Win Customers Over With a Loyalty Program Don't ignore the customers you already have! Let them know their worth to your biz by providing rewards for their loyalty.

With the skyrocketing cost of customer acquisition, it makessense to focus on retaining and up-selling current customers. Itcan cost as much as five times more to win a new customer than tokeep an old one. Yet many entrepreneurs remain fixated onprospecting-at the expense of programs for existing customers thatwould build sales more cost-effectively.

Customer loyalty programs (aka reward programs) have becomeessential in price-sensitive arenas and where there are similarproducts or services. About half of all Americans belong to atleast one. Drugstore chain CVS Corp., for instance, has 32 million"ExtraCare" card members. And Regal Entertainment Grouprewards frequent moviegoers with free concession food anddiscounts.

Loyalty programs make sense for growing businesses, too.Entrepreneurs with successful customer reward programs enjoyincreased sales, have lower marketing costs and amass invaluableinformation. The bulk of the data is gathered when customers signup. Later, information is collected through surveys and duringtransactions.

By tracking current customer data, you can discoveropportunities, better segment your customer base and identify theneeds of different groups. If you're a retailer, you can usethis information to accurately stock your store. And once youuncover your best customers' preferences, you can developmarketing campaigns that target prospects who share similarcharacteristics.

Eyes on the Prize

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

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

• Entice your customers. Tell customers what to expect.This entices them to make purchases toward their goals. You canalso use your program to encourage customers to try other productsand services. Let's say your ice cream shop rewards customerswith a double-decker sundae following a dozen purchases. Tastingthe reward will introduce customers to higher-priced items, thusencouraging more customers to buy them.

• Reward your best customers. Offering graduated awardswith increasing cash value is a great way to motivate your bestcustomers. This turns low-value customers into high-value ones, andit avoids the pitfalls of other types of reward programs, whichattract less-profitable price switchers.

• Reward at enrollment. Programs that provide immediaterewards encourage customers to register. One method is to offer abonus at enrollment. And some retailers engage customers beforethey ever leave the store by making an additional offer at checkoutor by printing a message on the sales receipt.

• Measure performance. Set goals for your program, andcontinually monitor your results. Measure the increase in use ofyour products or services, the number of transactions involvingloyalty program ID numbers, and the growth of your enrolledcustomer base. Then you can fine-tune your program and build onwhat works.