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The Honolulu Advertiser
Posted on: Wednesday, April 19, 2006

Keep 'em coming back for more

By Rhonda Abrams

May 1 marks the 25th anniversary of American Airlines' frequent flier program, generally considered the first airline mileage reward plan. Since 1981, customer loyalty programs have exploded. Consumers under 30 probably don't remember a time when you went to a supermarket and bought groceries or fixed your car or checked into a hotel without showing a customer loyalty card.

But do customer loyalty programs actually work, especially for small businesses? Can you implement one cheaply and easily in your company?

For big corporations, the value of customer loyalty programs is hotly debated. Consumers are now overloaded with programs, frustrated keeping track of points, or just plain jaded. And it doesn't necessarily make you more loyal to your airline when you can never actually secure a reservation to use your frequent flier miles.

But for small companies, especially retail and service businesses, loyalty programs can be an effective and simple way to keep customers coming back.

The key is to keep your loyalty program simple, and be clear on what you hope to achieve.

The best reason for a small company to implement a loyalty program is to keep clients coming back. As a small business, it's hard to compete with the big box stores or corporations with large advertising budgets. Offering a simple reward punch card at your sandwich shop for instance, one free sandwich for every 10 purchased may keep a customer from going across the street to the fast-food joint.

Loyalty programs that work well for small businesses:

  • Pre-purchase discount: My neighbor gets a 10 percent discount when she pre-purchases a series of exercise classes. Pre-purchase discounts are cost-effective and cash-flow positive for small businesses. You get money in the bank now, the benefit is immediately apparent to the customer, and if the customer fails to use all their products or services, you've increased your profit margins.

  • Cash reward after reaching purchase level: My beauty supply store gives me a $6 credit after I purchase a certain amount of merchandise. The discount probably is less than 10 percent, but I really like getting a cash amount to use when I fill in the card. I almost always buy myself something I wouldn't have purchased otherwise. That increases sales as well as keeping me loyal.

  • "One free" after reaching purchase level: The long-term airport parking lot gives me one stay after I stay 35 days; I get one free pair of pantyhose after I buy 16. Free products or services are a little less motivating than cash, but still quite effective rewards.

    Punch-card loyalty programs are easy and cheap to implement. Just figure out the sales level you need to justify the reward or discount, print out cards, and purchase a specialty hole punch with a unique shape to discourage fraud. If fraud is a major issue, you can keep the cards at your place of business rather than give them to the customer.

    However, giving customers loyalty cards to carry with them acts as an ongoing advertisement for you. I know I see the pink card from my beauty supply store in my wallet at least a few times a week.

    Regardless of the type of loyalty program you implement, you still must offer good products and great service. Remember, you've got to be loyal to your customers if you want them to be loyal to you.

    Rhonda Abrams' newest book is "Winning Presentation in a Day." Register for her free business tips at www.PlanningShop.com.