Running A Business

Ideas To Try: Small Business Customer Loyalty Program

Sep 01, 2022 • 10+ min read
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      Many businesses invest a lot of resources into enticing new customers. But how are you keeping those customers coming back for more? Enter the small business customer loyalty program — one of the best ways to drive significant results to your bottom line.

      Just look at some of the statistics surrounding the power of customer retention:

      • An increase of 5% in customer retention can grow profits by more than 25%. (HBR
      • An estimated 65% of a company’s business comes from repeat customers. (Invesp)
      • Businesses convert new customers at rates between 5% and 20% while they convert previous customers at rates between 60% and 70% on average. (Textedly)

      Getting new customers to purchase products or book services from your business is obviously important, but the lifeblood of your company will be keeping those customers coming back.

      So, how do you improve customer retention and entice your customers and clients to choose you over your competitors? What strategies are available to help you stretch the customer lifetime value?

      To start, foster customer retention through a loyalty program. Customer loyalty programs incentivize customers and clients to continue choosing your business for their needs over your competitors. These programs and general retention techniques can help you build long-term relationships with customers, create a community around your business, and improve your reputation.

      What Is Customer Loyalty?

      The concept of customer loyalty and its role within the customer retention process may seem pretty straightforward, but it’s much more nuanced. In fact, there has been ample research into understanding and defining customer loyalty.

      Ultimately, most of the research ends up describing the customer-business relationship as a spectrum with each customer experiencing a different form or scale of loyalty to a business. 

      These categories are best described as:

      • Habitual Loyalty: Customers exhibiting habitual loyalty choose a business because they have developed some behavioral tendency to select that specific company. This type of customer loyalty is considered the weakest because there is no emotional relationship between the business and the customer, it’s merely repeated business because of a lack of alternatives, the convenience of purchase, or some other replaceable factor. For example, maybe you stopped at a gas station on the way to work the first week on the job and now choose that gas station whenever you need gas on your way to or from work. You don’t have a particular attachment to that gas station, but you have a tendency (habit) to stop there over other similar gas stations on your route to work. If another gas station eventually opens closer to your work, you may decide to switch your business to them without thinking twice.
      • Transactional Loyalty: Customers exhibiting transactional loyalty choose a business because of some functional value exchange. This type of customer loyalty is stronger than habitual loyalty but is still driven by an external factor and is considered non-emotional. A customer is choosing a business because of the perceived added value of that business over a competitor, but as soon as another competitor offers a more valuable alternative, the customer would defect. For example, credit cards often use perks and benefits to attract customers. You’ll see loyalty programs built around travel miles or cash-back incentives. These businesses are driving loyalty through a purely transactional relationship, and if their customers were to find better incentives with another credit card company, they could easily switch because they lack any emotional attachment to the companies.
      • Emotional Loyalty: Customers exhibiting emotional loyalty choose a business because they have a psychological preference and emotional connection with that brand. This is the strongest type of customer-business relationship and is often referred to as your “tribe” or “ambassadors” because of the degree of loyalty to your brand. These customers have a bond with your business and will defend and support your business openly. For example, consider the relationship many people have with sports teams such as the Dallas Cowboys. Many people consider themselves “die-hard” fans and will attend every game, purchase player jerseys, and are season-ticket holders. They not only spend a lot of money on the team and its merchandise, but they will defend the team and follow coverage of the team to get up-to-date news. This is considered a form of emotional loyalty and is what many brands aspire for with customer loyalty.

      How Does a Loyalty Program Work?

      Now that you understand what customer loyalty is and the different types of loyalty, you can begin to create programs within your business to push customers toward some form of loyalty with your business. While you may not be able to convert every customer into an emotionally loyal brand ambassador, you can still incentivize transactional or habitual loyalty through carefully crafted loyalty programs.

      As you start researching customer loyalty techniques, you’ll find hundreds of different strategies and programs available—but most loyalty programs have similar elements and benefits..

      Irresistible Perks

      You’ll hear the word perks a lot when looking at customer loyalty programs. Perks are essentially some added value to the shopping experience.

      Your customers are coming to you for a specific need, but what if you could add a cherry on top of that transaction? Maybe you’re offering a free good or service once they hit a specific number of purchases with your business. Maybe you’re giving them a complimentary item to their purchase, added discounts, an upgraded service, or an invitation to exclusive events.

