The Pros & Cons of Loyalty Programs

If you're a business owner, you've likely struggled with the question: "How do I make my customers returning customers?" To answer this question, many of you have turned to loyalty programs, whether it's creating ideas on your own or purchasing a service to keep your customers coming back.  We decided to ask a couple of our Local First Arizona members what programs they've used and how successful they have been.  Hopefully this will give you some insight on what program may be best for your business!

First, we turn to Urban Beans, a coffee shop in Phoenix.  They have experimented with a couple of concepts, initially using the commonly seen "punch" or "stamp" card:

"We started with a paper card we created, 10 stamps and the card can be turned in for a free beverage of your choice.  This was hugely successful, and we gave out about 300 or more a month.  It cost us printing, $38 for 1,000 so roughly $15 per month... We have never had much luck with coupons, but the paper stamp card seemed to get a lot of return as people feel they 'earned' their free drink. I take that as a measure of the loyalty of customers, some even said they never turned them in, just collected them and kept them at their desk, sometimes using them as a gift card to others."

This is a common strategy that many businesses turn to, usually because it is low-cost and mostly effective in providing some "value" to customers.  Recently, though, Urban Beans was introduced to a new concept incorporating iPads and mobile devices:

"We were then introduced to Belly Cards, we liked what we saw and signed up, and have been phasing out our paper cards to be replaced with the Belly Cards... When we started using Belly, we had instant feedback from customers, they really like the technology, the fact that they interact themselves with the iPad, and that the card can now be used at over 75 locations in AZ (we were the second company in AZ to have the Belly Card). We like that the rewards can be designed by us, and help to show the personality of Urban Beans. Some of our rewards are quirky, like for 200 points you can name a new scone that we will bake, or for 200 points, you can be a Beer Barista for an evening...

"A couple cons about Belly: we cannot capture all the email addresses in the database, which seems unfair since they are our customers. You can do 4 email blasts (that they send out) per year... Secondly, tracking for what has been redeemed is not user friendly, and in house tracking is a work in progress as we do not have a button on the cash register for that... It is also $50 per month, over a year's time it really adds up! I am not sure what Belly does with the email addresses, despite any "privacy policy" you never know where your email goes once you give it out..."

A sister coalition of local businesses in Chicago also has a member who has had experience with the same program:

"My experience so far with Belly is that it is something that customers now look for in a retail store.  I wouldn't go so far as to say that it drives sales in any way, but it has become an expectation for customers who come in to my store.  As far as the program being helpful for me, I would have to say that it is not.  I was under the impression that I would have access to the customer information given to Belly by my customers.  This is not the case.  Instead, I can send an e-blast out to my customers once per quarter, in a limited digital platform.  This is not enough customer outreach to warrant the cost of the program. If I were to have my own customer rewards program, I would have access to all my customer data and be able to use that information to help my business.  I have some time before my year contract is up, but I will be thinking long and hard as to whether or not this program is worth the money when it’s done."

Finally, a simple strategy employed by the Phoenix-based pet store Noble Beast rewards customers without having to use any iPads or punch cards:

For every $300 a customer spends, they get a $10 reward. There is no time period for getting to the $300 goal. Once a reward is earned, the customer may deduct it from their next purchase or they can save it for later. (The reward does not expire.) We have some customers who save their rewards to put them toward more expensive items like carriers or beds, but most folks just take it off the next purchase. Our Point of Sale system does the tracking for us, and the receipt lets the customer know how much they have left to spend until they get their next reward. The customers don't have to carry a card, so the process is simple for them and for us... [Our customers] have very much appreciated [our loyalty program] and I do think that it encourages them to buy a greater variety of their pet supplies from us. (A toy in addition to the food for example.) Keeping it simple for everyone has been a great benefit. Making your customers feel appreciated is a happy thing all around.

As businesses struggle to find the perfect balance between offering a cost-effective incentive for returning customers and inspiring customer loyalty, we will hear of many more programs just like these. Are there any loyalty programs you have seen or used, either as a customer or business owner, that have worked well for you?  Let us know what you think in the comments section!

Local First Arizona is considering developing a loyalty card program for Localists! The program would be available at several of our member businesses. Is this something you would like to see, either as a business owner or as a customer? Let us know what you think!