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Pros and Cons of Starting Customer Loyalty Programs
December 20, 2018
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Pros and Cons of Starting Customer Loyalty Programs

Starting a customer loyalty program can be a time-consuming, yet rewarding, project. It’s vital to make your existing customers feel valued. If you don’t make this a priority, they make take their business elsewhere!

Still, we understand that setting up and maintaining a rewards program can require a lot of effort, and potentially money. In this post, we’ll explain what a loyalty program is, and will provide a pros and cons list so that you can decide if business loyalty programs are worth pursuing.

What is a Customer Loyalty Program?

Companies of all sizes create loyalty programs that reward their return customers. The purpose of a loyalty program is to keep customers coming back and incentivize them for doing so. For instance, customers earn points for each purchase they make, and then get a free item or discount after they spend a certain amount.

Based on your business’s industry and what you sell, you can personalize your program to benefit you and your customers. Also, although some loyalty programs come with an annual fee, to start, you might be better off offering it for free. Now, let’s review the pros and cons that come with starting a customer rewards program for your small business.

The Benefits and Downsides of Customer Loyalty Programs:

Pro: Gives Customers an Incentive to Return

If customer retention has been an issue for your business in the past, creating a loyalty program could be a beneficial solution. Customer loyalty programs often inspire customers to become loyal buyers. They feel like their patronage is appreciated, so they continue to do business with an establishment that offers them long-term rewards. Even if a customer appreciates your products or services, you may not always be top of mind. Therefore, implementing a rewards program could keep customers engaged with your business and create a better overall customer experience.

A proactive way to use your rewards program to engage customers is to send them monthly emails informing them of how many reward points they’ve earned. This reminder could encourage them to make more purchases!

Con: You’ll Have to Monitor the Loyalty Program

By offering a reward program, you’ll be able to gain customer loyalty, but you’ll also have to put in extra effort to set it up and maintain it. You may need a technological system to track award amounts your customers are accumulating and will need to send out emails or letters to customers that have earned rewards. This could take away time (and resources) from other parts of your business, so make sure you consider this prior to starting a loyalty program.

If you don’t maintain your customer loyalty program, you could frustrate (and lose) loyal customers. Keep this in mind when deciding if this is right for your business.

Pro: Could Increase Transaction Amounts

If customers are trying to get a discount, free item, or another exciting incentive, they may be more likely to make larger or more frequent purchases at your business. In fact, according to the 2016 Bond Loyalty Report, 66 percent of shoppers spend more money in order to take advantage of their loyalty program benefits.

By offering customers the option of enrolling in a rewards program, you may see a notable boost in sales!

Con: Might Be Time-Consuming to Start

Not only does setting up rewards accounts take away from other initiatives, but if you have a digital loyalty program, it may require frequent monitoring. This will all depend on the type of loyalty program you use. To avoid this, consider an automated service that will save time for both you and your customer base. Below, you’ll find a few examples of companies that provide customer loyalty and referral program software solutions:

Pro: Could Help Promote Your Business’s Brand

Reward programs often provide a strong branding opportunity. Whether it’s incorporating your business slogan into the program name or decorating the loyalty card in your colors and logo, your rewards program can reflect your branding.

Aside from including your branding in your loyalty program, you can promote it on social media, your business’s website, mobile app, and email newsletters. This will enable you to increase awareness about your program while reiterating your brand’s story. Also, you might find that your customers produce user generated content that’s related to your loyalty program. For instance, a customer might take a photo of their reward, which you can then publicize on your social media accounts. The more that your rewards program grows, the more that you can use it as an opportunity to show off your business’s brand.

The more that you publicize your brand, the more that you’ll connect with your customer base, which will likely allow you to grow your loyalty program.

Con: Could Hurt Your Business’s Finances

If you want to start a loyalty program, it’s pivotal that you ensure that you aren’t losing money in the process. For example, if you’re giving away too many products or your discounts are too large, you might end up hurting your business’s finances. Even if customer retention is good, it won’t benefit your business if you aren’t generating enough money to remain operational. Ultimately, you should be rewarding your customers, while still creating sales for your business.

Pro: Could Attract New Customers

Although starting a loyalty program is meant to reward existing customers, you should also use it as an opportunity to attract new ones. Potential patrons will see that you have a loyalty program and might be more likely to make a purchase if they know that they’ll be rewarded with a discount or free item in the future. Plus, loyalty members might become such a fan of your program that they might refer other patrons to your business.

So, when marketing your business to possible customers, make sure to promote your loyalty program. Whether it’s including information about it on a landing page, publishing sponsored social media posts, or advertising it on your direct mailers, you should make sure that people know about your business’s rewards program.

Con: Customers May Not Be Satisfied

As a small business owner, you should always try to ensure your customers’ happiness. If they aren’t satisfied with your products or services, they could start shopping from your competitors instead. Although a loyalty program should delight customers, there could be instances where they aren’t pleased with your offers or a particular situation.

For instance, there might be a misunderstanding about your rewards, or a customer might think that they’ve earned more points than you have recorded in your system. It’s important to be prepared for situations like these. Even if most of your customers appreciate your program, if other patrons are unhappy (and post about it on social media or other platforms), it might hurt your business more than it helps.

Conclusion: Consider How a Loyalty Program Could Help (Or Hinder) Your Small Business

Hopefully after reading this blog post you can determine if starting a business rewards program is the right venture for your business. Having a loyalty program option for customers could set your business apart from competitors, and may help you increase sales in the long run. It’s important to consider how a rewards program could benefit both you and your customers; as it should be advantageous for both parties!

Have you started a loyalty program for your business’s repeat customers? Tell us about your experience (and share what you’ve learned) in the comment section below!

Editor’s Note: This post was updated for accuracy and comprehensiveness in December 2018.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].