Part I – Why does your business need a loyalty program?

There is no question that creating a loyal customer base is crucial to establishing a successful business and ensuring long-term profitability. According to recent research, a business will loose 10-30 percent of its customers in 1 year and as much as 50 percent in 5 years if it doesn’t actively work to retain customers. Loosing customers can be expensive, as it costs 6 – 7 times more to acquire a new customer than to keep an existing one from going elsewhere.[1] Furthermore, by failing to keep customers, securing a sale becomes more challenging as a business has a 60 – 70 percent chance of selling to an existing customer and only 5-20 percent of selling to a new prospect.[2]

Luckily, there are many effective ways to ensure that customers are coming back, which are affordable even for small businesses with limited promotional budgets. Good companies, no matter what size, are able to create strong brand loyalty, immune to lower competitor pricing, location and other advantage that larger competitors may have. A loyalty program is one of these tools. Evidence from market leaders, such as Starbucks and Best Buy, demonstrate very promising results of the positive effect a loyalty program can have on the company bottom line.  Since introducing its loyalty program in 2013, Starbucks’s experienced a 26 percent rise in profit and 11 percent jump in total revenue in 2013 second quarter fiscal year.[3] Best Buy’s loyalty strategy helped the company to increase its stock value more that 50 percent versus previous year.[4] Other non-monetary benefits of loyalty programs are gaining a better understanding of customer needs and habits, easier access to customer feedback, creation of brand advocates and stronger word-of-mouth marketing and many others.

Specifically for small businesses, one of the key advantages they have over larger retailers is the ability to connect with customers on a more personal level and gain a better understanding of customers’ unique needs. While loyalty programs are usually associated with points and discounts, the true meaning of loyalty is the ability to make a customer feel special and important and having a privilege of a closer one-on-one interaction makes it easier to do so. And it doesn’t need to cost a fortune. There are many cost-effective ways for small business to build a successful loyalty program without significantly increasing operating expenses.

[1] Ipsos Loyalty

[2] Marketing Metrics

[3] "Why Small Businesses Should Be Utilizing Customer-Loyalty Programs." 2014.

[4]  Gigital Media Works. 2012