Retain Your Customer Base With a Customer Loyalty Program

An effective loyalty program can be a treasure trove of value for your small business. Beyond rewarding customers, it’s an opportunity to drive sales, increase customer engagement, gather insights from customer data, and encourage brand loyalty, to name a few benefits.

If you’re responsible for increasing sales at your small business, now’s the time to implement a customer loyalty program, especially as the global loyalty management market is predicted to grow from $8.6 billion in 2021 to $18.2 billion in 2026 [1]. This growth is largely in response to the pandemic, which prompted a whopping 84% of small-business leaders to invest in new technology, according to our 2021 Small Business Comeback Survey [*].

Intrigued? We can get you started on building your own customer loyalty program in just five steps. Read on to learn more.

The process of creating a customer loyalty program requires you to ask yourself some big questions: What are my goals for creating a customer loyalty program? What program type is best for my business? What rewards should we offer repeat customers, and how do we want to implement the program? Lastly, how do I maintain a program that will help my business thrive?

These decisions are yours to make, but we’ll let you know our recommendations along the way.

Step 1: Set goals that are specific to your business needs 

You’re likely considering a customer loyalty program for the same reasons as any other small-business leader: to retain customers and drive sales. But if you can get more specific with your goals, this will help you figure out what sort of program you’d like to offer, as well as the sort of incentives involved.

If you offer a service, consider making your goal an increase in referrals from customers. If your product is geared toward a younger demographic, a boost in social media engagement could be what you’re after. 

Or maybe you’d like more product reviews to build trust in your product. In that case, you can set up a rewards program that incentivizes reviews, such as in the example below from Fat and the Moon, a small business that sells natural skincare products.

Example of incentives from Fat and the Moon [2]

Your goals will determine what sort of shopper behaviors you want to encourage, as well as what type of program you’d like to offer. More on that in the next step. 

Step 2: Find the program type that best fits your brand

There are several types of customer loyalty programs to choose from, and it’s important to select one that suits your brand. For instance, if you sell furniture or another more expensive product that customers won’t be purchasing on a regular basis, a subscription program is probably not your best option.

The table below outlines some popular customer loyalty program types that are better options for small businesses. To provide more context, we’ve also included examples of customer loyalty programs you may have heard of.

How can your small business easily establish these program types? Coffee shops and eateries can offer punch cards as a form of a point-based system, and some craft breweries may choose to implement a mug club as a form of a premium loyalty program [3]. But small business loyalty programs software, such as the one shown below, makes any of these programs easy to implement.

Example of tiered loyalty program from FiveStars [4]

Loyalty program software takes the guesswork out of running a loyalty program by:

• Tracking loyalty points

• Gathering data such as loyalty metrics and customer behavior

• Handling your email marketing

• Helping you use the program to improve customer experience

And while you can create a loyalty program without software, we recommend that you at least try it out. Here are some free platforms if it’s not within your budget just yet.

Step 3: Select rewards that entice (and make sense for your business)

Selecting rewards for your customer loyalty program is the fun part. But just like the program type you select, it’s important that they make sense for your business, as well as align with the goals you set in step one. Why? Because the right mix of incentives can really make an impact on customer engagement, as well as influence a customer’s decision to shop with you or not.

According to Gartner [5], rewards can be either transactional or experiential.

Transactional rewards

We’re all familiar with transactional rewards: Make a purchase, earn reward points. This loyalty scheme incentivizes repeat business and can be used to nudge consumers to try new products. Transactional rewards make sense for lower price points where consumers are able to rack up redemptions on pace with consumption.

Transactional rewards tend to be more popular than experiential. However, Gartner warns that points can become commoditized, and discount-driven programs can result in giving away too much product for free. If you’re in charge of customer loyalty at your small business, make sure that rewards remain both valuable to the customer and profitable to your business. 

Experiential rewards

Experiential rewards strengthen relationships with customers beyond transactions. For example, in the travel industry, early flight boarding is a benefit that frequent travelers value and can usually only get if they spend enough with one brand. Sephora’s Beauty Insider program allows customers to redeem points for samples and access to events, among other experiences.

Screenshot of experiential rewards from Sephora’s Beauty Insider program [6]

If your business is able to offer exclusive experiences to customers, then experiential rewards might be the way to go, as they provide a unique opportunity to foster deeper connections with customers. For most brands, though, a mix of transactional and experiential earnings and benefits is the right approach to maintain customer engagement in the program.

If you’re unsure what rewards make sense for your business, observe what’s standard for your industry. Casual dining restaurants and coffee shops often reward loyal customers with a free food item or drink once they hit a predetermined milestone. Retailers tend to utilize a point system based on dollars spent that lets customers earn toward a gift or a discount.

Step 4: Decide how you’d like to run your program

This next step requires you to answer two questions: Do I want my program to be manual or automated, and should it be omnichannel or single channel?

Spoiler alert: We recommend automated and omnichannel, as these are most efficient and save you the task of tedious recordkeeping. But we’ll walk you through each of your options so you can decide for yourself.

Manual vs. automated customer loyalty program

A manually operated customer loyalty program is an option for smaller businesses who are already accustomed to tracking customer data in a spreadsheet. If this is you, you could track customer rewards in the same way.

However, if your customer base is growing, and you’re used to tracking data through customer relationship management (CRM) software, you’re already aware of the benefits of automated data collection, such as contact information and purchase history. Customer loyalty software plays a similar role as CRM software, except it caters to rewards programs. Though if you’re looking for a two-in-one deal, customer loyalty software with CRM integration is an option.

We recommend automating your customer loyalty program with software because you can track customer actions, keep contact information on file, automatically award points or other rewards, communicate with customers, and run reports on your program’s success. Without software, these tasks are up to you or whoever is running your loyalty program.

Omnichannel vs. single-channel customer loyalty program

An omnichannel customer loyalty program is accessible to customers across all channels. Whether they’re shopping on your app, website, social media, or in person, an omnichannel program allows them to accrue points or other rewards no matter the channel. Conversely, a single-channel loyalty program only allows customers to earn rewards via one channel.

Omnichannel customer loyalty programs have an advantage here because shoppers are already used to an omnichannel experience. And part of creating a seamless customer journey is ensuring they have the same experiences no matter how they interact with your brand.

Step 5: Monitor and adjust your program for optimal results

Whether you’ve decided on a manually operated or automated, omnichannel or single-channel customer loyalty program, you’ll need to find a way to track its progress. Loyalty program software can do this for you. In addition to monitoring your program’s performance, some platforms offer journey mapping capabilities to show you how certain customers are engaging.

The metrics you’ll use to measure your progress should be based on your business goals. Whether you’re interested in seeing how a specific reward motivates customers, or how your program has grown with time, loyalty program software provides you with insights that you can use to adjust your program if needed. 

We’ve shown you how to create a customer loyalty program that will both win over customers and help your business thrive. 

But a customer loyalty program isn’t the only way to retain customers. Instead, Gartner [7] encourages the use of several customer loyalty metrics such as net promoter score and customer lifetime value to get a true sense of customer satisfaction levels as well as loyalty program performance. 

We recommend starting with this guide to get your loyalty program off the ground, then tracking customer loyalty metrics as part of the monitoring and adjusting step.