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Sweet Rewards

Win over your existing patrons with a customer loyalty program, and watch sales reach new heights.
August 1, 2003
URL: http://www.entrepreneur.com/article/63346

With the skyrocketing cost of customer acquisition, it makes sense to focus on retaining and up-selling current customers. It can cost as much as five times more to win a new customer than to keep an old one. Yet many entrepreneurs remain fixated on prospecting-at the expense of programs for existing customers that would build sales more cost-effectively.

Customer loyalty programs (aka reward programs) have become essential in price-sensitive arenas and where there are similar products or services. About half of all Americans belong to at least one. Drugstore chain CVS Corp., for instance, has 32 million "ExtraCare" card members. And Regal Entertainment Group rewards frequent moviegoers with free concession food and discounts.

Loyalty programs make sense for growing businesses, too. Entrepreneurs with successful customer reward programs enjoy increased sales, have lower marketing costs and amass invaluable information. The bulk of the data is gathered when customers sign up. Later, information is collected through surveys and during transactions.

By tracking current customer data, you can discover opportunities, better segment your customer base and identify the needs of different groups. If you're a retailer, you can use this information to accurately stock your store. And once you uncover your best customers' preferences, you can develop marketing campaigns that target prospects who share similar characteristics.

Eyes on the Prize

Here are a few things to keep in mind when creating a reward program:

Choose the right rewards. In-kind rewards are less costly and are clearly associated with your business. Say you owned an ice cream shop and wanted to reward customers who had purchased five cones. Providing the sixth cone free would be better than offering a discount on a movie ticket because it would cost less and customers could relate it to your business. It would also convey a real cash value-while the free cone might cost you 25 cents, customers would perceive it as a $2.25 gift.