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How Do I Build Customer Loyalty in My Small Business?

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How Do I Build Customer Loyalty in My Small Business?

I recently 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. As I buried the card in my wallet, this transaction got me thinking about how to build customer loyalty in Small Business and the effectiveness of customer loyalty programs.

It is generally accepted that it costs more to find new customers than to keep existing ones. Estimates vary wildly of the difference in marketing costs but the generally accepted figure seems to be that it costs somewhere between 3 and 10 times more to acquire new customers than it does to sell to existing ones. Whatever the true number, it’s logical that it’s better to build loyalty with existing customers than to constantly 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.

How can we encourage customer loyalty?

The above is a question asked by many Small Businesses, the answer to which 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
  • • In the UK twenty years ago, £1 in every £100 of household spend was linked to loyalty. 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.

There are many loyalty programs 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 ask when evaluating 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?

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!

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“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"



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Showing 3 comments
  • Karl Schwantes
    Reply

    Loved this one, have often thought about what a good loyalty program would be for a jewellery store 🙂

  • Cassie Saywell
    Reply

    Great article, can anyone recommend a specific business that can provide us with an electronic rewards system? As mentioned in the article, we are looking to move on from the paper version.

    • Mike Dowsett
      Reply

      Hi Cassie, thanks for the great feedback 🙂
      Rewardle is a popular rewards program that has grown very quickly since it started up only a few years ago. They went public very soon after startup, and have attracted quite strong investment that has helped fund their growth.
      Rewardle now has over 5,400 merchants and over 2M members. You can check them out at https://www.rewardle.com/business.
      From what I’ve seen, they offer quite a well thought out, complete service using up to date technology with a tablet for the merchant and an app for the customers, as well as a card option for people who are more old-school
      Hope that helps!
      Regards,
      Mike

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