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Customer Rewards Cards

Customer Loyalty Considerations: Pros and Cons of Reward Programs

Any more, it seems nearly all types of businesses offer a customer rewards program. Often, the theory behind implementing a rewards program is to retain current customers, turn new customers into returning customers, and reward loyalty. Here, we outline the pros and cons of starting such a program, and offer some considerations for businesses thinking of implementing their own.

Types of Rewards Programs

There are three popular types of rewards program you’re most likely to come across in today’s market.

  1. The Frequency Program

The classic punch card style. The “buy nine, get the tenth free!” reward system created to inspire regular visits. The pros? It’s simple, low cost, and easy to set up and hit the ground running.

Cons? It’s one more card for customers to carry and remember they have. I don’t know about you, but my wallet is overflowing with these types of cards that I never seem to think about until AFTER I’ve made nine purchases and could get the tenth free, consistently forgetting to have my card punched. I know, negligence on my part, but it’s frustrating nonetheless.

The information you collect with this type of program is minimal. This creates hurdles in the way of future marketing efforts. One of the biggest benefits of loyalty programs is the ability to collect information to tailor promotional branding for your establishment.

  1. The Points Program

Spend more, earn more points, redeem for rewards! We all want that free flight or trip to Hawaii. And like the punch card style, it’s simple, easy to understand, and depending on the reward, can provide an awesome incentive to visit your business frequently. It’s easily customizable to reward customers with bigger prizes for making bigger purchases.

Cons? No instant gratification. Users must wait longer to collect prizes, and maintaining this program takes more effort and organization (keeping track of customers’ points and reminding them of where they stand and how far away they are for prizes).

  1. The Cash Back Program

Also known as the rebate program. Customers can earn money back depending on their purchasing behavior to spend on future purchases exclusively at your business. This has worked wonders in retail (think Kohls Cash), and certainly has a place in foodservice. Who doesn’t love free money, and earning money for purchases can make customers feel good about spending their dollars at your place. Requiring they return to spend their reward is a wildly effective way to turn new customers into regulars.

Cons? Like the points program, rewards take a while to build. This isn’t always a negative, though, as it incentivizes visitors to spend to earn. However, if customers visit infrequently, this type of program may have less appeal.

Bottom-Line Benefits

Loyalty programs have been shown to generate brand awareness and create profitability. It is six times more expensive to acquire a new customer than it is to keep one. Rewards programs have been shown to help with customer retention with a steady return on investment. If you are considering starting a rewards program, we recommend checking out this beginner’s guide to customer loyalty.