How to Start a Loyalty Program for Small Businesses

10 min read

Customer loyalty—it's a term that may have seemed like just another buzzword 15-20 years ago. But over time, businesses have come to realize its true value. 

Take Tim Hortons, for example. Their Tims Rewards™ program has over 11 million unique users, representing over 30% of Canadians, and is used in half of all daily transactions. This example shows how a well-thought-out loyalty program can turn customers into regulars who keep coming back for more.

The devil lies in the details, and when it comes to small companies, a customer loyalty program should encompass all the right ingredients:

  • Strategic implementation: Efficient execution of the loyalty program
  • Value for customers: Ensuring rewards and benefits are useful and desirable
  • Accessible rewards: Attainable rewards with a seamless interface
  • Emotional connection: Building strong ties and loyalty through personalized experiences
  • Modularity: Flexibility to adapt and scale the program based on evolving need

Let’s explore the world of customer loyalty programs for small businesses and discover the best practices to create a program that keeps your customers hooked for life!

Benefits of a Loyalty Program for Small Businesses

Let us review the perks of a loyalty program for small businesses. 

  • Enhanced Customer Retention

In good times and bad, keeping customers coming back is key. That's where customer retention steps in, saving small businesses from financial setbacks. A loyalty program can be a game-changer, encouraging repeat purchases and building customer allegiance beyond just the product. In fact, loyalty programs are in higher demand during challenging economic times. According to recent data, 65% of consumers rely on loyalty programs amid economic pressures, especially during the holiday season.

  • Increased Spending

A good loyalty program can make customers open their wallets wider. For example, according to credit card data, Target's April Circle Sale generated 7% more sales than usual. During the April sale, Target Circle members enjoyed up to 40% discounts on hundreds of thousands of items in popular spring categories like apparel, accessories, beauty, home, and tech. Additionally, there was a one-day-only deal offering 10% off Target Gift Cards. 

This shows that loyalty programs, like Target’s Circle Rewards, which offers discounts and benefits, can compel customers to spend more, boosting revenue.

  • Valuable Customer Insights

While retail giants change prices frequently based on insights from their loyalty programs, small businesses might not be playing at that level. However, they can still benefit greatly from the data their loyalty programs provide. By understanding customer behavior and preferences, small businesses can make smarter decisions, offer more personalized experiences, and ultimately boost their bottom line.

For instance, a small business offering artisan chocolates can use insights from its loyalty program to offer targeted benefits and discounts. For example, they could analyze data to identify customers who frequently purchase dark chocolate and then offer them exclusive discounts or early access to new dark chocolate flavours. This personalized approach can help increase customer loyalty and encourage repeat purchases.

  • Competitive Advantage

A loyalty program can be a game-changer for small businesses, giving them a competitive edge. For instance, an online store offering handmade home decor can offer exclusive discounts to loyal members during the holiday season, setting them apart from competitors in the same segment during a busy shopping season.

  • Customer Engagement

A loyalty program is like a VIP club for your customers, offering exclusive perks that turn them into active participants in your brand story. It's a win-win game that keeps them engaged and returning for more. A PYMNTS Intelligence study found that 51% of U.S. consumers use restaurant loyalty programs, showing how effectively they boost customer engagement across the industry.

  • Cost-effective Marketing

Loyalty programs can turn one-time buyers into loyal advocates, all while keeping marketing costs in check. They are also easy to market as their tangible benefits create a compelling proposition for engagement. Take Amazon Prime, for instance. It started with a free shipping program and ended up as the VIP pass to everything from movies to groceries, showing how to turn a program into a marketing phenomenon.

  • Personalized Marketing

Loyalty programs make personalized marketing a breeze by providing data-backed insights to create an emotional connection with customers. For instance, brands like Ulta and Sephora send special marketing emails on birthdays and New Year's, offering extra discounts. This personal touch makes customers feel valued and understood, increasing engagement and loyalty.


Do’s and Don’ts of Designing Your Loyalty Program 

Designing and implementing a successful loyalty program requires careful consideration and attention to detail. Here are some key do's and don'ts to keep in mind for small businesses:


For example, every purchase at McDonald's earns you points with MyMcDonald’s Rewards. There are no gimmicks or hidden clauses, keeping it simple. The best part is how easy it is to access, earn, and redeem rewards with the McDonald's app. This makes the loyalty program a complete package, offering convenience and value to customers.


Take H&M’s program for instance—it combines convenience, excellent rewards, and a community-driven experience. H&M's membership also provides a personalized brand experience, including tailored offers and recommendations. That's why it scored 8.62 in Newsweek's Americas Best Loyalty Programs 2023.

  • Ensure Scalability: Plan for the future by designing a loyalty program that can grow with your business. This includes accommodating a larger customer base and new rewards options. For example, a health and wellness brand can scale its loyalty program by offering tiered rewards based on customer engagement and purchases.


