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Build Customer LoyaltyBy: Kim T. Gordon With the skyrocketing cost of customer acquisition, it makes great sense to focus marketing efforts on retaining and up-selling current customers. In fact, it can cost as much as five times more to win a new customer than to keep an old one. Yet many small-business owners remain doggedly fixated on prospecting – at the expense of programs for existing customers that would more cost-effectively build sales and increase profitability. Customer loyalty programs (often called reward programs) have become essential in price-sensitive arenas and where there are parity products or services. They’re so pervasive among large businesses that right now about half of all Americans belong to at least one. Drugstore chain, CVS Corp., has signed up 32 million "ExtraCare" card members alone. And the world’s largest theater company, Regal Entertainment Group, rewards frequent moviegoers with free concession food and other discounts. Loyalty programs make sense for small businesses too. Entrepreneurs with successful customer reward programs enjoy increased sales, lower marketing costs and amass invaluable information. Not surprisingly, data collection is at the heart of these programs. The bulk of the information is gathered when customers sign up. Later, data is collected through surveys and during transactions. By tracking current customer data, you can discover opportunities, better segment your customer base and identify the needs of different groups. If you’re a retailer, you can even use this information to accurately stock your store. And once you uncover the preferences of your best customers, you can develop marketing campaigns targeting prospects who share similar characteristics. 5 Tips for Getting Started 1. Choose the Right Rewards In-kind rewards are often less costly and have the added plus of being clearly associated with your business. Suppose you owned an ice cream shop and wanted to reward customers who had purchased at least five cones. Providing the sixth cone free would be a better choice than offering an unrelated gift, such as a discount on a movie ticket or even cash, because it would cost less to provide and be more memorable for customers who could easily relate it to your business. It would also convey a real cash value – while the free cone might cost you only 25 cents, customers would perceive it as a $2.25 gift. 2. Entice Your Customers To be effective, it’s essential to tell customers what they can expect. This builds excitement and entices them to make purchases toward their goals. You can also use your reward program to encourage customers to try additional products and services. Let’s say your ice cream shop rewarded customers with a double-decker sundae following a dozen purchases. This would encourage more customers to try your higher-priced items, plus add a tempting reward in which they might not ordinarily indulge. 3. Reward Your Best Customers Offering graduated awards with increasing cash value is a great way to motivate your best customers. The chief benefit is turning low-value customers into high-value ones, and it avoids the pitfalls of other types of reward programs which tend to attract less profitable price switchers – low-value customers who switch to take advantage of entry-level rewards. 4. Reward at Enrollment Programs that provide immediate rewards encourage customers to register. One method is to offer a bonus at enrollment. And some retailers engage customers before they ever leave the store by making an additional offer at checkout or by printing a message on the sales receipt. 5. Measure Performance Set goals for your program and continually monitor your results. Measure the increasing use of your products or services, the amount of transactions involving loyalty program ID numbers, and the growth of your enrolled customer base. Then you can fine-tune and build on what works. Get In-depth Coaching on this Topic>> Kim T. Gordon's columns and articles are read by nearly 3 million small and home-based business owners each month. She is the author of two books, including Bringing Home the Business: The 30 Truths Every Home Business Owner Must Know. Copyrighted material. May not be reproduced in whole or part without expressed permission from the author. |
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