Customer Loyalty – Discounts and Loyalty Schemes
(ii) Discounts For Loyalty
One way to encourage loyalty is to offer discounts on future purchases. This could be money off the same item or related items (e.g. A discount off a TV stand when you buy a TV.)
These discounts encourage the customer to save money, with the ideal outcome being a satisfied customer who becomes loyal to your business.
A popular form of offer is ‘introduce a friend’ discounts, whereby if a customer introduces a friend, they both get a discount or special offer. This not only encourages customers to return and be loyal, but also provides a positive introduction for new customers.
E.g. Introduce a friend to our furniture and get £20 each on their first sale over £200.
(iii) Loyalty Schemes
Many large businesses (mainly shops and stores) now have ‘loyalty schemes’ (e.g. The Nectar Card, Air Miles) which use discounts to encourage people to buy from them. They usually work using ‘points’, the more you spend with them, the more points you earn, points can then be used to save money on some items.
The discounts are usually minimal (Often as little as 1-2%), but they provide a direct reason to remain loyal to one business. The cards given out with most schemes also provide a reminder of the business.
The main benefit to most stores was being able to monitor what their customers bought, allowing them to move products and send out discounts for the products those customers purchased often. (e.g. If you bought lots of dog food, they would send you offers related to dog owners) Th is type of information gathering is useful, but is probably of little use to smaller businesses. It is also very expensive to start up and maintain.
The cost of starting such a scheme is too large for most small businesses (e.g. System to register points, staff time, promotion of scheme, discounts given), and there is little evidence that they do increase loyalty (People often carry several cards for competing shops). Many larger companies are scaling back or ending their loyalty schemes, as they are finding it a large cost for little gain.
A loyalty scheme will benefit a few small businesses, however, you should always take professional advice before starting such a scheme, as the costs can be large if unsuccessful.
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