Master the Art of Customer Loyalty

If you don't have a loyalty program, you're not taking advantage of your happiest customers. Here's how to get started.Marketing your small business is easier said than done. Maybe you’ve tried Google AdWords or created a Facebook page but were disappointed with the results or complexity. You may have considered daily deals but realized that selling products at negative gross margin to one-time customers is not a winning combination. So what’s your next move?

There are no silver bullets in marketing, but I learned one important lesson from the Fortune 500 clients I consulted for at McKinsey--the power of customer loyalty. For many small businesses, loyalty marketing may be the only marketing they need, because it builds upon their greatest asset: their most satisfied customers. Bain & Company famously wrote that it costs 6 to 7 times more to acquire a new customer than to retain an existing one. Though you probably can’t invest in loyalty like a Fortune 500 company would, there are steps small businesses can take to begin loyalty marketing.

First, invest in service. Zappos pioneered the mantra that customer service is the new marketing. An American Express study showed that 70 percent of Americans would spend more with companies they believe provide excellent customer service. Service is the strength of most small businesses, so you should be able to do this well immediately.

Second, build a robust loyalty program that:

•Increases Customer Visits. Remember the first time you joined an airline frequent flyer program? Initially you were probably comfortable spreading your miles across a few airlines, but as you neared a reward in one, you started to stick with your preferred airline. And then once you experienced the benefits of airline status, you were hooked. When you build your loyalty program, make the first reward easily attainable, so customers experience the thrill of getting a reward early on. Then add additional tiers to earn even more memorable rewards and maybe bonuses after a certain number of visits. Even if you use a simple punch card, you should be able to launch this kind of program.

Companies that implement simple visit-based loyalty programs can increase customer visits by 30 percent with very little cost.

•Increases Spend Per Visit. As a second step, consider rewarding customers not just based on visits but spend. For example, if you are a restaurant, give a point for every $5 in spend. This encourages customers to not only come more frequently but also spend more per visit. This has a multiplicative impact on sales.

•Increases Revenue from Promotions. Fortune 500 companies love loyalty program signups because you are no longer just an anonymous customer to them. Once you’ve joined, they have your contact info and can reach you with promotions. Do you collect emails when you sign up customers to your loyalty program? It’s a small step that will give you an additional revenue stream when you send them relevant promotions on holidays or special events.

•Increases Word-of-Mouth. Do you encourage your loyalty program participants to follow you on social media as well? You’ll have another channel to share news and promotions, and they can amplify word-of-mouth about your business to hundreds of friends.

I was chatting with a friend recently who said that he wished his favorite pizza shop around the corner had a “frequent flyer program.” Shortly thereafter, they rolled out a digital loyalty platform, and now that he’s earning rewards, he loves his shop even more. That love is likely to translate into 30 percent more visits over the course of a few months. And what did the pizza shop owner have to invest to get this return? A few free pizzas.