      An example of an irresistible perk is when a coffee shop gives you a free drink on your birthday. It’s a simple perk that will hopefully help you build more loyalty with customers and bring them back to your coffee shop.

      Loyalty Earning Model

      Your customers earn some reward currency—points, punch-outs, or credits—that they can exchange for or be automatically granted some awesome perks. The specific reward currency customers earn depends on the type of loyalty program you choose.

      Some loyalty programs have customers earn points for every dollar spent, while others give customers a stamp, punch, or other credit for every qualifying purchase or visit.

      A smoothie shop could punch or stamp a loyalty card for every smoothie purchased, while a bookstore might award customers points for every $10 spent on books.

      In addition to the “currency” customers accrue, earning models can also have tiers based on customers’ spending level. For instance, a business may have a tier for each monthly spending/earning level: 0 to 100 points, 100 to 450 points, 450 to 800 points, and 800+ points. At each level, customers get access to tier-specific perks. Plus, they earn points at an expedited rate as they move up the tier levels, meaning they earn points (and tier-specific perks) faster.

      Convenient Tracking System

      Your customers (and you) are able to track the reward currency they’ve earned. This tracking system can be as simple as a physical punch or stamp card or as sophisticated as a digital tracking system on an app.

      Many small restaurants, coffee shops, and similar businesses start with a stamp or punch card before moving up to a scannable card connected to a digital tracking system and/or mobile app. A retail store, such as a clothing store, may start with a simple digital tracking system.

      Examples of Customer Loyalty Programs by Industry

      You’re probably pretty familiar with loyalty programs yourself as a business owner, food eater, grocery shopper, clothes wearer—you get the picture. So many businesses, big and small, have some type of customer loyalty program because they work.

      Let’s take a look at some examples of successful customer loyalty programs by industry, including ones from some of your favorite major brands.

      Food and Restaurants Customer Loyalty Program Ideas

      Many restaurants, coffee shops, and other food and drink spots have loyalty programs that reward customers with points per dollar spent. Think Starbucks and Dunkin’ Donuts. Both coffee brands reward customers every time they purchase a drink, baked good, sandwich, or other product. Customers, in return, get free drinks, discounts on merchandise, birthday gifts, and other perks. 

      A small, local coffee shop can replicate something similar by providing free rewards cards to patrons, punching out a space for every dollar spent or for each drink purchased (above a certain amount), and giving a free drink or pastry when a patron gets enough punch-outs.

      Many small businesses in the food and restaurant space are already using POS systems to manage their customer orders. A lot of these POS solutions already have customer rewards programs built into the software, which can make it even easier for you to launch and manage a loyalty program like your enterprise competitors.

      These types of loyalty programs encourage customers to keep coming back to your business to get more points or punches toward perks. Starting with a punch or stamp card is a great way to test out a new loyalty program before investing in a digital version, but if you’re already using POS software, it’s worth looking at whether they have a built-in rewards feature.

      Retail Shop Customer Loyalty Program Ideas

      Many large retail brands, like Sephora, Ulta, Albertsons, Winn-Dixie, and Dick’s Sporting Goods, have free points-based programs where customers earn points for every dollar (or another qualifying amount) spent. Other stores, like Target, offer free programs where customers get regular and special discounts, free shipping on online orders, and early access to deals. Many stores combine a points-based system with discounts and special shopping events.

      Like with food and drink shops, a points-based program for retail stores incentivizes customers to keep purchasing at your store so they can earn more points and get those sweet deals. You can start small with a punch or stamp card, and punch out or stamp for every purchase of a certain amount that makes the most sense for your goods.

      You may also be familiar with paid loyalty programs at retail locations like Sam’s Club, Costco, and BJs. You pay a monthly or annual fee to get access to the stores’ super-competitive prices on bulk items, amazing deals and discounts, and even fuel perks.

      While your small business may not be able to offer quite the same level as these big-box stores, you might consider a low-price paid loyalty program to bring in regular income and offer some discounts in return.

      Automotive Repair Customer Loyalty Program Ideas

      Mechanic and customization shops, automotive needs and accessories, and other automotive businesses have loyalty programs where customers earn points for dollars spent or for each service of a certain value.

