Loyalty Programs for Small Businesses – and Why You Need One

As a small business owner, you’ve probably heard of customer loyalty programs before – you might have even enrolled in one or two from your favorite companies – but do you know all the benefits that go along with implementing a loyalty program in your business?

When customers are loyal to your business, 86% will recommend you to friends and family, 66% will write a positive review, and 46% will remain loyal despite a poor experience.¹

In this article, we’re covering the basics of loyalty programs: what they are, the importance of customer retention, and why your business needs a loyalty program.
 

What is a loyalty program?

A customer loyalty program is a marketing initiative designed to recognize and reward shoppers who make purchases from your brand on a recurring basis. Typically, brands assign and track “loyalty points” for every dollar spent on their products or services. These points can be redeemed for promotional offers, free gifts, and/or discounts. As the customer collects more points, they are assigned higher levels of loyalty and their redemption options are slightly more favorable: full-size freebies, greater discounts, etc.

Businesses can structure their loyalty programs in accordance to their nature, scale, and size. What makes sense for one business might not work for another. For example, online retailers might offer free shipping on orders above $75, while a local coffee shop might give you a free specialty coffee after you’ve purchased 10 drinks.

Implementing a loyalty program provides a business with the opportunity to show customers they appreciate their loyalty. Not only do they help small businesses retain customers and deepen relationships, but they also help attract new clients as well.
 

Why is customer retention important?

Brand advocates and loyal customers are the lifeblood of any business. In today’s competitive market, it’s simply not enough to offer great products at low prices. You must strive to build and nourish meaningful relationships with your clients with each interaction – doing so will help to create repeat shoppers. With returning customers spending 67% more than new customers, it’s easy to see why building a loyal client base is a vital to your business’ long-term success.² In addition to increasing your profit, loyal customers refer 50% more people to a business than a one-time purchaser (word-of-mouth referrals are essentially free marketing for your business).³
 

Why Your Business Needs a Customer Loyalty Program

A loyalty program is becoming less of a luxury and more of an expectation of consumers. Beyond helping your business stay competitive, here are a few additional reasons why it’s smart to implement a loyalty program.
 

- Boosts revenue

Loyalty programs help increase profits because they provide desirable incentives to the customer for spending at your business. When customers feel like they are at an advantage to shop at your business, they might avoid shopping with competitors. Research says increasing customer retention by just 5% can boost profits by 25% to 95%.⁴
 

- Deepen customer relationships

Loyalty programs can help bridge the gap between a business and their customer, allowing the business to take a more customer-centric approach to operating. When customers repeatedly purchase products or services from you and are satisfied with their experience, they start to trust your brand more. As you develop new products or services, your loyal brand customers are more likely to try the new products because they have good faith in your business.
 

- Create some “buzz” around your business

A loyalty program will help your customers feel valued for spending their money at your establishment. When you make people feel good about supporting your small business, they are more likely to spread the word and refer others to you. Loyalty programs are a fun and exciting way to boost your reputation and get folks talking about why they should be seeking out your business.
 

- Acquire new customers

While the goal of a loyalty program is to reward existing customers for their business, you can go beyond customer retention. Offering discounts or freebies for referring a friend to your rewards program can help attract new customers. You can also offer an incentive to the new customer to encourage them to try out your business.
 

4 Customer Loyalty Programs for Small Businesses

There are several types of customer loyalty programs you can draw inspiration from when creating your own. Here are five common types of loyalty programs to consider:
 

- Point-based loyalty program

If you have a point-of-sale system, consider implementing a point-based loyalty program. This type of program is easy to manage through your POS system and hassle-free for your customers because the system is a database for customer information. Instead of having your clients carry around punch cards, you can simply have them enter their phone number in your terminal each time they make a purchase at your business. Your POS will track and manage their rewards points automatically under their unique customer profile.
 

- Punch card loyalty program 

The use of punch cards is popular amongst small business owners looking to establish a loyalty program. Punch cards typically look like business cards and have the business logo along with the terms of the rewards program printed on them. When a customer makes a purchase, they collect a “punch” on their card. After a certain number of punches, they can get a free goodie or special discount. For example, after a customer purchases ten specialty coffee beverages and collects ten punches, they can receive a free drink.
 

- Paid loyalty program

Customers like feeling special; they enjoy feeling like they’re part of an exclusive club. Offering a paid loyalty program to your customers makes them feel connected to the business and they might even feel like they’re at an advantage over customers who aren’t part of the membership. Paid loyalty programs typically charge customers a fee and provide exclusive benefits to members of the program – in a sense, this is a challenge for customers to “get their money back.” For example, if you operate a winery, you might offer a wine club membership for $100 a year. For that yearly $100 fee, members get a 10% discount on all wines purchased from your business.
 

- E-mail lists

Email marketing is a highly effective and relatively easy way to implement a loyalty program. You will need to keep up with creating fresh content for your emails, but this is a great way to reach your customers and get them into your business with weekly promotions, exclusive offers, newsletters, or ads to keep your business top of mind. Whenever someone signs up for your email list, offer them a discount on their next purchase to say, ‘thank you.’

How to Get Started

You know your customers better than anyone; you decide the best way to approach and design a loyalty program tailored to your business. It might take a few tries to get it right; be flexible, be open to customer feedback or suggestions, and be willing to pivot when necessary to keep the program relevant to your business and customers. After you’ve completed your initial research, consider investing in a POS system to help manage your loyalty program. SouthState merchant services representatives can help pair you with the right product for your business goals. Contact a merchant services representative to get started today.

 

About the Author: Elizabeth Levister, Merchant Services Sales Manager at SouthState Bank, has worked in the financial services industry for 22 years. She began her banking career while in college as a teller and over time developed a passion for merchant services and how they can help businesses thrive. During her 15 years with SouthState, she has focused on developing and fine-tuning the merchant services program to offer best-in-class solutions for our business customers.

 

1. Customer Loyalty: The Ultimate Guide (2022) | Shopify Philippines
2. 50 Customer Loyalty Statistics: 2020/2021 Spending, Retention & Engagement | CompareCamp.com
3. The Value of Online Customer Loyalty and How You Can Capture It (bain.com)
4. Customer Retention Should Outweigh Customer Acquisition | ReSci (retentionscience.com)