How to Build an Effective Customer Incentive Program in 5 Easy Steps

The average American household has signed up for 21.9 loyalty cards or customer incentive programs, according to a study done by research firm Colloquy.

But these programs aren't always effective at influencing customer behavior and creating customer loyalty. A customer incentive program must stand out from the competition in order to work for your business.

Firstly, be clear about what you want to achieve and how a customer loyalty program is going to help. If you run a cafe, for example, your frequent customers may expect an occasional free coffee. But if you run an interior design business, your reward program might be geared toward encouraging referrals rather than repeat business. A customer incentive program should be designed to generate incremental sales and improve the overall buyer experience. If your coffee is lousy to start with, the offer of a free cup is not going to build loyalty. But if you serve the best coffee in town and offer exclusive rewards to repeat customers, you can start to influence buyer behavior, create loyalty, and increase sales.

The key to an effective program is offering a measurable reward that creates real incentive to your customers, and one that is not being matched by your competitors. Your offer needs to cut through the noise and clutter. To do this you need to understand what your customers perceive to be of worth, and sometimes this may not be attached to a monetary value. For example, a clothes shop may offer its loyal customers a free style consultation when they spend $500 or more. Or you could consider partnering with another business to offer a broader scope of rewards you know will add value. The same clothes shop, for example, could partner with a dry cleaning company to offer its loyal customers a discount on their cleaning bill.

The real trick to creating compelling incentive offers is to make your customers feel exclusive, whether they are buying a $3 cup of coffee or a $300 outfit. This means your loyalty program rewards must be available only to customers who have signed up for the program, and don't suddenly appear as an advertised special to anyone who walks through the door.

A free cup of coffee for every eight purchased may snare you a few repeat customers, but after a while the incentive can wear thin, especially if the cafe down the road is offering the same deal plus a free cookie. You can't afford to lose your customers to your competition, so reward their continued loyalty with some bonuses or program upgrades. Provide real incentive to your loyal customers by surprising them with an unexpected discount in addition to the free coffee.

A tiered incentive program is another way to continually engage and reward your customers. You might start with a straightforward base offer to introduce them to the program, and then reel them in with increased rewards as they spend more. For example, once they have earned their first five free coffees, they can start to earn bonus discounts on meals, or two-for-one offers if they introduce a friend.

Promotion and follow-up are key to your incentive program's success. Make sure your staff asks every customer if they would like to sign up for the program, and put a sign in your window or on the front counter to promote it. When you provide your customers with their reward, make sure they know about it. This is especially relevant if the reward is not redeemed in your place of business. For example, if you mail out rewards, make sure there is a card explaining who the incentive is from, and why. Don't assume your customers will know the details. Remember, on average they belong to around a dozen other programs in addition to yours, so you need to stand out from the others.

Use social media to further promote your program, encourage repeat sales, and engage with your loyal customers. You can also build social media into your program by rewarding customers who "like" you on Facebook.

Finally, loyalty programs have come a long way since the introduction of the simple punch card you handed out to your customers. Today you can manage your program through social media and smartphone apps, or a customer management system that allows you to track buyer behaviors and connect with customers through personalized emails or SMS marketing. The data you collect from your customer incentive program can also help you to cross promote or up sell additional products or services and create highly targeted and relevant marketing campaigns to further improve your business.

The purpose of a loyalty program is to generate incremental sales, retain customers, and encourage word of mouth referrals. To be truly effective, you need to know what your customers want, deliver a product or service that responds to those needs, and then reward your most loyal customers with incentives that have a perceived added value and recognize the importance of the customer to your business. Ultimately, loyalty programs are about building relationships, not just rewarding transactions.