A customer loyalty program can be a great way of encouraging return customers. It involves rewarding customers who continuously buy your products or use your services.

While customer loyalty programs can lead to increased revenue for many businesses, they may not work in certain industries. You also have to weigh up the cost of introducing a customer loyalty program. This post delves deeper into setting up a customer loyalty program and things you should consider.

Types of customer loyalty program

There are a few different types of loyalty programs that you can choose from. The most common types of the program include:

Loyalty points

This method allows customers to collect points, which can then be spent in the future in order to get discounts and freebies. In most cases, points are collected every time a customer makes a purchase. Points are usually worth between 5 – 20% of the purchase. Some companies have variations of points such as Air Miles or coffee stamps.

VIP memberships

This method involves customers paying a monthly or annual membership fee, which allows them access to discounts on select products or services. Membership discounts could be anywhere from 5 – 50% – usually, different products and services will each have different discounts.

Hybrid programs

Hybrid programs combine memberships and loyalty points. Members get access to discounts on select products and services in exchange for paying a fee. At the same time, they can gain loyalty points on purchases, allowing them access to further discounts and freebies. Such a program will typically come with higher membership fees or lower discounts in order to make it profitable.

Setting up a customer loyalty program

The easiest customer loyalty program to set up is to offer stamps on a card. Every time a customer buys a certain product they get a stamp on a card – after collecting a certain number of stamps they get a freebie. To set up this loyalty program, you’ll need to buy a personalized stamp and then print off some cards. These cards can then be displayed at your checkout for customers to take.

Electronic loyalty programs tend to be much more common as they can be applied to a range of products as well as being applicable to online purchases. Setting up such a scheme involves using specialist software to record purchases and points (most POS and eCommerce software will have an option to set up loyalty points). Points could be added via a card that is scanned at checkout. Alternatively, you could hire app developers to create a loyalty card app that is scanned at the checkout. When it comes to online purchases, customers may have to sign in to an account in order to accumulate points or access membership discounts.

There are lots of ways to advertise these loyalty schemes. If you have a physical store, it could be worth putting up posters, displaying cards in a rack at the checkout, and getting staff to recommend loyalty cards in person. If you have a website, it could be worth adding content encouraging visitors to create an account or sign up as a member.

Can your business benefit from a customer loyalty program?

Customer loyalty programs only benefit companies that get a lot of return customers. If you own a store that sells mattresses, there may be no point in introducing a customer loyalty program – the average consumer has no need to regularly buy mattresses. A general home goods store however may benefit from a customer loyalty program as there could be enough of a range of products for customers to keep coming back.

You also need to make sure that the loyalty program is profitable. Can you afford to give away products or services for a discounted price? If your products and services are already priced competitively and your profit margins are thin, offering a loyalty program may lead to losses. You may be able to prevent this by reducing the number of loyalty points per purchase or by only offering small membership discounts, however, the discounts need to be large enough that customers see a purpose in signing up.

All in all, it depends a lot on the type of industry you’re in and the types of products and services you sell. If you already attract return customers on a regular basis, then it’s likely that a customer loyalty program will pay off. If almost every customer is a new face, a loyalty scheme is not going to have many benefits to you.