Thanks to the hard work and insight of the highly respected business consultancy Bain & Co., loyalty is now a business metric that can be measured. According to Freidrich Reichheld, the partner at Bain driving the research and author of The Loyalty Effect, a 5% increase in loyal customers can have a 75% increase in revenue. That is why you see companies going to such great lengths to keep loyal customers. Amazon is built substantially on the ability to keep customers coming back. Keeping existing customers happy is far more cost efficient than acquiring new customers. It is critical that a business understands and appreciates the value of their good customers. These customers will spend more, shop more frequently, are less sensitive to sale pricing, and most critically, they are advocates for your business. Developing brand advocates, those passionate customers who love your product or service, should be the goal of your business regardless of what type of work you do. There is no stronger advertising for small businesses than word of mouth endorsements within the community.
Loyalty programs are now offered by all types of businesses to demonstrate their appreciation to their loyal customers. A good loyalty program builds brand awareness and gives you something relevant to communicate to your consumer. It incentivizes trial of new products or services, attracting new customers and is an excellent reason to communicate with existing customers. These programs should motivate consumers to keep coming back. We have found that an effective loyalty program must to be easily understood and the reward has to be achievable. Many programs don’t work because the consumer can’t understand them or they don’t shop that type of product frequently enough to earn rewards. If executed effectively a loyalty program becomes a huge asset. The Starbucks Rewards program is considered among the most successful rewards/loyalty programs and they clearly recognize the value, “Starbucks executives pointed to their loyalty program as the key driver in its record second-quarter fiscal results, which included a 26% rise in profit and an 11% jump in total revenue, to $3.6 billion” (Entrepreneur Magazine, April 2014). Starbucks is even considering licensing their loyalty program so that local nail salons and yoga studios could participate in its Rewards program and could accept and reward their customers using Starbucks points. Marketers understand that there is a limited amount of space in the consumer’s heart or wallet, and if your loyalty program is going to be successful it must work its way into this valuable real estate.
The fact is that it is difficult to advertise if you are a small business. It is expensive and usually not measurable. For instance, print advertising is only effective if you consistently advertise, ideally in more than one publication. An expensive proposition and despite the best efforts to measure the effectiveness of advertising, even on a large scale, it is very difficult to do. Another option is the “50%” off deals such as Groupon. For a number of reasons these deals don’t work and prove to be prohibitively expensive. Typically they cost a percentage of the retail price that very few businesses can absorb and certainly not over time. Additionally these programs are building loyalty to their web site and not to your business. Finally, coupons and mailers are also expensive – an investment of $300 - $700 monthly, plus the cost of the coupon offer. The expected redemption rate is 1% - 2% - not very effective.
So what is a small business to do to build consumer loyalty?
A new program gives small businesses the ability to effectively compete with brands and services wielding much larger budgets. Gems of Our Community, launched in the suburbs of Minneapolis four years ago, is built upon the concept that inspiring the local community to work together is enormously powerful. The Gems programs rewards consumers with cash back that can be spent with any local merchants who accepts Gems Rewards. Consumers seek out other Gems business to quickly build their card balance, which is spent back with participating businesses. At the same time it also rewards a local cause, such as schools, booster clubs or non-profits (similar to the Amazon Smile program). This motivates the clubs and causes to get the word out about the local businesses that support their efforts and small businesses can effectively partner with local causes to raise brand awareness. As businesses support the local community it allows them to speak directly to these clubs, schools or causes and vice versa. For example, if the local booster club wants to raise money for a new stadium they will give Gems cards to all of their supporters, who will in turn seek out the businesses that accept Gems cards in order to help them raise money for their cause. The local merchant who supports the stadium can also reach out directly to the boosters to let them know they support the stadium project.
The program is hugely successful in Minneapolis with over 500 businesses currently enrolled. National brands and retailers have to compete with local pride, a distinct advantage that the Gems program effectively captures and promotes. Consumers are motivated to shop with local businesses both for themselves and their favorite cause and the businesses in the coalition will grow from each other and with the support of local causes – an incredibly powerful combination.
Joe Bernard is the Principal of Catapult! Marketing Services and is rolling out the Gems Rewards program in New Jersey. Please email him for more information at firstname.lastname@example.org