Do Loyalty Programs Really Work?

Retailers continue to ask, do loyalty programs work? Many aren’t convinced that they’re worth the trouble.

Daily operating costs continue to rise. At the same time, margins are being squeezed in the face of competition from e-commerce sites and big-box retailers. As the economic pressure builds, retailers feel they already have a lot on their plate.

In fact, rising costs and increased competition might be the best reasons to start a rewards program.

Learning From the Past

A rewards program allows the modern retailer to do what shopkeepers did a century ago: provide a unique service for each customer.

Over time, shopkeepers would get to know the buying habits of many of their repeat customers. Understanding a customer’s preferences made it possible to recommend a product that they might like, give them a little something extra, and generally tailor the services they provided to meet or exceed the needs of the customer.

This special treatment added value to the products they sold and made it difficult for other shopkeepers to compete. Should the customer visit another merchant selling similar products, it’s unlikely they’d receive the level of service they had become accustomed to through your loyalty program.

How Do Loyalty Programs Work to Help the Retailer?

A loyalty program creates an opportunity to set yourself apart from your competitors without competing head to head on price alone.

Done correctly, a strong loyalty program will not only entice customers to come back to your store, it will also give them reasons to stay longer. The more time they spend in your store, the greater the opportunity to spend money.

There is no better business card than a happy customer. Pleased with the service and the benefits you provide, they will tell their friends. The satisfied customer becomes an advocate for your business.
Attracting new customers is expensive. Depending on who does the math, it costs 4 to 10 times more to attract a new customer than it does to keep an existing one. Taking measures to keep the customers you already have, like a rewards program, is extremely cost effective.
This last point might be the most important one. When applied to the revenue side of a business, the 80/20 rule tells us that roughly 80% of a company’s revenue is generated by 20% of the company’s customers.

This top 20% are the core of your business. These are the people you want to draw in and hang on to. Get them into your program right away to give your rewards program a solid foundation.

Information is Key

If you’ve been running a retail business for a while, chances are you’ve been collecting information about your customers. Ideally, names and address are linked to their purchase history inside your point of sale system.

Access to this data allows you to answer two important questions:

1. Who are your top customers?

2. What are they buying?

Some retailers don’t collect information on their customers unless they extend them credit. If you haven’t been collecting this basic information, a rewards program is a terrific reason to start.

Hand signing a smart phone.

Signing Up is Good for Everybody

When you sign your customers up for the loyalty program, you can gather email addresses and other information to contact and inform them about sales or other promotions you may decide to do. With this information in point of sale, you can begin to see what types of products your loyalty program customers are interested in.

Should the customer ever have a warranty claim for an item they purchased from your store you can quickly locate a record of that purchase. You’ll save the day by providing a duplicate receipt or other proof of purchase. This alone would be reason enough for some customers to sign up, especially on high ticket items.

Man buying sports equipment using handwatch at the cash register with saleswoman in the shop with travel goodsRewarding Points


Point of sale systems support loyalty programs in different ways. Many allow you to build a program that works best for you as opposed to a “one size fits all” solution.

For example, you can offer a cash discount coupon to the customer when their spending has reached a set threshold. Say, one point for each dollar they spent. When they spend $500.00, they get a coupon or a credit for $5.00. You may opt for two or more points per dollar or more. It’s really up to you.

Some programs will automatically issue the rewards coupon at point of sale, redeemable on the customer’s next visit. This type of program is virtually automated after the initial setup is complete.

Points Are Just the Beginning

A cash incentive for your most loyal customers certainly couldn’t hurt. The real power of a rewards program may be in creating offers exclusively for the customers you want to retain.

You may not know off the top of your head which products each of your core customers purchase regularly. Fortunately, your point of sale data can help. A quick search will reveal specific products or product categories each of your core customers are buying.

With this information, you can create unique offers for your rewards customers, just like those shopkeepers did back in the day. Here are a few examples that show how the data you collect can help you create special offers for your best customers.


Example 1

Let’s say you run a hardware store. Of your top 20%, fifteen customers purchase lots of paint and painting supplies. Create a simple email message for these fifteen and offer them a 10% or 15% discount on any purchases they make on a given day or week. You won’t be making this offer across the board to everyone. Just the people you’ve identified as your core customers. Be sure to let your point of sale system know who gets the discount and the length of time it will be offered.

Example 2

If your main supplier is offering a product to you at a reduced rate, pass those savings along to your rewards customers. Your margin will remain intact and it will give you something else to promote to your core customers.

Example 3

Now that you are tracking customer purchases, you’ll be able to single out customers by their favorite brand. If you work in a retail environment where you are in regular contact with the manufacturer or a company representative, ask about exclusive deals for your rewards customers that use their products. Manufacturers love this type of targeted marketing. It allows them to focus their marketing dollars directly at a market already familiar with the products they offer.

Bring Your Staff Onboard

To make your loyalty program a total success, make sure your staff knows the benefits to the customer and the business. It will be meaningful for them to know the importance of these core customers and how the rewards program is designed specifically to benefit them.

They should also know what information is required to get customers into the program and suggest membership to any customer they encounter throughout the day.

The Takeaway

Your loyalty program can be anything you’d like it to be. You can have a no-maintenance automated system that provides a cash incentive at checkout. You can take it a step further and create unique offers for your rewards program members.

The real power in any rewards program is the data you collect. Use this information to target customers with offers tailored to their specific needs or tastes. These curated offers tell your rewards customers that you value them and are willing to go the extra mile to keep them coming back.

George Maginnis