      WingStuff gives customers points for buying motorcycle accessories, parts, and riding gear, which they can convert into $10 to $50 off upcoming purchases. AutoZone lets you earn $20 for every five purchases of $20 or more in-store and online. 

      Car wash centers have rewards programs, too. These programs reward patrons with a stamp for every qualifying wash or a different amount of points based on the value of each wash. Some even allow you to pay for a monthly “subscription” where you get as many washes of a certain value as you want. These paid programs may also offer discounts on other services, like vacuums and detailing.

      Veterinary Practice Customer Loyalty Program Ideas

      It may sound strange for a vet to have a rewards program, but it can be a great offer for pet parents who want to save some money on keeping their furry, feathered, or scaly friend healthy.

      Some vets may have a points system or punch card toward free food and discounted prescriptions or services (such as important health tests, teeth cleanings, or boarding). Others host community-building events, give away free branded swag, and have special gifts for their most loyal patients and pet parents. 

      Salon Customer Loyalty Program Ideas

      A salon that provides any type of beauty or wellness services, like haircuts and styling, waxing, and tanning, may have a punch card or points system so customers can get rewarded with free or discounted services. Some even have paid loyalty programs where customers pay upfront for a certain number of services and get complimentary services, birthday services, discounts on products, and more.

      For example, European Wax Center lets you purchase a package of your chosen service, lowering the price per service overall. This offers benefits to the customer in the form of a discount while providing the business with more predictable cash flow.

      How to Create and Manage a Customer Loyalty Program for Your Small Business

      So, you want to reward your customers to keep them coming back for more? Follow these steps to create and manage a customer loyalty program that helps your small business:

      • Differentiate your loyalty or rewards program from competitors’. Check out whether your competitors, both local and national, offer a customer loyalty program. (Chances are, they do.) Then, review what type of program they offer (points-based, tiers, digital, or punch-card). Try to offer better (or more) perks, create or add tiers, and personalize your program from others.
      • Ask customers what they want out of a loyalty program. Learn what your customers want and expect from a customer loyalty program from your business. They’re the ones who will use it, so you should find out what type of program is most convenient for them and what perks they’d like (within reason). Use this information to select the perks, earning model, and tracking system.
      • Consider a paid loyalty program. But only if it makes sense for your business. Do you sell goods or services that customers need regularly? If so, a paid program—where customer pay to join—might be worthwhile. According to McKinsey & Company, nearly 60% of customers in a paid loyalty program said they were more likely to choose that brand over its competitors.
      • Consult a legal professional. Setting up a loyalty program is more than just selecting perks and stamping cards. You must also have clear terms and conditions that every customer who wants to join the loyalty program must sign off on. Contact a business lawyer to help write the terms and conditions, as well as follow state laws for advertising a program, changing the terms, and more.
      • Work on getting an app. Depending on how many customers you have and whether they would use your app, consider working with a developer to create an app for tracking your loyalty program.
      • Get loyalty program tracking software. If you’re ditching physical stamps or punch cards, you should seriously consider getting a loyalty program tracking software, like GiftBit, Loyal Zoo, and WooCommerce, that does all the math for you. Loyalty software can also notify your customers when they’ve earned rewards and integrate with your point-of-sale system and app, too.
      • Advertise the launch of the program. Hold a special sign-up event at your business’s location, or send out a newsletter to customers with a link to join the program at their own convenience. You should also have flyers at your POS and ask customers to sign up at checkout.

      You want your customers to keep using the loyalty program and come to your business over competitors, right? That requires you to check in with program users to see if it meets their expectations and ask if they have suggestions for improving it.

      Update the program’s earning model, perks, and tracking tech as your business grows, your industry evolves, and/or your customers’ needs change. Creating a loyalty program that works for both you and your customers is the key to retention.

      The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. Any content provided by our bloggers or authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything. The information provided in this post is not intended to constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.
      About the author
      Derek Miller

      Derek Miller is the CMO of Smack Apparel, the content guru at Great.com, the co-founder of Lofty Llama, and a marketing consultant for small businesses. He specializes in entrepreneurship, small business, and digital marketing, and his work has been featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp.

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