Reward Loyal Customers Without Spending Anything
Discounts are the most expensive way to thank your loyal customers. Instead, consider rewards that are very effective but do not cost you anything.
When I had to travel extensively for a previous job, I was always grateful for one perk of my airline's frequent flyer loyalty program: the early boarding. Based on the miles I flew with them, I earned a high-enough status in their loyalty program that allowed me to board the aircraft with those passengers flying Business Class despite being seated in Economy Class. For those who have tried cramming a carry-on bag into the overhead bin while being pushed impatiently from behind, boarding first when the Economy Class is still empty is like a meditatively soothing experience. But here is the best part for the airline: the early-boarding perk doesn’t cost them anything.
Small businesses thinking about rewarding loyal customers or attracting new ones should take a page from the airlines' frequent flyer playbook: Reward customers without spending anything — or at least not much.
Why You Should Avoid Loyalty Discounts
Most loyalty programs want you to give customers a discount on future purchases once they reach a certain spending level.
Suppose you issue a customer a 25% loyalty discount on their next $100 product purchase, and suppose you make a 50% gross profit on your products.
When your loyal customer applies this 25% discount on their next purchase, your gross profit drops from 50% to 33%.
If you hadn't limited this discount to a $100 purchase, the financial result could have been worse. For example, if the customer had bought $1,000 instead of $100, your lost gross profit would have been a staggering $250 rather than $25.
Airlines Are Masters at Managing Loyalty Programs
Let's return to my airline experience and see how they handle loyalty discounts.
Airlines, as part of their frequent flyer program, allow you to use your miles to upgrade your purchased Economy Class ticket to Business Class. You could also use your miles to pay for a ticket. In both cases, the airlines control the number of available seats. Often there are none, because customers that pay for a ticket with money have priority.
Airlines also set the number of miles you have to use and keep increasing them. Nowadays, the miles for an upgrade or a ticket can be very steep, especially for popular routes.
The airlines follow a simple principle: instead of flying an empty seat, they are happy to give it to you in exchange for miles.
It hardly costs them anything extra (marginal cost) to move you from Economy Class to Business Class or give you a seat on an empty flight. But if they can fill the same seat with a paying customer, they usually prefer the paying customer over you using your miles.
Rewards That Cost You Nothing
According to surveys, customers want to support small businesses.
Will they forego free money in the form of a discount when you give it to them? Probably not.
However, in my experience, loyal customers do not expect discounts from a small business because they know that this money comes directly from your income, not from a big anonymous corporation. Customers buying from you want to make a difference by shopping locally. Because they also identify with your brand or share your cause, they tend to be less price-sensitive or price-elastic.
Therefore, a discount may not entice them to buy more from you, which is the usual reason for giving discounts, but the same quantity just for less money.
10 Tips on How to Reward Loyal Customers Without Spending Anything — Maybe Except Your Time
Create exclusive content. High-spending loyal customers may appreciate having exclusive access to recipes, online tutorials, tips, or one-on-one lessons. Of course, developing this content takes time, but you devote your time, not your money.
Establish an exclusive advisory panel. Some customers want to volunteer their help, especially those who share your cause. You could establish an exclusive advisory panel to assist you in selecting future products or give input on topics for your online tutorials.
Hold an exclusive product preview evening. Next time you launch a new product, invite your best customers to a preview evening, where they can buy before the rest of your customers.
Offer priority booking. Service businesses can allow their loyal customers to jump the queue and receive priority when booking appointments.
Offer exclusive shopping hours. You can let your loyal customers shop before or after your regular opening hours or by appointment.
Offer a free upgrade. Event planners, caterers, dog groomers, or hair salons can offer a free upgrade for their loyal customers.
Send a personalized handwritten thank-you note. People like to be recognized. Sending a personalized handwritten thank-you note conveys to your loyal customers that you appreciate and value their business.
Organize exclusive trips or events. You can organize an exclusive trip to where your products are made or come from. You can also arrange for loyal customers to meet an artist back-stage, offer reserved front-row seating, or provide advanced ticket access. Whatever you choose, make sure your loyal customers feel special, appreciated, and valued.
Set up an exclusive social media group.
Volunteer your time for a common cause. If you share a common cause, consider organizing an event where you and your loyal customers can volunteer time together and help those in need. You'll be surprised how much this exclusive access to you could mean to your loyal customers.
As you may have noticed, these examples share a common denominator: exclusivity.
While exclusivity has no monetary value, it can be priceless in the eyes of your loyal customers — as it was for me when I was able to board my flights early.
