Reward Programs, which offer incentives to customers essentially for their patronage, are a business onto themselves.
A survey by market research firm Colloquy shows that 1.8 billion U.S. residents are enrolled in different loyalty programs. Moreover, the recent recession has the American public clamoring for more incentive opportunities.
“The consumer perspective has shifted,” Kelly Hlavinka, a managing partner at Colluquy, tells MainStreet. “People are starting to ask retailers ‘what’s in it for me?’”
As such, small businesses may be enticed to incorporate rewards programs into their marketing campaigns. But entrepreneurs need to beware.
Do rewards pay off?
Michael McCall, Professor and Chair of Ithaca College’s Department of Marketing and Law warns that while these incentive programs can lead to consumers’ repeat patronage, they do not necessarily establish the brand loyalty a business is looking for.
“Early on, there was an advantage to offering them, because they helped you stand out in the crowd,” McCall, who recently published the hospitality paper, Building Customer Loyalty: Ten Guiding Principles for Designing an Effective Customer Reward Program, says. “Since then, what we found is that businesses have these programs by and large because everyone else does.”
Doing something just for the sake of doing it likely won’t lead to long-term success since many businesses, according to McCall, end up instituting programs they themselves don’t fully understand. Moreover, a flawed incentive program can negatively impact a business’ profit and loss statements. You can’t, McCall explains, give away more than you actually sell.