Rewarding the Repeaters

This story appears in the February 2010 issue of Entrepreneur. Subscribe »

A well-known business maxim says it's easier and less expensive to get repeat business from your customers than to constantly find new ones. That's why incentive and loyalty programs have proven so popular among small-business owners.

These programs include the following:

• Discount cards that entitle the holder to discounts on select items or services.
  
• Punch cards where for each X number of purchases made or X amount of money spent, the holder receives some item or service of value. (For example, buy 10 cups of coffee and get the eleventh free.)
  
• Rewards or rebate cash where for every X amount of money spent, the customer gets gift cash that can be used at the business that provides it. (For example, for every $100 spent, get a $5 gift card for the store.)
  
• Special coupons offered only to repeat or preferred customers.Jacqui Pini, co-owner of MuseumWayPearls.com in Boston, says, "We send a handwritten thank-you note along with a coupon code [that does not expire] for things that have included free overnight shipping or a percentage off a particular item or a percentage off an entire purchase. In the past, we used to send a follow-up e-mail but did not see much traction. We really value our customers and it is worth it for us to take the time to send a [handwritten] thank you, and I think they appreciate that."

That's an example of getting it right. But it's all too easy to get these programs wrong. You can alienate a customer if your rules are too complicated, the reward is too difficult to redeem, or the offer isn't of interest. Consultant Joni Daniels points out that most small-business owners think about "what makes sense, motivates, or excites them," not their clients.

Small-business owners make one common mistake over and over, says Richard O'Malley, president of The O'Malley Project, a business consultancy. That mistake? "The offer is usually something the owner doesn't particularly value. It is a half-hearted attempt, at best, to seem like they are giving the customer a 'deal.' A true incentive needs to show value on both sides."

In other words, when incentive or rewards programs don't work, it's often because the programs focus on what the owner wants, not what the customer or client values. Doing a little homework ahead of time can help you makesure your incentive program does exactly what it's supposed to do.