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3 Types of Loyalty Programs for Small Businesses


Small businesses tend to rely heavily on their returning customer base to stay in operation, and for good reason; according to Business 2 Community, it costs between six and seven times more to capture a new customer than to retain an existing one.

However, a large number of small businesses don’t take full advantage of what their regular buyers have to offer — and are missing out on opportunities to ensure they come back for more. What can small business owners do to optimize their regular customers’ patronage? A customer loyalty program is a good start. 

But simply copying the practices that large enterprises employ won’t likely be effective. Instead, small retail shops need to scale their programs to fit into the context of small business funding constraints. Here are a few formats for SMB owners to choose from when building out a customer loyalty program:

1. Punch Cards

The Small Business Administration noted that although they are low-tech, punch cards are an incredibly cost-effective way for launching a loyalty program. This approach may be useful for businesses new to the rewards game, and it is a great way to determine whether or not customers are willing to engage with a loyalty program. The SBA does warn that there are a few drawbacks to this approach, including the inability to collect demographic information. Also, these programs rely on customers remembering to carry their cards, which does not always happen.

Punch cards are an inexpensive way to launch a loyalty program

2. Electronic Membership Cards

An electronic membership program can be beneficial for several reasons, according to the SBA. For starters, they allow business owners to collect customer data, which can then be used to create targeted email campaigns and determine what regular customers purchase the most.

An additional benefit is that since electronic cards are connected to a computerized system, customers may be able to provide their phone number or email address to access savings, instead of having to display a physical card. While more convenient and useful than a punch card system, member card programs can be more expensive to maintain because of the necessary IT infrastructure.

3. Smartphone Apps

More consumers have mobile devices today than ever before. As a result, many companies are starting to house their loyalty programs on mobile apps. According to ZDNet, there are several third-party apps that allow businesses to run rewards programs via smartphones and tablets, eliminating the need for companies to spend money on their own IT hardware.

While app-based programs may not be as customizable as other alternative rewards formats (yet), this type of loyalty program could be the wave of the future as experts have predicted mobile transactions will dominate the shopping landscape in just a few years, and being able to access savings and pay using the same device could mean unprecedented convenience for loyal shoppers.


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.