Studies have shown that if you increase your customer retention rate by just 5 percent, your profits will grow by 25 to 95 percent. Offering a loyalty rewards program is a great way to do just that, and at SpotOn, we’ve seen this play out firsthand with our merchants. Baja Ice Cream, for example, experienced a 300 percent jump in revenue after launching their SpotOn loyalty program! Not all loyalty programs are created equal, though. To make sure yours is getting you the most bang for your buck, make sure to avoid these 5 pitfalls.

1. Using loyalty cards

The old-school way to do loyalty programs was to use punch cards, and then businesses started using plastic rewards cards with barcodes on them. This is the twenty-first century, though, and people don’t want to deal with the hassle of keeping track of rewards cards from their favorite businesses anymore. In fact, a recent study showed that having to use a reward card was a deal-breaker for 43 percent of consumers.

Instead of using cards, go with a digital loyalty program like what SpotOn offers, which allows customers to check-in and redeem rewards using their phone number, email address, or a mobile app. In addition to making the program simpler for customers, a digital loyalty program gives you much more flexibility and control of how your program is organized. On top of that, it can allow you to collect customer data and utilize analytics to better maximize your overall marketing efforts.

2. Offering boring rewards

The whole point of a loyalty program is to encourage customers to become loyal regulars. If the rewards you’re offering are the same things that any walk-in customer can get, then you’re not treating your most loyal customers like the VIPs they are. Offering a freebie à la “Buy 10, Get 1 Free” is fine, but make sure that’s not all you offer.

Be creative with your rewards offerings. Think of unique products and services you can offer to VIPs only, or maybe you can give VIPs recognition by naming a product after them, reserving a special place for them, or offering something else that’s unique to your business.

3. Having only one tier of rewards

We alluded to this one in the previous tip, but it’s important to offer a variety of rewards. If you offer only 1 tier of rewards, you’re missing opportunities to encourage different segments of customers to return to your business. Offering only an easily attainable reward will encourage a customer to come back a few times after their first visit, but that’s it. However, offering an easy-to-get reward along with a medium tiered reward and an upper tiered reward for being a VIP customer incentivizes brand loyalty and keeps your customers returning long-term.

The nice thing about digital loyalty programs like SpotOn’s is that they make it easy to segment your customers into new, best, and lapsed customers. This makes it a snap to offer different tiers of rewards and even send out limited time deals—something like a discount to get that new customer to return for their second visit, or a freebie to encourage the customer who hasn’t visited in a while to come back.

4. Using complicated rules

Okay, so it’s important to offer exciting rewards and to make sure you have different tiers of rewards, but don’t go overboard and make your loyalty program too complicated. In particular, if your rewards program forces your customers to do math to figure out what they’ve earned, they’re not going to bother with it.

Rather than having points earn a certain amount of monetary value—which requires customers to convert from points to dollars to product—make your reward tiers simple and straightforward: X points get you reward X, and so on.

In addition to keeping the program simple, this offers more perceived value to customers. A cash reward is just money, which they can earn at their job, but a unique product or service from your business is something they can’t get anywhere else.

5. Being cheap or a stickler about rules

Remember, a good loyalty program will more than make up for the cost of the rewards you’re giving out. You’re getting a long-term, loyal customer in return for a reward with a fixed cost. If you get hung up on the cost of the rewards and start getting stingy with the rules, you’ll simply illustrate to your customers that you’re too cheap or petty to give them the rewards you promised.

In particular, making points expire quickly (or at all) and changing the rules of the program abruptly will discourage customers from returning to your business. If you want to send a limited time deal to create urgency and encourage customers to visit, that’s a great idea—send out a marketing email to do just that—but avoid making your loyalty points expire.

Likewise, avoid changing your loyalty program rules. If you need to update your reward offerings, be sure to notify your loyalty customers in advance and offer them a reward that is of equal or greater value than what they had already earned.

Want help launching a digital loyalty program? SpotOn can help. Click here to get a free demo.

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