No doubt sometime during your tenure as a business owner or manager, you’ve slipped into the local coffee shop to fuel up on your preferred caffeinated brew. And if you have, then you’ve probably used punch cards that say something like, “Buy ten, get one free,” or, “Your eleventh coffee is on us.” These punch cards are perhaps the most basic form of a customer loyalty program.
We’re using coffee as an example, but this really applies to any business.
Let’s break this down – punch cards accomplish two things: 1) they incentivize the customer to buy at least nine more coffees, and 2) now the customer is carrying a pocket-sized advertisement in their wallet or purse. How does this relate to your business? Well, the accrual system doesn’t have to be based around coffee. For salons, it could be haircuts. For car garages, it could be oil changes. For instructors, it could be lessons.
There are three big reasons why rewards matter
More Revenue –Repeat customers spend 67% more than new ones. When you trust a business, you’re willing to spend more money with them. Loyal customers want to feel some level of ownership in the venue; it’s a feeling of “I contribute more, therefore I deserve better service.” Or inversely, “They treat me right, so I want to treat them right too.”
Competitive Advantage – A very small number of small businesses offer a rewards program. Having an effective rewards program in place will help your business grow its base of loyal customers at a faster rate, versus a competitor who doesn’t offer rewards.
Repeat customers spend 67% more than new ones, but only 34% of businesses have a loyalty program.
Defining Your Brand – Consider a business that, after ten appointments, offers to make a charitable donation in the customer’s name. This helps define the business as one possessing social conscience. Customers can feel good about spending their money, and that’s a pretty compelling reason to keep coming back.
Finding the motivation to start a rewards program is the easy part. Now we’ll talk about the how-to.
Step 1 – What do your want your customers to do?
The first step in setting up your rewards program will be to figure out what exactly you want your customers to do, and this will be the program’s objective. Generally speaking, the most common desired actions are these:
- Pre-book the next appointment at checkout
- Refer a new customer
- Make more frequent visits
- Buy more services during visits
- Post a review online/on social media
- Sign up for an email newsletter
Step 2 – How will you track accrual?
The next challenge is figuring out how you’ll track the completion of the action. In other words, what will your version of the punch card be? Many businesses use a points system for the reason that it allows you to control the effort a customer needs to expend before earning the reward. For example, if you wanted to double the effort it takes to earn a $20 gift card, you can increase its point value from 200 points to 400 points, and the card will still be worth $20.
Step 3 – How will you set up the framework?
As customers accrue points, you’ll need some way of monitoring their progress, and there are a few different approaches here:
Low-tech: Physical tokens, coupons, vouchers, and punch cards
Physical tokens are useful because they make the customer do the work of tracking their rewards; they’re carrying their cards around with them and presenting them at checkout.
Believe it or not, punch cards can actually work here. Just make each stamp or punch worth a specific point value. So, for example, one punch could equal 100 points and this way you can mark a 200 or 400 point reward on the card with 2 or 4 punches.
Reward apps may be costly, but they give you extra data about your customers’ spending habits.
Hi-tech: Specialized apps and software
Specialized software allows you to monitor customer interactions and measure purchases over time, so you’ll know who your highest spenders are. Many of these programs require customers to download a sister app to engage with the rewards process. There are some pitfalls here, namely higher complexity and monthly fees, so proceed with caution.
Step 4 – What reward will you offer?
The reward is entirely up to you, but I would offer this advice: discounts are too obvious and too easy. Instead, try to think of a reward that ushers the customer back into the purchase cycle. Take for example the “your eleventh coffee is on us” punch card at the beginning of this post. Now, this is great if your goal is to encourage repeat visits, but what if you want the customer to spend more money each time they come back? A better reward might be a free croissant.
Offer the croissant and they’ll buy a cup of coffee to go with it.
Arguably the same monetary value, but now the customer knows just how yummy and flakey croissants are. What are the odds they’ll want one the next time they visit? In some cases, you may be able to double future transaction value simply by giving customers a taste of your other services.
Go beyond “good behavior”
You’re not just rewarding “good behavior” on the customer’s part. A rewards program is all about offering a different, more exclusive, and higher-quality experience to your best customers. After all, your best customers are going to be the ones that hold onto that punch card and fill it up with stamps. The ultimate goal of any rewards program is to multiply these customers and get them ready for the next phase of the customer journey – turning them into evangelists.
