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5 Tips for Building a Rewards Program

An effective rewards program keeps customers coming back. Here are 5 essential tips for building your program--and your sales.

Have your sales hit the summer doldrums? Maybe you're not giving your customers a good reason to buy now. If you're looking for a smart way to stimulate sales, consider initiating a customer rewards program. For many types of businesses, customer acquisition slows during the summer months, and this is a great time to upsell or resell current customers. Rewards programs give your best customers a reason to spend with you instead of your competitors. And an effective program will strengthen customer relations and build long-term revenue that will last far beyond this summer.

Here are five tips for putting a customer rewards program to work in your growing business:

1. Start by building a database. Every good retention program begins with a database of customers who share information with you during enrollment. But that's just the beginning. By compiling customer data throughout the life of your program, you can tailor your offers based on customers' past preferences and purchase histories. If your original database contains a large number of lapsed customers, offering an instant reward on activation (when they make their first purchase) is a great way to bring them back. For help setting up your program, consider using a loyalty-marketing software provider, such as Smart Button Associates.

2. Raise customer expectations. The best programs build excitement by letting customers know exactly what rewards they can expect and how they can earn them. For example, suppose you were shopping online, and one site promised future savings if you signed up for a rewards program, but it didn't convey exactly what you might earn, while a second site offered a gift with purchase at enrollment and a bonus with every third buy. Wouldn't you find the site with the clear rewards more enticing?

3. Offer graduated rewards. To stimulate maximum participation in your program, make your rewards readily obtainable--and graduate them so that you transform a higher percentage of your database from low-value to high-value customers. This will help you avoid the pitfalls of programs that reward primarily on enrollment, which tend to attract low-value price-switchers who join to take advantage of first-time buyer rewards. Graduated rewards can also energize sales of your higher-ticket items, including those that customers might otherwise consider out of reach.

4. Provide in-kind rewards. Suppose you owned a neighborhood music store. Which would compel customers who earned rewards to come back and buy from you (rather than the superstore around the corner): two free movie tickets, or 20 percent off on their next CD purchase in your store? The bonus on their next CD would bring them back to make a subsequent purchase. It would also make the program itself more memorable because the reward would be associated directly with your product. Best of all, the 20 percent discount would represent real value from the customer's perspective, while your cost would be minimal.

5. Create an ongoing dialogue. Follow the example of major online and off-line retailers by communicating often. Many successful catalogers immediately send follow-up mailings after each purchase. Online marketers can communicate frequently to introduce new perks and special offers, thanks to the affordability and quick implementation of e-mail campaigns. And brick-and-mortar retailers can enroll customers at checkout and then communicate about rewards via e-mail or direct mail. Since customers are actively interested in news about their rewards, they're receptive to maintaining ongoing interaction--which ultimately leads to more sales.

And here's a final note: The data you collect by virtue of your rewards program can also help you improve your customer acquisition results. Just take what you learn about your best customers, and tailor your marketing approach and media to address prospects with similar characteristics.

Kim Gordon is the owner of National Marketing Federation and is a multifaceted marketing expert, speaker, author and media spokesperson. Her latest book is Maximum Marketing, Minimum Dollars.

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This article was originally published in the July 2005 print edition of Entrepreneur with the headline: Sweet Rewards.

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