How to Start a Loyalty Program in 5 Easy Steps

One of the best ways to grow your startup business it to create a loyalty program. Rewards programs remain one of the most efficient methods for startups to reward existing customers and keep them coming back.

This is especially important since gaining a new customer costs between 5 and 25 times more than keeping an existing one, according to Frederick Reichheld of Bain & Company, further highlighting why marketing dollars are best spent on nurturing current relationships with known customers.

Loyalty programs have come a long way since the days of copper tokens, box tops and punch cards. But how do you start a loyalty program today that does more than simply offer to mark a punch card each time a customer does business with you?

Here are five easy steps to get you started:

Step 1: Decide what reward to give

First, decide what reward you want to offer and for what. Err on the side of making the reward too small rather than too big.

Use ongoing rewards that save customers money, as research shows that 57 percent of customers sign up for a program to save money. If you reward customers frequently, they will be more likely to use the loyalty program you provide—even if you offer smaller rewards as a result.

Cash back often works well for the same reason that gift cards are so popular. There’s no guesswork as to this appeal with most of your customers, because they can get whatever they want with this type of reward.

It’s also significantly easier to increase rewards in the future rather than decrease them, so it’s important to not aim too high when committing to a loyalty program reward structure. If you try to take rewards away from loyal customers down the line, your customers will be at your door with pitchforks and torches. Or, even worse, they’ll post scathing reviews on Yelp and Google.

Related: Insider Tips for Marketers on Loyalty Rewards Best Practices

Step 2: Simplify, simplify, simplify

The best loyalty programs are fast and easy to join, for both customers and the employees signing them up. If it takes too long or asks for too much information upfront, customers will bail. Another good litmus test is whether your employees can explain the rewards program in less than 30 seconds. If not, it’s too complex.

Customers prefer loyal rewards programs with a clear structure that don’t have expiring rewards or any other tricky qualifiers, limitations or hidden exceptions. They just want to shop at their favorite businesses and get rewards without spending more than two seconds thinking about how any of it works. They also want to earn points and spend the rewards without finding some reason (hidden somewhere in 8-point font) why it doesn’t work the way they hoped or assumed.

Step 3: Make sure the program essentially runs itself with little management

Make sure the program you create does not burden you with additional program management tasks. Oftentimes, entrepreneurs start out with the best of intentions when creating a rewards program, but do not ultimately have time to manage or analyze report data.

Do you really have time to “mine” all of the personal data you plan to collect? Ensure your loyalty program will essentially run itself and produce results without creating an unnecessary management burden on you.

Similarly, if a loyalty program requires extensive employee training, it’s probably too complicated and/or expensive. In addition to requiring a bigger investment upfront, it will also make your brand more vulnerable to both technological and user errors.

Step 4: Consider adopting existing text-to-join programs

According to the 2016 Bond Loyalty Report study of brand loyalty programs, 57 percent of consumers prefer interacting with a customer loyalty program through a mobile device.

Text-to-join loyalty programs, in which customers simply text their first name to a number, are the most efficient and effective. These programs enable customers to simply provide their phone number when making a purchase and only text customers when they earn or redeem points. In addition, they enable customers to opt out anytime by simply texting “STOP” to cancel.

It’s important to note here that customers do not want to carry another card around or download another app, research shows, so don’t waste time looking into plastic card options.

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Step 5: Double check who your program benefits most

Does your proposed loyalty program benefit your customers first and foremost? If not, reconsider your approach.

Many startups today are using Square to swipe credit cards and, as a result, end up using the platform’s built-in loyalty program as well. But the real benefit of loyalty programs like this is data mining for the payment processor, which your customers could frown upon.

If you’re a local coffee shop trying to compete with a national chain like Starbucks, for example, your primary selling point is likely that customers can support their local community by buying your coffee, and keep their money, energy and relationships local. But digital loyalty programs like these may erode customer relationships by putting technology between you and them.

In fact, research shows customers are growing increasingly skeptical of sharing personal data because they have become increasingly wary of how brands use their data. In addition, only 25 percent of Americans now trust big business, according to a recent Gallup poll, versus 67 percent who still have a great deal of trust in small business. So, play to your strength as a startup—which is the inherent trust customers are likely to have in you—and don’t follow in the footsteps of big companies who use big data.

Loyalty programs are a terrific way to engage customers and simultaneously spread the word about your startup. You can also use them to build partnerships that will enhance your loyalty program’s effectiveness. By following the five steps outlined above, you’ll help ensure your loyalty rewards program is actually creating customer loyalty.

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