In 2008 I wrote an article on a general look at client loyalty. In this month’s article I would like to take a closer look at client loyalty schemes as they are something that every business wants to implement but very few do successfully.
The reason for loyalty schemes is obvious; you want clients to keep coming back.
For businesses in general the simple principle of buy ten (or whatever the magic number is) and get one free is fairly common practise and in many instances takes the form of a loyalty card that you either stamp, sign or put little stickers onto.
It therefore appears that most businesses don’t have any problem with giving something away for free as a reward for repeat business.
Define your Loyalty Scheme
Defining your loyalty scheme carefully before you implement it is critical. Not only will it give your clients the peace of mind that they are getting something of value but it will also protect you later if there are any disputes about the awarding and redemption of loyalty points.
The consumer protection act, in summary, basically says that you need to make it clear for clients how they can participate in the scheme and that you must deliver on what you promise with no hidden catches.
Therefore clients must know how, when and where they can earn their points as well as how, when and where they can redeem their points. Be sure that you are actually able to fulfil your obligation of supplying clients with goods and services when they use their loyalty points.
Who earns points
When deciding upon a loyalty scheme an important consideration is who will be entitled to earn and redeem loyalty points?
Some businesses are willing to open their loyalty schemes to all their clients and others are selective and would require that they “sign up” to receive their rewards. This could be a mere administrative formality or it could involve that the client pays a certain amount per month or year in order to entitle them to earn their points.
Some businesses use loyalty as an entry level form of membership, which adds a level of exclusivity to their loyalty structure.
How do you earn points
There are a number of ways in which you can allow your clients to earn points including Item Types like Service or Retail, or they could be earned by categories like Massages or Waxing, or they could be earned down to the individual item that is purchased like a particular Massage or a Moisturiser.
One could decide to assign a percentage of the selling price as the miles to be earned or you can decide that after so many have been purchased you are entitled to a freebie or you could do random value allocations according to your own discretion.
In my opinion the best way to start is to pick a low percentage (2%-5%) to work out a Rand value and work upwards from there. Starting with a Rand value is always the safest and simplest way as you always know how much you are giving away and does not complicate matter like, for example, if you were to reward clients on their number of visits as it is difficult to attach a value to a visit unless it is linked to the items actually purchased.
When redeeming miles you need to decide if there are any rules that will apply like whether certain items are exempt from being paid for using miles (i.e. Retail) and is there a maximum value that can be redeemed at any time, i.e. clients can’t redeem more than R100 per sale etc.
You will also need to decide whether the points will ever expire as a client could end up earning points and not visit your salon for 2 years and then come back and spend their R500 worth of loyalty points. You may, however, decide that you are happy to have this kind of situation as it gives you an opportunity to win the client back.
Another point to consider is whether clients can redeem their miles at their own discretion, ie do they have to first let them accumulate to a certain value before they can redeem them or can they redeem them piecemeal over time.
And finally are clients allowed to earn points when they pay by points? If not and they pay only part of their bill by points does it mean that they earn partial points on the balance of items that they paid, for example by cash?
On the admin side of loyalty a very important question you must answer is how you will handle staff commissions for services and products purchased with loyalty points. If you treat loyalty points as an expense (which it is) and don’t pay commissions for items purchased with loyalty points you might have a mutiny on your hands. On the other hand if you do pay commissions on items bought with loyalty points then you are paying commission on money you never received, which is a bad business practise.
One compromise would be to pay commission on a percentage of loyalty point purchases, ie you could go 50/50 with the staff member, which means that they only get commission on half of the value paid for by loyalty points.
Accounting for loyalty points
At any given time you should be able to tell how many unredeemed loyalty points you have on the books as well as which clients they belong to so that you are always in control of the loyalty scheme. For example you wouldn’t want all your clients saving up their miles only to redeem them all at the same time. This scenario is unlikely but you should get the point that you need to have information at your fingertips and have policies that protect you with regard to loyalty point redemptions.
In my opinion all clients should get rewarded for loyalty and the simpler the loyalty scheme the better. Don’t give away too much upfront when deciding what values to assign to your loyalty points as you can always give away more later but it is difficult to take away from clients once they get used to earning a certain value.
Be sure to think it through very carefully before you implement a loyalty program and try to consider as many “What If” questions as possible.