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Loyalty and rewards: breaking the barriers for small businesses

Article by Loyal1 South Africa

The most common definition of a loyalty and rewards programme is a “structured marketing intervention that rewards and encourages specific customer behaviour (transaction value, purchase frequency, basket spread/product cross-holding and tenure) which is beneficial to the programme owner or sponsor”. This sounds like a very intimidating and daunting task, especially for that little old shop around the corner. One only the large corporates with huge budgets and a whole department whose mission is to improve customer retention can implement.

In South Africa, there are over 100 loyalty rewards programs and clubs being used by over 25 million people in 8 million households. However, research has shown that most loyalty programs are loss-making entities in large corporations developed solely for potential customer spending analytics. Furthermore, majority of shoppers stop participating in loyalty programs due to the cumbersome process of carrying a card for each store, remembering to use it, printing vouchers and coupons and also updating details or requesting a new card once it is lost. For businesses of different sizes and industries, a loyalty rewards program can be of great benefit if correctly administered. But the cost of setup and maintenance of such a system can distract the business away from its core function. Also loyalty programs rely on a network of bricks and mortar outlets so it does not make sense for a single owner-run dry cleaner shop to spend close to R30 000 to buy the software and hardware and add to the functions of his staff.

Traditionally, loyalty and rewards programmes are focused on how the retailer or organisation wishes to reward its customers and less on how the customer wishes to be rewarded. This was also based on the cost of such a system in relation to the increase in revenues that a system like that would cost the company. Furthermore, this resulted in a major barrier to entry for companies considering implementing a rewards system. Research also shows that most rewards programs in the world are created with the aim of rewarding customers and gaining customer insight but the worth of which is difficult to measure against revenue generated.

Cost is therefore a major barrier to entry in the creation of new loyalty programs and they are usually run free of charge to the customer. In addition, reward programs rely on high levels of subscriptions and partnerships in order to attract participation thus leading to success of such a program. Although some programs start out very popular, most tend to die out due to ambiguity of rewards and calculations thereof as customers either no longer see the value or due to the period or effort of realising a benefit being too long. Although the value of a reward programmes is clear to the retailer, the effort required for the customer has so far proven to not be worth the discount or the voucher. In this era of customer centricity, social media and mobile apps, there is a need for customers to be rewarded in the way that they choose and by whom they choose. Customers hold all the power and not the retailers. The most successful programs are those that give customers flexibility and variety. A successful and sustainable loyalty platform would need to create a connection between the consumer and both the small and large businesses that they interact with on a day to day basis.

Most small businesses have a basic point of sales system and perform majority of their administrative tasks manually and do not have the funds or resources required to run a standalone loyalty programme. Existing solutions include offerings that a small business can purchase and run it on a desktop. Majority of small businesses however, are still using paper based stamp cards, vouchers and coupons. Here are some factors about customer inter actions within the small businesses sector that explain why many businesses want to use a loyalty programme. Firstly, it is stated that as high as 80% of revenue is generated by 20% of customers. It makes it thus very important to reward the most loyal customers. Secondly, loyal customers can be worth 10 times as much as a single purchase due to repeat business while marketing efforts to acquire a new customer can cost up to 6 times more than those of keeping a loyal customer happy. Thirdly, a 5% increase in customer retention can increase profit up to 125%. And lastly, the probability of selling to an existing customer is between 60% to 70% and even higher if they had a positive experience while the probability of selling to a new customer can be as low as 5%.

While the factors above clearly indicate that loyalty management is important for small businesses, what would a system catering specifically for these businesses look like? The ideal solution would need to exhibit the following characteristics – firstly it would need to be a mobile app for both the business owner and the customer thus allowing both to interact with each other without the need for computers or POS system to cater for the smallest of businesses. Especially considering that more than 15 million people have smartphone in South Africa alone. Secondly, it would need to allow for exchange of data between customer and store in an easy to manage format and have a short transaction span. Thirdly, it must be affordable to the smallest businesses. And lastly, it must have a dashboard for monitoring data in an easy to understand and managable user interface.

One such solution is being offered by Loyal1 through their Loyal1TM shopper app that interacts with the LaaSTM (Loyalty-as-a-ServiceTM) on both iOS and Android platforms. With an easy to use interface and subscriptions starting from R99 per month per store, this platform has all the characteristics of a system that would be suitable for small businesses. It also allows notifications to be sent to shoppers and alerts can be triggered by geo-location of mobile devices. Furthermore, because all the businesses and customers will be on the same platform as opposed to each store having their own standalone system, both will benefit from a wide network of participants without limitations created by affiliations and exclusive agreements. Customers will not only use the shopper app to interact with small businesses but can also digitize their existing loyalty card and use their mobile devices at the till. In future they also aim to integrate with the large retailers’ systems and create a single platform for measuring customer experience while enabling cross-selling opportunities between customers, small businesses and retailers. Integration with most popular accounting systems is already underway.

The future of loyalty and rewards, customer experience and retention management certainly looks very bright with the trends in mobile technologies and reduction in cost of acquiring mobile devices.

Loyal1 South Africa are a proud members of the NSBC.