Customer loyalty or reward programs

Date published: 18 June 2015

Customer loyalty or reward programs can help you to build a customer base that will continue doingbusiness with you.

Keeping existing customers is often easier and more cost effective than trying to attract newcustomers to your business.

Having a strong repeat customer base will provide your business with a steady sales income and canhelp your business build a strong brand and reputation.

What are customer loyalty programs?

A customer loyalty program encourages your customers to be loyal by offering incentives forcustomers to do repeat business with you. There are many different types of customer loyaltyprograms, and there's no set boundary on what a customer loyalty program can be. Some examplesinclude:

rewarding customers with free or discounted products or services once they've purchased a certainamount from you

giving benefits to customers if they join a VIP program

sending out discount codes or coupons to your existing customers to entice them to do business withyou again

running competitions where customers can increase their chances of winning by buying more fromyou

providing customers with added incentives whenever they purchase from you (e.g. pledging todonate money to a charity for every purchase)

rewarding customers when they bring new customers to your business.

When setting up a customer loyalty program for your business, you can be as creative as you like inwhat will work to entice your customer base to be loyal to your business and brand.

Benefits and risks of a customer loyalty program

There can be many benefits and risks involved with implementing a customer loyalty program inyour business.

Benefits can include:

keeping your existing customers

increased sales

having more regular sales income to help your business through seasonal downturns throughout theyear (e.g. if your business is in a popular tourist location and does well during peak tourist seasons,building a loyal customer base can help your business with sales during low tourist seasons)

increased brand recognition for your business

better business reputation and positive word of mouth

attracting new customers through the program.

Risks can include:

the customer rewards program not being effective

your business being unable to fulfil the promises of your loyalty program

difficulty in keeping track of your customers using the loyalty program

loss of profit and business reputation if the program is ineffective. Tips when implementing acustomer loyalty program

Putting a customer loyalty program in place can be as simple as stamping a loyalty card every time apurchase is made. Programs can also be more complicated, involving customer databases andworking with partner businesses and sponsors. It's up to you to decide what type of loyalty programis best suited to your business and your customer base.

Here are some tips for implementing a customer loyalty program:

Research and understand your customer base so you can work out what types of loyalty programswill work for them. There's no point in making a customer loyalty program that isn't attractive toyour customer base.

Consider the costs of implementing a customer loyalty program and weigh them up against thepotential profits for your business.

Make sure your business is prepared. Developing a loyalty program can be a big project, so it'simportant that everything runs as smoothly as possible when it's launched.

Train your staff on the benefits of the loyalty program and how to promote it to your customers.

Make sure your business is able to deliver what you have promised in your customer loyaltyprogram.

If you use a Customer Relationship Management (CRM) system, consider linking your loyaltyprogram with your customer database. This can be useful in capturing and recording usage of your

loyalty program, and tracking its effect on customer sales. This may also help you to give morepersonalised rewards and offers to your customers based on their past purchases.

Monitor the progress of your loyalty program to see whether it's working, and make changes ifnecessary. Legal and compliance issues for customer loyalty programs

There may be some legal and compliance issues you should consider, depending on the type ofcustomer loyalty program you put in place. These may include:

Checking to see if your program has any tax obligations, such as whether you need to charge GST ongoods sold to customers through redeemed loyalty points within a program. If unsure, contact theAustralian Taxation Office for more information.

Making sure you are meeting privacy laws if you are storing customer's personal information.

Checking to see if there are any registration or licensing requirements. For example, if you arerunning a raffle or lottery, you may need to meet certain regulations and register the competitionwith your state or local government. Check the Australian Business Licence and Information Service(ABLIS) website to find out more.

http://www.business.gov.au/news-and-updates/News-and-features/Pages/customer-loyalty-or-reward-programs.aspx