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BusinessColumnistsJamie Herzlich

Small Business: Customer loyalty programs that work

A coupon gets used on Aug. 9, 2011.

A coupon gets used on Aug. 9, 2011. Credit: Jessica Rotkiewicz

Many businesses have customer loyalty programs, but only a few succeed in engaging customers.

Only about 16 percent of customers, on average, actively participate in the programs, according to a 2013 Forrester Research survey.

With so many competing programs, companies need to differentiate theirs and find the right incentives that will resonate with their core customers.

"A typical consumer has a dozen loyalty programs in their back pocket," explains Don Peppers, a founding partner of Peppers & Rogers Group, a Stamford, Connecticut, customer strategy consulting firm, and co-author of "Extreme Trust" (Portfolio; $27.95). "I think the main problem is disillusionment."

Consumers are "over-marketed to" today, he says.

Give them what they want: To break through the clutter, offer them something they really want.

"It's all about delivering the customer's definition of value," says Jill Griffin, CEO of The Loyalty Maker, an Austin, Texas, consultancy, and author of "Taming the Search-and-Switch Customer" (Jossey-Bass; $24.95). "Find a value that's important to them." Use the data available through your loyalty program to analyze who's using it and who's not, she suggests.

Reach out to some of the top users and find out what makes them stay active and engaged in the program and what else they'd like to see, says Griffin. Have the same conversation with some of your mid-tier loyalty members, she notes. "I would probably spend less time with the lower end of the spectrum," she says.

Make different offers to different customers based on what the data tells you they want, Peppers says. By studying individual purchase transactions over time, you ought to be able to differentiate your customers by what they need, he says.

Keep it simple: Make sure your loyalty program isn't complicated, he adds. The customer shouldn't have to go through a lot of trouble to redeem the rewards or deal with a lot of restrictions or difficulty.

"In today's world you've got to make it as easy as possible for the consumer to take advantage of it," notes Bonnie Riggs, restaurant industry analyst for Port Washington-based NPD Group, which recently issued a report titled "Loyalty: Keeping and Attracting Repeat Buyers."

For instance, a punch card may be more of a hassle than something customers can scan via a smartphone, she notes.

Don't go on autopilot: If you want to foster engagement, publicize your program, including promoting it on your website, Riggs says. "The website is the first place they'll go."

Often a company launches a program with a lot of fanfare, and then over time "the company lets it go on autopilot, at best," Griffin explains. If you want participation, you must continue to promote it.

Mark Lessing, executive vice president of Lessing's Hospitality in Great River, says the company, which owns eight eateries including Finnegan's in Huntington and Maxwell's in Islip, does just that with its loyalty program.

Staff members are encouraged to ask customers if they have a loyalty card, Lessing says. The swipe card allows customers to accumulate points; for every $200 spent, the customer earns $20 toward a future meal, he explains.

Lessing's also does email blasts and has signage promoting the program, which has about 40,000 members, Lessing says. "We make it really simple, and I think that's why it's successful," he notes.

Keep in mind building loyalty goes beyond just offering a loyalty program.

"A loyalty program is nice, but it's really all about the experience," Riggs says. "If you deliver . . . what the customer is looking for, you're going to build loyalty and get repeat business from them."

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