Pros and Cons of Customer Rewards Programs

For the full, published article, click here.

In today’s consumer climate, competition for customer attention is heated. With so many options from which to choose, customers are looking for benefits beyond convenience or price to entice them to buy at certain establishments. Consumer-focused businesses are increasingly relying on loyalty programs to stand out from the crowd. According to a study done by Forrester Research, 72 percent of the adults surveyed belong to at least one rewards program, and 78 percent perceive that loyalty programs save them money. Those loyal customers? They tend to spend an average of $42.33 a year more than shoppers not in a loyalty program. With numbers like that, a business owner would be negligent to not reward customers for their loyalty.

The bad news is, according to a report from PDI Software, c-store operators aren’t maximizing their programs’ potential. The report found 42 percent of c-store operators feel a top challenge is training their staff to talk about their loyalty program with customers.

While the benefits to various rewards programs are clear, it’s important to weigh the pros and cons to get the most out of both operators’ and customers’ time and resources.

Points Program
With this program, your customers can accrue points through whatever means you dictate. Twenty points for every dollar spent in your store and 10 for every dollar spent at the pump, for example, or one point for every visit. Points can be redeemed for different discounts, coupons and free items. Punch cards can also serve this purpose and are potentially an inexpensive, easy and flexible option. Encourage your customers to engage with your business on social media or to sign up for your mailing list for extra points or punches. Some bigger businesses even offer branded credit or debit cards so that customers can gain points anywhere they spend money.

Be careful to provide actual, tangible benefits for your customers, though. A 2019 Convenience Store News study found that shoppers who have not enrolled in rewards programs cite rewards/points/discounts as not valuable (33 percent) and the program requiring too many purchases to see benefits (30 percent) as their primary reasons for not participating. Most people are inundated with rewards programs at other businesses, where they seem to rack up points but never receive any perks. This can cast a bad light on your loyalty program, so be sure that customers will see the benefit of signing up.

Additionally, whether through points or mobile rewards, your loyalty program will have to be maintained through your POS or online monitoring. You may need a technological system to track award amounts your customers are accumulating, or you may need to send emails to those who have earned rewards. And as trends and customer needs change, so must your rewards system. Consider these factors before setting up your loyalty program.

Mobile Rewards Program
To remain competitive and relevant, companies today must be ready to engage with their customers or clients on their mobile devices. An accessible option for small businesses seeking to establish their first loyalty program is an automated SMS texting system. Customers opt in to the service by texting your designated number, then they receive your messages. Text out a coupon once a week, which they can redeem in your store just by displaying it on their phone, or let them know the specials and discounts you have in store on any given day. Give them an incentive to sign up, like a coupon for their next visit (this almost guarantees they will be coming back at least once more). Be careful not to inundate your customers with texts, but don’t let them forget about your business, either. Because texts can’t automatically go to a junk folder like email offers do, customers are more likely to click on and use them.

Conversely, because of the lack of filtering, if customers are receiving too much communication, their only option is to unsubscribe. Consider working with an app developer to offer digital loyalty cards, and perhaps a way for cardholders to track their points. A survey of 1,207 consumers in 2017 found that 71 percent would be more likely to use their loyalty cards if they could access them from their mobile phones, and most say they prefer a mobile app for tracking and redeeming rewards. Keeping up with technology and the pace of change is one of the biggest challenges c-store operators face. While this could open the door to some technical issues, the benefits should far outweigh the inconvenience of having to explain your app every once in a while.

Club Rewards Program
This is a very popular loyalty program among c-stores seeking to reward customers for making frequent purchases of similar items. Convenience stores are named such for a reason — it’s convenient for your customers to stop by and get their daily needs. What will keep them coming back to you for that morning coffee before work instead of the five or six other c-stores they’ll pass on the way? Because they can get their tenth coffee for free at your establishment. Often this program works in tandem with a traditional loyalty card, which can track both the customer’s points and what they buy. People love to be rewarded for the purchases they’re already going to make, and they appreciate the attention to their specific needs and likes.

The concern is that it could hurt your c-store’s finances, if the giveaway is large enough to make a dent. If you give away rewards or discounts that are too large and are not increasing repeat purchases and customer spend, you can seriously damage your business’ bottom line. Take the time to crunch the numbers and choose appropriate rewards to balance your loyalty programs. Ultimately, you should be rewarding your customers while still turning a profit.

Values-Based Loyalty Programs
Consumers — especially younger generations like millennials — are more likely to shop at establishments that are involved in the community or that re-affirm their personal values. Consider a values-based loyalty program to entice these demographics into frequenting your business and creating word-of-mouth. Perhaps your business can offer to plant a tree in honor of Arbor Day for any customer who signs up for your loyalty program during the month of April. Or pledge to donate a certain amount of money to charity during the holidays, matching the points your customers accrue or the amount they spend (i.e., for every $50 spent by a customer, you will donate $5 to the charity of your choice). These are great ways to establish a deeper connection with your customers and make a difference to them and the world at large.

There are, of course, many other ways to approach a loyalty program. Some other popular options are fee-based, like Amazon Prime, where customers can pay for premium membership that rewards them with better perks; game programs, like McDonald’s Monopoly campaigns, where everyone has fun playing and spends more for additional chances, but you as the business owner only have to reward a handful of winners; and tiered programs, like Shell’s Gold Status level, where customers can obtain additional discounts if they fill up their tanks consistently at a Shell station.

However, take note not to overcomplicate your approach. If your program isn’t easy for customers to understand, it can turn customers away. Simplicity is the key to launching a successful customer loyalty program, which is why it’s vital to ensure that your loyalty program is easy for customers to navigate. When in doubt, use the “Do X, Get Y” formula to test its transparency.

Researching the software available to you for managing your chosen loyalty program can also help you make a decision that best fits your budget and your goals. These programs, like CandyBar, Social Spiral and Loopy Loyalty, are usually highly customizable and offer great service teams to help you get started. Whatever you choose, your customers will value your appreciation and, hopefully, spread the word to bring in even more customers.

 

Resources:
http://www.behaviorlab.org
http://www.fitsmallbusiness.com
http://www.forafinancial.com
http://www.loyalty360.org
http://www.lexingtonlaw.com
http://www.oracle.com
http://www.stampme.com

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