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How to create a customer loyalty program

No matter where you shop these days, you’ll find businesses taking advantage of customer loyalty programs. Whether it’s a punch card at a food truck, a membership card at a grocery store or a mobile app for a large eCommerce website, loyalty rewards programs are a proven way to increase customer loyalty and drive repeat purchases. 

What is a loyalty program?  

A customer loyalty program, also known as a rewards program, is an operation that rewards customers for making repeated purchases from a business. Often, customers earn free things as rewards after a certain number of purchases or discounts on certain items.  

Customer loyalty programs trace their origins as far back as the 17th century when customers were given copper coins with each visit. These coins could be redeemed for free items at a future date.  

In the late 1900s, one of the most well-known types of rewards programs launched; the frequent flyer program. The popularity of this program led to the loyalty cards and mobile apps you see today. 

In the modern era of eCommerce and digital payments, rewards programs are more widespread than ever. Often, loyalty rewards programs will collect some form of customer data, which can include personal info and can also track customer behavior.  

The best rewards programs are easy to use, reward repeat business, and improve customer retention. 

What benefits do a customer loyalty program have? 

There are several advantages to having loyalty programs for small businesses. Loyalty programs improve your customer retention – working towards a reward or having an inherent discount on items will keep customers coming back again and again. And customers who are part of these programs will spend more than those who aren’t. 

Customer referrals also increase with these programs. Rewards program members are more likely to refer a small business to friends and family, and customers referred by rewards program members have a higher retention rate.  

Also, when programs connect to a customer account, it is possible to track data such as purchase patterns. This correlation can help businesses directly target consumers, giving discounts on items purchased most often. Just be sure you’re protecting customer data. 

I want a loyalty program – where do I start? 

The first thing you need to decide is what sort of loyalty program you want. Do you want a program that tallies purchases or one that records customer data? Depending on the type of small business you own, some particular systems offer more value than others.  

If you are running a food truck and want to reward customers with a free food item after a certain number of purchases, you probably don’t need a mobile app. A punch card system will do. But if you want your customers to be able to order from their phones, a mobile app is the way to go.  

There are several different companies, such as Punchcard and Spendgo, that can help you set up rewards programs. Some use directed email marketing or mobile apps and can let you collect customer data as well. Having customer data gives you contact information and also allow you to track purchase types, dates of purchase, frequency of visits, and other data. 

Choose the right rewards program tailored to your business

There are several different options small businesses can use for their rewards programs. 

  • Punch cards: Punch cards are a tried and tested, inexpensive way to track customer rewards. Coffee shops have used this method for years, and while punch cards build customer loyalty, no data is collected. 
  • Membership cards: Membership cards rank high in popularity and usually tied to a customer account. While this is more expensive to set up and run, it makes it easy to collect customer information, and some companies will administrate the rewards program for a fee. 
  • PIN codes: PIN codes can be used by themselves, or with membership cards. Sometimes customer phone numbers double as PIN codes. A PIN code system can operate in the same way as a membership card, with similar costs. 
  • Mobile app: Mobile apps can have many additional features, such as notifications and instant coupons, and have the added benefit of being on the customer’s smartphone. They are the most expensive option and may not be realistic on a small business budget. 

What’s in it for the customer?  

Rewards programs can also offer different kinds of incentives for customers. Whether it tallies the number of purchases or set up as a points system, the catalyst must be worth the effort. 

  • Free merchandise: This coffee shop classic is highly popular and has embraced by large brands like Starbucks and Subway. The challenge is deciding how many purchases needed to trigger the reward. Too few and it won’t be worth the lost revenue, too many and customers won’t bother with it. 
  • Price discounts: Grocery store chains love this reward. Businesses can decide which products receive price discounts. Discounts on store brands or overstocked items can cause higher sales compared to name brands. 
  • Advanced access: Giving early access to merchandise or sales is another way to reward customers. This tactic works well with limited-access items that are likely to sell out, or for sales which begin on specific dates and times.  

Loyalty programs are effective 

Loyalty rewards programs for small businesses are popular for many reasons, but mainly because they work. Without too much effort or cost, the right program can increase customer loyalty, which in turn, drives repeat purchases and customer references.  

Small businesses have been using them for years, but thanks to rewards program companies, a business of any size can create a program that best benefits it.  

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The Growth Center does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation.