A digital loyalty program is not something you’d expect from a grocery store or a gas station. Not yet. But the increasing accessibility of technology is bringing the power of those customer programs to small businesses. They just need some help embracing them.

Joshua Sophy, who writes for the Small Business Trends publication, with the help of Lorren Elkins, who leads Camilyo’s US sales (and follows the loyalty space closely), came up with several suggestions for those marketing service providers who are considering adding a loyalty program setup into their offering portfolio.

Small Businesses Won’t Admit (Yet) That They Need The Help

For small businesses whose main source of income is returning customers, loyalty programs can serve as both a retention tool and a revenue amplifier. A recent study from the University of Chicago Booth School of Business found that by participating in a loyalty program, customers are buying from the business 20% more frequently than they would have otherwise. They also buy more products. Clover Point of Sale’s blog post summarizes these findings in detail.

The question is, “if loyalty programs are so great, why aren’t more small businesses using them?” 2017 data from BIA Kelsey shows that only 24% of local SMBs are using a loyalty program and almost 30% plan to deploying one in the future.

Ironically though, these numbers were pretty much the same in Kelsey’s research conducted back in 2015, where 29% of small businesses had a loyalty program. These numbers were even higher in 2013 with 38% of small businesses having a loyalty program and 21% planning to launch one within the next year.

Let’s say the exhibited decrease in number of small businesses with a loyalty program is not that important for this post. But it is obvious that, within the past four years, there has been no demonstrated growth and chances are that a large portion of those who were planning to launch a program did not really do anything about it.

This “doing nothing” trend is actually something Camilyo frequently observes when it comes to DIY small business marketing. Small business owners know what they want/need to do, they are aware that there are tools for what they need, but often they get to it and start researching a topic, they become overwhelmed with the amount of information and tools. They end up doing nothing for months and even years.

To make matters even worse, a 2015 StreetFight/Thrive Analytics survey listed loyalty marketing as the tactic where small businesses do not feel like they need help at all. Only 1 out of 10 respondents indicated that they wanted someone to assist them with a loyalty program. We know that this is simply not true. They need help and once they receive it, they will feel the bottom-line results.

Make It Easy For a Small Business

One of the biggest hangups that a small business owner has when starting a customer loyalty program is how easy (or not so easy) it is to set up. “There are generally three types of programs for your small business clients to choose from: it’s either punch cards, electronic membership cards, or digital programs with smartphone apps,” says Lorren Elkins, Camilyo’s head of US sales. “The program of choice should be customizable to the business, inexpensive to implement, integrated into the website and POS system, be as turnkey as possible and provide marketing feedback/data analysis.”

While punch cards seem like the simplest solution, its ROI is hard to measure. So if you are a service provider who wants to help a small business launch a loyalty program, paper solutions are unattractive. Without measured impact, there will be no added value associated with your services in the long run. Additionally, a recent study suggests that three out of four adult consumers say they’d participate in a loyalty program if they can use it via their phone rather than carrying it in a wallet. And almost a third of North American consumers stop using a loyalty program if it doesn’t have a smartphone app, according to Colloquy.

So when advising your small business clients about loyalty programs, you should only speak of digital ones, of which we have plenty of these days.

SMB Loyalty Vendor Space, by Lorren Elkins

While selecting the right digital loyalty program will be a future post, we will now focus on what the program should look like for the consumers, what they may earn as rewards and how to make this process simple and transparent. This is where most customer loyalty programs fail, regardless of whether they are paper or digitally-based.

Make It Easy For a Consumer

According to last year’s Forbes data, “On average, American households are enrolled in 29 loyalty programs, yet they are active in only 12.” Further data suggests that the number of active programs is even lower - between 8 and 9. According to Reward Camp, consumers participate actively in programs for things they do on a regular basis, such as buying groceries or gas (which is great news for small businesses!).

Most of the time, customers aren’t sure what benefit they reap from a program. Bond Brand Loyalty also found that 7 in 10 loyalty program members will quit if they think it takes too long or if they have to spend too much to earn rewards.

So an ideal program for a small business is simple to follow and offers frequent rewards. When relevant, it should also have a consumer-facing mobile app.

Make It Work

While there are numerous types of programs, the simplest is one based on purchasing milestones. A small business can offer percentage off a customer’s order, a credit reward, or a free item after they’ve achieved the program’s purchasing milestone.

An interesting experiment was conducted over 10 years go by two marketing professors: Joseph Nunes from the Marshall School of Business at the University of Southern California and Xavier Dreze from the Wharton School of the University of Pennsylvania. They conducted physical A/B testing for a loyalty program at a local car wash. They distributed 300 cards to customers and all the cards had the same bonus mechanism behind them: after 8 car washes people could get one free. The first group of 150 people received cards with 8 empty slots to be punched and the second group of 150 people received cards with 10 slots to punched, but with two of them already punched.

This artificial head start turned out to be a great motivator: while only 19% of customers from the first group came back enough times to get the free wash, 34 percent of the second group completed the program.

With that said, come up with a purchasing milestone program that includes a head start. For example, if you offer a free product once the consumer has earned 100 points, give them a 10-point sign up bonus.

Make It Count

The next step in setting up a loyalty program is to show your small business clients the pay off. According to research from Bain & Co., you want to measure three factors: how often a customer buys, how much they buy, and the length of time they continue to buy.

The loyalty program software you select for your small business client should be ready to produce sales reports that show comparisons between the way members and non-members shop. You’d like to show your client that members of the loyalty program are doing what is expected from them -- buying more products and at a higher frequency. Also, you must demonstrate that the costs of having a loyalty program are lower than the benefits.

The following posts will continue to explore loyalty programs.

Joshua Sophy is an author and editor for Small Business Trends publication. A journalist with 17 years of experience in traditional and online media, Joshua has been covering small businesses for the past 4 years.

Lorren Elkins is Camilyo’s head of US sales. He has worked in senior roles for several internet companies and has worked in both the newspaper and broadcast television industries.