Consider this: You can’t put a price tag on loyalty, but you can figure out how much loyalty is worth.
As a small business owner, you probably can think of a few customers who you’d consider VIPs—they come in often, they spend a lot, and you know they choose you over your competitors. But just how big is your loyal following, and how can you maximize their impact while encouraging others to join their ranks?
The answers to these questions lie with an automated loyalty rewards program.
Finding Your VIPs
Some small business owners might think their businesses aren’t big enough to warrant using a loyalty rewards program. They’re in an industry that doesn’t make sense to have one. They’re afraid to offer discounts to people en masse, particularly those who patronize their store anyway. But there is no business too small or in too niche an industry that couldn’t benefit from rewarding their best customers—because the benefits actually go both ways.
The trick is to have a loyalty program that’s set up to meet the company’s needs and desires, and that speaks to the customers who drive sales.
Defining Loyalty and Acting on It
“Loyalty is about focusing on your best customers and making them feel special—the megaphone approach no longer works.” says Zach Goldstein, the CEO of Thanx, a “plug-and-play” customer loyalty program for small businesses.
Thanx has emerged as a hot loyalty program option for small businesses with multiple locations, though they have competitors, like Belly and FiveStars, that offer a host of customizable options. Let’s review what these tools actually offer businesses and their customers alike.
Data Is the Real Name of the Loyalty Game
One of the advantages that ecommerce has held over brick-and-mortar businesses is their access to data. When a customer makes a purchase with Amazon, they often reveal much more than just their desire for a particular item at a particular moment. Buying patterns emerge, helping sellers better understand who they’re selling to, when, and why.
In years past, some stores used in-store beacon technology to track customers when they entered the store (via Bluetooth) to send them a welcome message or promotions. But the effectiveness of this method is up for debate, as companies realize that people aren’t always proactive enough to opt-in to such a service. They want something they can download and forget, reaping rewards without having to worry about keeping the app front-and-center in their minds when entering an establishment.
Thanx, for example, connects to a customer’s credit card, and their system registers every purchase made on that card. For example, Lou Malnati’s pizza in Chicago has a Thanx app (which lives within the same Thanx folder as every other business-with-Thanx app) that keeps track of customer purchases—when that customer spends $250, they get $20 off a future purchase.
Why is having access to this data important? Businesses can know what sets their customers apart from the rest of society—their demographics, what they like to buy. They can track customer service interactions—how many returns they’ve made, and why. And they can identify their VIPs.
VIPs Are the Heart of a Good Business
In the days before data, rewarding VIPs was a one-sided affair. If the business was using a system such as punch card to reward their consistent customers, the customers could know how many times they’d been in recently (“Wow, I just got this card last week and I’m only one coffee away from a free drink!”), but that information was inaccessible to the business itself.
As to why that’s important: VIPs are the customers who make a business successful. Figuring out how to make them happy is the key to continued growth.
“The top 25% of restaurant consumers drive a whopping 66% of sales,” says Goldstein. “Marketing to these spenders is not only logical based on their revenue contribution, it’s more cost-effective as well.”
Of course, businesses should always be making efforts to obtain new customers. But acquiring a new customer is said to be as little as 5 and as much as 25 times more expensive as retaining an existing one. Plus, a 5% increase in customer retention can drive a 95% increase in long-term profit.
Loyalty Programs Over Blanket Discounts
So there’s something to be said for encouraging repeat visits by customers who spend the most at your business. Which means businesses need to do more than just roll out blanket discounts. In fact, blanket discounts are hurting some major established brands like Chipotle and Banana Republic.
Why? Blanket discounts teach customers to wait for a promotion rather than patronize a store consistently. Why buy this burrito for full-price today when it could be half-off tomorrow? It also treats all your customers the same instead of properly segmenting them. The truth is that so-called “promiscuous shoppers,” who are only there for the free/cheap stuff, won’t give you the same return on investment that a VIP shopper will.
Plus, how will businesses gain anything from a blanket discount, other than the brief promotional boost? Unless they have some way to track who took the discount and returned—perhaps with, say, a loyalty program?—they won’t gain any insight into who took advantage of their promotion and whether they’ll be back. This was why the popularity of Groupon waned after a big burst of activity—the company didn’t provide businesses with the means to retain the customers who used the service once, at a discount, then disappeared.
Rather than throwing out a discount in an attempt to garner buzz or rejuvenate sales after a crisis (as Chipotle did in 2016), a customer-focused program gives businesses the chance to show their customers they know who they are, what they care about, and what they want from a visit to their store.
For example, Good Food Guys, the group behind Split and Mixt, sent their VIPs personalized Swell bottles that can be filled with iced tea or lemonade for free on every visit. The gift is on-brand, rewarding to top spenders, and provides them an incentive to keep coming in. That’s how you build loyalty out of a loyalty program.
No Business Left Behind
Many businesses might feel left out by the technology revolution spurred by ecommerce and the internet in general. It’s hard to build buzz about your product when your business is a car wash, for example. Who is going to download the car wash app? Ditto to many restaurants that fell behind the curve and still only provide their menus in PDF format, rather than making their selections available for online ordering.
But perhaps the best thing about the rise of these loyalty programs is that they can be for any kind of business. For example, Thanx makes branded apps for some of its customers, but maybe a branded app isn’t in the cards for the mom-and-pop restaurant down the street. That’s fine: Thanx can handle the processes and aggregate all the deals itself. It offers customers tiers of service (from $149 to $349 per location per month), and only the top tier involves creating an on-brand app.
Then, if a customer has the Thanx app, they can effortlessly integrate any new business that has the app into their portfolio.
As noted above, there are other options. FiveStars serves small and medium businesses with an integrated system that uses a universal card and phone number system to track purchases, send out SMS text campaigns, and reward users for social media interactions. Belly gives businesses a customer-facing iPad completely separate from their point-of-sale system, with a lower monthly fee than FiveStars and Thanx. You can compare the services and see which one might be better for you.
There’s reason to believe this space is only going to get more populated and rewarding. Last year, venture capitalist investment in U.S. marketing- and payment-related startups serving brick-and-mortar businesses skyrocketed in the first three quarters, jumping up 51% from the prior year.
And with all kinds of businesses moving into data collection and analysis in every industry (see how Amazon is making data a central tenet of their new cashier-less supermarkets), expect those that fail to do the same fall further behind—and perhaps fall out of the running altogether.
Loyalty programs aren’t just rewarding for the customer. They’re a valuable tool for businesses that want to drive their best-spending customers to spend even more. Consider that Starbucks recently altered their loyalty program, amid controversy, to better reward “higher check” customers. After the PR backlash, Starbucks added an additional 1 million loyalty members, and reported an increase in loyalty spending.
Loyalty is a good thing, and for far too long it’s been a nebulous, hard-to-define concept. Now it’s as simple as downloading an app. What a time to be alive.
- Forbes.com. “Why Your Loyalty Program Should Be Exclusive“
- BizTechMagazine.com. “Retail Beacons are Becoming More Popular, but Their Effectiveness is Debated“
- HBR.org. “The Value of Keeping the Right Customers“
- SmallBizTrends.com. “Did You Know: A 5% Increase in Retention Increases Profits by Up to 95%“
- HospitalityNet.org. “Building a Restaurant Culture Around Loyalty“