Customer Loyalty, Part 1: Why Rewards Programs are Important for your Business

Article originally written for and featured in Square’s Seller Community:

New customers are expensive.

Think of all of the time, effort, money, and aggravation, you spend on marketing in order to try and get new people to come in through the door or make a purchase. Customer Acquisition Cost is the amount of money a business spends to attract new customers, and it ends up being a huge amount.

While continually gaining new customers is a key part of growing your business, keeping your current customers happy and coming is even more important. This is integral not only for building a solid customer base, but also for your profit margin. The cost of keeping your existing customers coming back, is luckily much lower than getting new customers through the door. As a result, these customers are incredibly valuable to the success of your business.

Customer Retention

Customer Retention is essential to running a successful business. But how do you actually manage to retain them and get them to come back?

Once a customer walks through the door, then it’s up to you, your products & services, customer service, and atmosphere to make a great impression and win them over. But even if all of these are perfect, and your customers love what you have to offer, they still might not always come back.

Several studies show that getting customers in through your door the first time is the hardest, and that there’s around a 5-20% chance that new customers will make a purchase. Then if they come in once, there’s a 60-70% chance that they would come back and make another purchase. And if they come back a third time, there’s an even higher probability that they will keep coming back and become a customer for a long time.

Once you have recurring customers, they’re incredibly valuable. If they start coming back then they’re going to keep coming back, and they don’t cost you as much to get them back through the door each time.

So how do you get your customers to come back that second, third, fourth, fifth, and infinity times?
A very effective way to keep your customers happy and coming back regularly is through some great customer Loyalty & Rewards Programs.

Why Do Loyalty Programs Work?

So you know that getting people coming back is important, but why should you consider using a loyalty program to do so?

The simplest answer is that loyalty programs work.

Loyalty Programs turn your products and your business into an adventure and a game. Gamification is a proven psychological phenomenon that absolutely works and appeals to humans at a base level. By creating a goal that they want to reach, or a game that they want to beat, Rewards Programs work really well to draw people in and to keep coming back to complete it. Instead of just buying ice cream, or burgers, or wine, or clothing, your customers are also buying a mission and trying to complete a quest, and if they buy into that then they instinctively want to finish it.

Dangling a carrot for your customers to continue reaching towards will absolutely keep them coming back. Even if that reward is not something huge but rather a little token of appreciation, as long as it’s somewhat compelling, it will be a reward that people will have an innate desire to get. Think about the tickets and prizes at a place like Chuck E. Cheese or Dave & Busters. The prizes are never anything too incredible, but you absolutely still want to get as many tickets as you can, even if you don’t even redeem them for prizes. The worthless tickets themselves are just fun to earn.

And then once they’ve hit that reward, the cycle continues for the next reward, and they can do it all over again. The game and the quest continues.

Types of Loyalty Programs

There are a bunch of different kinds of Loyalty and Rewards programs that you can incorporate into your business.

One way is to create a series of recurring Sales & Coupons that you send out and incorporate into a schedule every year. I would recommend being conservative with how often you send out coupons and hold sales. Constantly having sales on a weekly or monthly basis might unintentionally encourage customers to only come during these sales, making you lose out on a lot of profit. Depending on your product and the average time between visits of your customers can determine how often is best for you to discount your products and services. Holding it off to once or twice a year is a great way to balance loyalty and encouraging people to come in, and not having them rely on only coming during a sale.

Another great way to help encourage your customers to come back at least once per year is through Birthday Rewards. Setting up a system like Square Marketing that can automatically collect customer’s date of birth & send out a coupon to redeem for their birthday is a great way to entice customers. It can get them to come in at least once a year, which will hopefully then help the habit stick and keep them coming back throughout the year.

But the main focus of this series will be the classic Purchase Based Loyalty & Rewards Programs. The most classic example is Punch Cards, but there are a lot of different ways to structure your program depending on the nature of your business.

Key Points & Summary

Because it’s so hard to get people in the door the first time, but easier every time after, returning customers are absolutely vital to running a sustainable growing business. Implementing Loyalty and Rewards programs is proven to be an effective way to keep your customers engaged and coming back. Whether it’s simple paper punch cards, a referral system, birthday rewards, or something else that fits your business, doing something to keep folks coming back regularly is key.

Follow along to the next parts of this series to learn how I put my Loyalty Program together, the pro’s and con’s of Square Loyalty, and tips and suggestions of how to put your own Loyalty & Rewards program together.

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