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Many businesses, big and small, run some sort of loyalty program. Some have two or more such programs. They’ve been around for a while, but are loyalty programs for customers beneficial to businesses? Would such a program be right for your business? To find out, let’s look at a few pros and cons of customer loyalty programs.

Pros of Customer Loyalty Programs

Loyalty programs come wrapped in layers of goodness. Among their top benefits are:

Repeat Purchases

It’s true that some shoppers only come back for the points and other store perks they earn from your loyalty program, not because they are loyal to the business. But their repeat business brings more money, which is great for the bottom line and is what every business person wants. 

Customer Referrals

If customers are happy with the rewards you’re offering, they’ll be happy to refer their friends to you. Their friends send more referrals, and the chain goes on. Some will make your store their new favorite shop. Others will add you to their list of places to frequent. Either way, your business makes more money, and the books sure look right.

Boost in Customer Engagement

Modern loyalty plans are not merely a points-based reward system. They offer a complete customer experience package that includes:

  • Personalization
  • Entertainment
  • And a sense of community

Businesses also use them to share informative and educational content.

Most customer loyalty platforms have engagement tools that allow shoppers to interact with your brand in unique ways. Use these tools to customize the experience for each customer and provide links to social platforms so they can connect with other users in a more personal, fun way if they so wish.

Cons of Customer Loyalty Programs

Let’s now turn to some of the not-so-good bits about loyalty programs and see how these impact businesses.

They Are Not Enough To Ward Off the Competition

Every business has its ways of attracting and hooking clients. And often, loyalty rewards for customers are not enough to keep customers from switching alliances. New store with lower pricing? Some of your customers will be knocking on the new store’s doors before you can think of a new incentive to offer them.

They Are Not A Good Indicator of Customer Loyalty

Customer loyalty systems are not always a good indicator of customer loyalty. Does the customer buy from you because they like your products and have a heartwarming experience every time they transact with you? Or do they buy because your store is closest to their house or office? Or because your online purchase process is fast and straightforward?

To determine the truth, you need to scrutinize customer loyalty metrics and compare their shopping habits when transacting with other brands. However, this information is not openly available and requires you to invest more to access these insights. Only then can you know what drives the customer to do business with you and devise ways to earn their trust.

If Poorly Done, Loyalty Programs Can Turn Away Customers

There may be nothing wrong with the rewards program itself, but the way the business goes about executing it can be off-putting for customers. This can happen when there’s:

  1. A complex sign-up process

Maybe the registration involves too many steps. Or the sign-up forms are too long. Or you ask customers to provide too many details, some of which they may consider sensitive.

  1. Unclear rewards system

Can the customer tell how the rewards structure works? If they cannot, you need to simplify the rewards formula so shoppers of all ages can understand how it works. Few people are eager to join a program they don’t understand.

  1. Unappealing rewards

Go beyond the bare minimum and the odd customer loyalty discount. What kinds of rewards would your star customers love? Offer such perks. 

Is A Rewards Program Right for Your Business?

With proper implementation, a customer rewards system can work for your business, regardless of the industry. For the loyalty program to yield positive results, use it as a relationship builder and focus on the long-term gains it brings the business rather than instant profits from repeat purchases.

Can you use the loyalty system to:

  • Establish a relationship with the customer?
  • Engage with the customer regularly?
  • Highlight solutions to their needs?
  • Create a great customer experience?
  • Recognize and reward your customers?

Did you answer yes to the above? A customer loyalty program would be an asset to your business. These relationship-focused habits require deliberate nurturing, so you’ll need to work toward building them.

A customer who feels seen and valued will likely do more business with you. Their connection to your business will draw them to continue transacting with you in a way that a customer who’s only buying to earn a reward may not.

And when you experience hitches in service delivery, they won’t be quick to write you off. Instead, they are more likely to be understanding and willing to come back again. Customers driven by the rewards they stand to gain may not stick around through the mess. 

In Summary

Incorporating a loyalty program into your operation is one way to encourage repeat business and referrals, leading to more sales. And you can use it to grow long-term customer relationships that yield an even bigger reward.