Implementing a Low-Cost Loyalty Program with Big-Time Results

Lauren Gibbons Paul -- Expert Business Source, 2/16/2007 12:53:00 PM

Customer loyalty programs may be commonplace among large merchants, but small retailers can still distinguish themselves with a system that rewards frequent customers. Just ask Raphael Keller-Go, owner of vinodivino, a high-end wine shop in Newton, Mass., that has attracted a devoted customer base through its Connoisseur Club.

“In this business, you have to find a way to differentiate yourself,” says Keller-Go. He saw a loyalty program as one way to stand out, and he was able to build one cheaply using features in the Microsoft Dynamics Retail Management System (RMS) he implemented to manage his operations. The program tracks users’ purchases and automatically offers bonus credits – 10% of every $200 spent – at the point of sale.

Because the program was integrated in the RMS, the overhead and training requirements were low. And Keller-Go has seen dividends in the form of higher sales and repeat business; even with the discounts they receive, Connoisseur Club members spend about 20% more on average than non-club members, he calculates. “People never come back and just use the amount of the credit,” he says. “They spend more.”

Loyalty programs are available in a variety of flavors for small merchants. A number of vendors offer add-ons for Microsoft’s RMS system, for example. Business owners also can create their own programs by tracking customers via an Excel spreadsheet – a manual and sometimes onerous process.

Retailers who don’t want to devote the time or the money to setting up their own programs are finding other options. For example, under a new program recently launched in Boston called the Interra Project, local retailers provide rebates to customers and also to local non-profit organizations. Membership is free for both merchants and customers, although vendor members must be environmentally aware and be committed to community giving and a living wage for employees.

Experts note that loyalty programs are not for every business. A poorly implemented program can actually hurt your business more than help it. Cash or prize rewards may do little to encourage loyalty from your best customers if they are not backed by excellent customer service and a unique product-service mix.

Maritz Loyalty Marketing advises that successful loyalty programs have at least three common factors:

• The right mix of rewards for the company’s unique customer base.
• An effective communications program that keep customers engaged.
• A program structure that encourages desired/profitable behaviors.

Done thoughtfully, a loyalty program can be a valuable way to show your customers what they mean to you, according to Martha Rogers, co-founder of Peppers & Rogers Group, a loyalty marketing consulting firm and unit of Carlson Marketing, in Minneapolis. But it’s only part of the loyalty-building process. “Real loyalty comes when your customers yell at you, and you make it right,” says Rogers. That is when they come back or more.

Lauren Gibbons Paul is a freelance writer based in Waban, Mass.