Gift and loyalty programs can work well for small and midsized businesses
February 26, 2014

Businesses considering the use of gift and loyalty programs as a way to attract and retain customers may want to consider how these offerings can attract customers in ways that other incentives can't.

A loyalty program is an effective method for companies to differentiate themselves among competitors by offering unique rewards for continued patronage. For many small and midsized businesses, this kind of retention system can help convert one-time and occasional shoppers into repeat visitors.

The increased availability of data for customers shopping and purchasing via computers and mobile devices may provide opportunities to personalize rewards and offerings and reach a broader customer base.

Forbes recently discussed some common myths about these tools and how they may be especially useful for businesses that aren't nationwide retailers.

What makes loyalty programs effective
The location for a storefront continues to have a significant impact on the overall performance of a business - at least at first. Forbes pointed out that this advantage goes away over time as other businesses spring up. Sales and low-price offerings can also help, but they can also hurt a business by making profit margins too low and creating insecurity and doubt over continued operations.

Loyalty programs do offer discounts, but only if customers continue to patronize a given business. This sort of price reduction may be far more manageable for organizations because it's a conditional proposition. Shoppers need to keep coming back to a business to accumulate rewards, which creates incentives to return and may even reduce price-point shopping.

When devising such a system, businesses have to keep in mind the idea of differentiation of offerings. The offering of unique and enticing rewards for users of loyalty programs is important - giving customers something they can't get anywhere else can drive adoption and success.

Growing adoption
The use of loyalty programs is increasing, according to BizReport.com. Between 2010 and 2012, program signups increased by 26 percent overall.

Because of increased use by both consumers and organizations, businesses need to make sure their program is effective. A simple way to drive the adoption and use of a rewards system is to have a clear and well-defined structure. Providing a rewards statement - an accrual of points on a receipt or by email, for example - and a system for how patrons can reach various benchmarks in the program can help increase sales.

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