What is a customer loyalty program and how do you start one?
You run ads, offer discounts and post on social media to win new customers. But what do you do to make someone come back after their first purchase? For most shops the honest answer is "nothing". That gap is what loyalty programs are for. Below you'll find the main types, the steps to set one up and the mistakes retailers make most often.
IN THIS ARTICLE
What is a customer loyalty program?
A customer loyalty program rewards people who shop with you regularly, using points, discounts, gifts or special perks. Its purpose is to give customers a concrete reason to choose you again.
The café punch card ("buy 9 coffees, get the 10th free") is a loyalty program, and so is the points app of a large supermarket chain.
What does a loyalty program do for your business?
Keeping an existing customer usually costs less than winning a new one. Someone who has already tried your product and liked it is far easier to bring back than someone who has never heard of you.
The first effect is simple: a customer with points in their account thinks twice before buying the same product somewhere else. You also get to know your customers better, because you can see who comes in and how often. You can announce promotions to people who already know you, without paying for ads. And customers who get rewarded for referrals recommend you more often.
What types of loyalty programs are there?
Points program
Customers earn points based on how much they spend and redeem them for discounts or products. It's the most common and most flexible model, and it works for a small shop as well as a retail chain.
Punch card
After a set number of purchases, the customer gets a free item. Common in cafés and bakeries. It's simple, but paper cards get lost and tell you nothing about your customers. Moving the same idea onto the phone fixes both problems.
Tiered program
The more customers spend, the higher they climb, for example from bronze to silver to gold, with better perks at each level. It works well for rewarding your biggest spenders.
Referral program
Customers who bring in someone new get a reward. It usually runs alongside a points program.
Paid membership
Customers pay a monthly or yearly fee for ongoing discounts or free shipping. Mostly used by large online stores.
Tip: For small and mid-sized businesses, the easiest way to start is a points program combined with referrals.
How to start a customer loyalty program in 6 steps
1. Set your goal
Decide what you want first. Do you want customers to come back more often, or do you want your in-store customers to buy from your online shop as well? The model and rewards you choose depend on that answer.
2. Choose a model
For most businesses a points program is the right place to start. If you have a small, loyal customer base, a punch-card approach may be enough. If your customers spend very different amounts, you can move to a tiered program later.
3. Work out your reward rate
The reward needs to be attractive enough to motivate people without eating into your margin. Set the rate based on your own profit margin.
Example: Give 1 point for every €10 spent and turn 100 points into a €5 discount. That gives customers back about 5% of what they spend.
4. Connect your store and online shop
A customer visits your store one day and orders online the next. If points only work in one channel, customers see that as a gap. When points can be earned and spent in both, the program becomes far more valuable.
5. Make joining easy
If customers have to fill in a form, carry a card or wait at the till, they won't join. Earning points should take a few seconds on their phone. A quick mention at checkout and a small sign with a QR code are the easiest ways to promote the program.
6. Measure and improve
Track how many customers sign up, how often they come back and how many points get redeemed. If almost nobody redeems points, the first reward is too far away. If sign-ups are low, joining is too much hassle.
Common loyalty program mistakes
The most common mistake is putting the first reward too far away. If customers have to wait months for a free item, they forget about the program. The first reward should be within reach after a few purchases.
The second is complicated rules. If "how many points for which product, and on which day?" can't be answered in one sentence, customers give up.
Running separate programs for the store and the online shop is also common. Nobody wants two accounts, and in the end they use neither.
Finally, many programs just fade away. If nobody mentions it at checkout and customers with points never get a reminder, the program only exists on paper.
Digital loyalty program or paper punch card?
A paper punch card is cheap, and everyone understands it. The problem is that it gets lost, is easy to fake and tells you nothing about who comes in. With a digital program the points live on the customer's phone. People rarely leave their phone at home, but they forget their card all the time. On top of that, you can announce promotions directly through app notifications.
| Paper punch card | Digital program | |
|---|---|---|
| Getting lost | Lost or left at home | Points stored on the phone |
| Fraud | Easy to fake | Every point is recorded |
| Knowing your customers | No information | You see who comes and how often |
| Announcing promotions | Not possible | Directly via push notifications |
Starting a loyalty program with Vendoty E-Com Points
Vendoty E-Com Points brings the steps above together in one system. It's a mobile loyalty and e-commerce solution that gives your business:
One points account for store and online
Points earned in store can be spent online, and the other way round.
Works with any till
Your staff add points through the app in a few seconds. You don't need a new POS system or extra hardware.
You set the rules
You decide the points rate and how points are redeemed.
Your own online shop, no commission
You sell through your own website and app. We don't take a commission on your sales, you pay a fixed fee.
Push notifications
Send new products and promotions straight to your customers' phones.
Referral rewards
Customers who bring in someone new get bonus points.
Shipping and payments built in
Shipping with GLS, card payments through Stripe and SumUp.
For businesses in Austria: automatic points from the receipt QR code
Under Austria's cash register security regulation (RKSV), every receipt carries a QR code. Vendoty can read it. When a customer scans the QR code on their receipt with the app, the amount and receipt number are captured automatically and the points appear in their account straight away. The same receipt can't be used twice, and your cashier doesn't have to do anything. For businesses using HelloCash we connect directly to the till: products, stock levels and sales data are pulled from the till, and changes are written back.
Why would customers download your app?
It's the question business owners ask most. If the app doesn't give customers something from day one, they won't install it, or they'll delete it soon after. A customer who downloads the app earns points on their first purchase and sees them right away. On the next visit the balance grows. Because points work in store and online, promotions show up in the app first and referrals earn bonus points, the app stays on the phone. And since it's also your online shop, people open it to order and browse.
Which businesses should have a loyalty program?
Any business whose customers come back regularly. Especially:
Retailers with several stores Perfume and cosmetics shops Boutiques and fashion stores Cafés, bakeries and restaurants Shops that want to start selling online
Example: Loris Parfüm
Loris Parfüm uses Vendoty in its stores in Austria and its online shop. Customers earn points on in-store purchases and spend them in store or on online orders. To see the customer side for yourself, download the app.
Frequently asked questions
How do you build customer loyalty?
It starts with a good product and good service, and no program can replace those. Add a points system that rewards regular purchases and the occasional promotion message, and customers have a concrete reason to come back to you.
Can a small business run a loyalty program?
Yes. A single café or boutique can run a digital points program too. What matters is that it's easy to use and doesn't require a big investment like a new POS system.
Do I need a new POS system for a loyalty program?
Not with Vendoty. If your till isn't connected, points are added through the app. If you use HelloCash, we integrate with it directly.
What should the points rate be?
It depends on your margin. A rate that gives back a small percentage of spending, while keeping the first reward reachable within a few purchases, usually works well. In Vendoty you can change the rate at any time.
Can one points program cover both my store and my online shop?
Yes. In Vendoty each customer has one account and can earn and spend points both in store and on online orders.
Conclusion
You don't need to be a big chain to run a loyalty program. A single café and a perfume retailer with five stores can start the same way: a simple points rule with a first reward that's quick to reach, points that work in store and online, and a reminder at checkout every day.
Start your loyalty program with Vendoty
Explore all features of Vendoty E-Com Points, or talk to us about how it fits your business.