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Customer Incentive Programs Reward Your Business, Too

by | Feb 24, 2023

One of the lesser-talked-about changes in consumer behavior over the past few years is how transient consumers have become. It’s hard to blame them. Store closures and supply chain disruptions have made it hard to find everyday items and it caused roughly three-quarters of them to change the way they shopped. E-commerce exploded leading shoppers to try new stores, brands, or avenues to get their goods.  This is why effective customer incentive programs are vital to keeping customers loyal and attracting new ones that are shopping around.

Why incentivize?

Well, it’s easier and tends to be cheaper. There’s an age-old retail axiom that says it costs more to acquire new customers than it does to keep current ones. 

“Your No. 1 priority is customer retention,” says Dan Nesmith, president of Paladin Data Corporation, a leading provider of digital retail solutions. “You can’t gain new customers until you solve why you are losing the ones you have.” 

Heightened competition is the main reason a store needs to keep its customers close. A study by research firm McKinsey showed that in the years since the pandemic 35% of U.S. consumers tried a new brand and 77% changed the way they shopped to find products they needed. Supply chain disruption was the culprit for much of that change, but most of those shoppers said they intend to continue their newfound sources and behaviors. 

Nesmith says superior inventory control, which includes a variety of suppliers and a pleasant shopping experience, is key to keeping consumers engaged. 

“(Consumers) don’t tolerate outs,” he says. “Stores aren’t just competing with stores down the road. They have to provide an overwhelming shopping experience to avoid losing customers to competitors or online sources.” 

Another old retail axiom says about 20% of a store’s customers produce 80% of its total sales. 

Research shows that existing customers, on average, are 50% more likely to try new products and spend 31% more than new customers. And new customer acquisition costs have increased by almost 50% in the past five years. So, keeping the top 20% happy and shopping regularly is crucial. 

Benefits of a customer incentive program

Incentive programs not only help stores build stronger relationships with their customers, they also:

Improve customer satisfaction and retention

Encourage repeat business

Differentiate your store from competitors

Boost sales through offer redemption and peripheral purchases

Increase brand awareness

Stores benefit, too

The information gained from customers through incentive programs is often more valuable than the purchases those customers make. Getting names, email addresses, phone numbers, and often age, family status, and income range gives stores a much better idea about their clientele and what they purchase and value. 

Knowing what loyal customers are buying allows stores to adjust inventory to fit those wants and needs. It also allows them to seek additional suppliers for those items to avoid the out-of-stocks that Nesmith says can lead to lost customers. All this information can be utilized through a modern point-of-sale and business management platform to simplify ordering, improve inventory control, and enhance customer satisfaction. 

Knowing contact information such as email addresses and cell phone numbers also opens avenues for stores to reach out with personalized incentives through emails and text messages. E-coupons are popular with retailers of all kinds. Research shows that nearly all (95%) of text messages are read within three minutes of being received. 

Truly rewarding rewards

Points programs are pretty simple and the most popular type of customer incentive program. Members earn points through purchases and those points are often applied through discounts on future purchases – 10%, 20%, or more. Some offer double or triple points to encourage larger purchases.

The key to successful customer incentive programs is making sure the rewards are perceived as truly rewarding.

Accenture found that members of customer incentive programs typically spend on average 12% to 18% more than other customers.  According to the research firm, McKinsey, loyalty programs can increase revenue from customers who redeem points by 15 to 20 percent annually by increasing the size of their purchases or the number of them.

Ben Honeycutt, owner of Oak Knolls Hardware in Orcutt, California, uses the customer management functions in his point-of-sale system to power his incentive program.

“I look at my customer listings and rankings. I find out who my best customers are. Last year, we bought some nice gifts and sent them out at the holidays,” he explains, adding that unexpected gifts like that go a long way in building loyalty and retaining customers.

Nuts and bolts of rewards

Many hardware suppliers and co-ops offer their own customer incentive programs. Ace Rewards, Best (Do it Best) Rewards, True Value Rewards and Orgill FanBuilder™ are a few. Many of these are omnichannel programs providing customers digital access to their “accounts” and offering both digital and hard copy coupons and incentives.

However, stores needn’t be part of a cooperative to have a customer incentive program. There are many third-party providers that offer rewards to independent stores. RepeatRewards features all the incentives the big-box, co-ops and online rewards programs have. Rich Rewards is another program that can be operated through a store’s point-of-sale system that can keep customers coming back.

Like Ben Honeycutt’s methods, these programs are run through a store’s POS and, in most cases, are automated through the supplier or co-op. Stores merely need to redeem coupons. Fully integrated customer incentive programs provide stores with reports on which customers are utilizing the rewards. Many of the co-ops have applications that further simplify the rewards process.

Making rewards work

Successful incentive programs rely on being effortless to use and require everyone at a store to be well-versed in the rewards. Associates must know as much about the details of the program and its members as they do about where products are inside the store. They need to know to ask each customer if they are incentive program members, how to apply rewards, and often help customers take advantage of those rewards. For many stores with successful incentive programs, “Are you part of our rewards program?” is the first question to customers at checkout.

Retail technology also pulls a successful customer incentive program together. Modern point-of-sale systems or retail management platforms make it easy to sign up members, record sales, provide discounts, deliver communications to customers, and generally keep customers happy.

“The actions taken in your stores everyday drive customer retention,” Nesmith says. “Customer retention and increased ticket totals will drive increased customer counts which will drive increase revenues.”

Upshot

Research from Bain & Company shows that increasing customer retention rates by 5% increases profits from 25% to 95%. Customer incentive programs are an integral part of creating loyal customers and attracting new shoppers.

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