain frequency of visits or opt into a paid monthly or yearly membership cost.

The benefits of loyalty programs

Loyalty programs are a popular way to drive customer retention because they provide mutual benefits to small businesses and customers. A robust rewards program that provides special offers, perks, and promotions incentivizes customers to create behaviors around returning to your business. Over time, the relationships you create with existing customers have a ripple effect on the customer's community, allowing you to attract new customers even as you reaffirm your relationship with existing ones.

Here's a closer look at how a loyalty rewards program can benefit your small business:

1. Loyalty programs help you build relationships with existing customers

The foundation of small businesses—and service providers, in particular—is the ability to provide customers with personal attention and deeper connections. In fact, a recent survey sponsored by Zendesk revealed that 99% of consumers can cite distinct benefits from working with a small business when compared to a larger company. First among those benefits is the ease of establishing relationships (65%) and simply feeling good about supporting smaller organizations (65%).

Loyalty programs build on those benefits to give customers one more reason to keep building their relationship with your company—a sentiment supported by the Bond Brand Loyalty Report, which revealed that 71% of U.S. consumers see loyalty programs as a meaningful part of their brand relationships.

Offering existing customers special promotions or even a thank-you gift without making a purchase makes them feel valued and appreciated. It will also increase the likelihood of continued business. According to Quality Logo Products, studies show that after receiving a free gift, 83% of people are more likely to do business with that company in the future.

2. Loyalty programs help you increase both retention and revenue

One of the most powerful relationship-builders for a small business lies in establishing trust by displaying consistency over time. That's where the best loyalty programs shine, allowing a small business to take the long-term view of its relationship with its customers.

For example, using data captured during a customer's initial sign-up process, you can acknowledge new customers with a reward on special occasions, such as holidays, birthdays, and their customer anniversary date, regardless of when a customer last visited your place of business. You can also provide customers with helpful reminders for recurring events, such as routine service maintenance, and important deadlines, such as tax filing dates and pet licensing renewals.

This type of thoughtful, consistent outreach shows customers you care and inspires them to return the investment with their loyalty. Over time, this leads to more retention and revenue because customers are more motivated to continue to engage with your business.

One study from Invesp CRO revealed that 66% of consumers say they will modify their spending behavior to earn loyalty rewards. Another survey by NielsenIQ reported that 84% of consumers say they would be more likely to stick with a brand or business that offered a loyalty program. In short, there's a clear connection between loyalty rewards programs and recurring retention and revenue.

3. Loyalty programs help you attract new customers

Yes, loyalty rewards programs are effective in building customer lifetime value and customer retention. That said, remember that they can help you boost your ability to attract new customers, too. Today's customers simply love special offers, freebies, and the sense that they're building a real connection and relationship with a business. In fact, a recent study from KPMG revealed that 75% of consumers surveyed said they would switch brands for a better loyalty program.

There's also evidence of the interest in loyalty programs in what customers are willing to do in order to participate. In fact, Merckle's 2020 Loyalty Barometer Report revealed that customers were willing to write online reviews (43%) and refer a product or service to a friend (29%) in order to earn rewards from loyalty programs. So, recognizing and rewarding the customers who promote and recommend your business not only helps to solidify your relationship with existing customers but also encourages them to continue to refer new clients to your business, too.

How to get started with a loyalty program

Once you've made the decision to offer a loyalty program, the first step is to figure out the types of rewards that will resonate most with your clientele and build a program that reflects their unique needs. Certain service businesses may be able to reward purchase frequency, whereas other businesses may find their customers prefer to receive special offers or discounts based on the amount of money they spend with your business.

Next, you'll want to make sure you select the best possible loyalty program technology that will be simple for your customers to use and easy for you to manage so that you can focus on running your business rather than the program.

There are three important features to look out for when screening the best loyalty program platform for your small business:

Quick, hassle-free enrollment. Seek out a platform that allows customers to sign up with a single data point, such as a phone number or email address, to ensure high rates of enrollment.
Mobile-friendly interface. Many consumers prefer using mobile apps to access loyalty program information over browsers. The more accessible your program is, the more successful it will be.
Analysis reports. Look for a tool that provides accessible, easy-to-read reports so you don't have to make complex calculations just to figure out what's working for you.

Long-term customer relationships are the cornerstone of profitability for small businesses, especially when competing for clientele within a local community of similar businesses. Do you have a plan to find and win the loyalty of ideal prospective clients? If not, consider establishing a loyalty program to show your appreciation to existing customers, attract new ones, and build strong and successful relationships.