Common Myths About Customer Loyalty Programs

Can you afford a customer loyalty program for your business? Low-margin companies often argue that they can't afford a reward program, but is that true? While customer loyalty programs have been around for a long time, there are still some questions about whether many business owners can offer a substantial and sustainable economic advantage in today's market. The three most common myths related to loyalty programs are: Implementation is too complicated and time consuming. And they can only work in the product department that they purchase frequently. Ultimately, you need to determine whether the customer loyalty program is right for your business. This article tries to address some of these common misconceptions.

Does the customer loyalty program work for low profit companies such as grocery stores? According to traditional wisdom, grocery stores are unable to provide customers with substantial rewards due to the very thin margins supported by very competitive market conditions. But is this true? Many major grocery retailers, such as Tesco, Kroger, Safeway, Sobeys, and Loblaws, have returned 1-2% of the total used to loyalty card members [1]. But consumers are not returning 1-2%. Individually customized offers based on consumer shopping habits. The more a consumer spends on a particular business, the more information about individual preferences and shopping habits is collected, and the business can direct more relevant rewards to the consumer. This cycle, based on individually tailored offers and communications, costs less, but provides a much higher reimbursement rate than an equivalent loyalty program that relies on a universal system. For example, in Tesco [the UK grocery chain], the redemption rate for individually adjusted coupons varies between 10-20% compared to the normal redemption rate of 1% or less [2]. The goal of the loyalty program is to keep customers coming back, so you can invest in CRM's customer relationship management system, get to know your customers better, achieve this, and increase your revenue.

Setting up and running a customer loyalty program takes too long. Is it worth it? After a while, we investigate and decide to automate the loyalty program. There are many excellent customer loyalty programs that are easy to use and include CRM software to help you collect and analyze key datasets. Once you have accumulated data in your customer base, you can use this information to create personalized communications and increase sales. Don't underestimate what big companies know for years. Even with a 5% increase in customer retention, the company's profits increase by 25-100% [3]

My business is not a grocery store and consumers rarely buy. Will reward programs not work in this area? For companies in this type of sector, it can be more difficult, but not impossible, to provide customers with achievable rewards sufficient to attract loyalty. Consider a frequent flyer program for families who travel mainly on vacation. If these programs are not adapted and innovated to meet different consumer needs, it can take years for families to accumulate enough reward miles to earn free tickets . What did the airline do to solve the challenge of attracting rare traveler loyalty? With the introduction of credit cards and bonus rewards [2x or 5x points], consumers earn points and rewards for every spend, making it easier to achieve rewards. From a small business perspective, one way to give loyal customers more rewards is to partner with other businesses. Some loyalty programs have developed a business community that can use a single card. This joint strategy enables consumers to earn rewards more quickly and helps companies disperse program costs.

If you are the owner of a small business that you ask yourself, can you afford to purchase a customer loyalty program? What is the cost of not having a customer loyalty program? How many customers are losing to other businesses every month? How much do you lose sales? The common misconception that customer loyalty programs are costly, time consuming to operate, and only work in a specific business has no substantial benefit. On the contrary, well-designed programs can help you retain customers, expand your customer base, develop lasting relationships, and increase sales.

[1] [2] "Six myths about customer loyalty programs". Marbes Corstens and Rajiv Lal, forbes.com, February 2014.
[3] “Small business trends”. http://www.sba.gov/content/small-business-trends