  • Avoid Over-Communication: While communication is important, bombarding your customers with constant reminders and emails can be off-putting. Strike a balance and provide valuable information without overwhelming them.
  • Don't Make it Solely Transactional: Building a connection with your customers is key. A loyalty program should not just be about giving away free stuff but also about fostering a relationship with your customers.

    As Tressie Lieberman, VP of Digital Marketing and Off-Premise at Chipotle Mexican Grill, puts it, “There are a million different apps available and we're competing for space on the phone. There has to be something valuable and engaging around your experience that's beyond just rewards — beyond giving away free things — that creates that deeper connection.”
  • Avoid Bad Customer Service: Poor customer service can quickly negate the benefits of a loyalty program. Ensure that your customer service is top-notch to keep your customers happy and engaged.

Implementing Your Loyalty Program: A Step-by-Step Guide

To successfully implement your loyalty program, follow these key steps:

1. Preparation and Planning

Strategic planning and preparation are essential for the long-term success of your program.

  • Define clear business goals: Determine what you want to achieve with your loyalty program, whether it's increasing customer retention, boosting sales, or enhancing brand loyalty.
  • Understand your customer demographics: Analyze your customer base to tailor your program to the customers you want to attract and reward.

2. Selecting the Right Type of Program

Choosing the right type of loyalty program is crucial to its success. Consider the following options:

  • Points-based systems: Customers earn points for purchases, which can be redeemed for rewards. This type of program is straightforward and encourages repeat purchases. Setting a clear threshold, such as ‘$1 equals 10 points,’ ensures transparency and encourages customers to engage with the program to unlock rewards.
  • Tiered programs: Customers move up different levels (tiers) based on their spending or engagement, unlocking more benefits as they progress. This can motivate customers to spend more to reach the next tier.
  • Paid programs: Customers pay a fee to join the loyalty program, unlocking exclusive benefits. This can generate immediate revenue and attract more committed customers.
  • Experiential rewards: Instead of traditional discounts, offer unique experiences or access to exclusive events. This can create a strong emotional connection with your brand.
  • Open and closed-loop business cards: Open-loop cards, like traditional credit cards, can be redeemed anywhere they are accepted, making them versatile for loyalty program rewards. Closed-loop cards, however, are limited to specific stores or brands, making them ideal for loyalty programs that focus on a single brand or a group of associated businesses. This distinction allows businesses to effectively tailor their loyalty programs to suit their customer base and brand image.

3. Technology and Integration

Integrating the right technology into your loyalty program is essential for its success. Consider the following:

  • Select software that integrates with your existing systems: Ensure that the loyalty program software seamlessly integrates with your POS system, website, and other platforms to provide a smooth member experience.
  • Mobile integration: Mobile apps can enhance the member experience by allowing them to easily track their rewards and access exclusive offers on the go.

4. Setting Up the Rewards Structure

Designing an attractive reward structure is key to keeping customers engaged. Here's how:

  • Design appealing rewards: Offer rewards that are valuable and relevant to your customers, such as discounts, exclusive offers, or free products, to incentivize repeat purchases.
  • Establish clear rules: Define how customers can earn and redeem rewards, including points accumulation and expiration policies, to avoid confusion.
  • Be mindful of cost: Ensure that the rewards you offer are balanced in terms of cost and benefit. Avoid rewards that take too long to recoup the costs, and consider the long-term sustainability of your loyalty program.

5. Launch and Promotion

Launching your loyalty program effectively is crucial for its success. Consider the following strategies:

  • Organize a launch event: Build excitement around your program with a launch event or special promotion to encourage sign-ups and participation. The event can be online or offline, depending on your budget, industry, and core audience demographic.
  • Multi-channel marketing: Utilize email marketing, social media, and in-store signage to inform customers about your loyalty program and its benefits.
  • Staff training: Train your staff to effectively promote and implement the loyalty program, especially when it comes to redeeming points in-store. Ensure they are knowledgeable about the program's benefits and how customers can earn and redeem rewards.

6. Monitoring and Adjusting

Continuously monitoring and adjusting your loyalty program is essential to keep it effective. 

  • Monitor program performance: Track key metrics like enrollment rates, redemption rates, customer engagement, and recurring customer revenue against redemption costs to assess the program's effectiveness and identify areas for improvement.
  • Adjust the program as needed: Use customer feedback and data analytics to make improvements and keep your program relevant and engaging.

7. Customer Service

Reliable and prompt customer service can help your loyalty program’s success and popularity grow.

  • Offer dedicated support: Provide a dedicated support channel for loyalty program members to address any issues or concerns they may have.
  • Leverage the latest tech: Leveraging the latest technology can significantly enhance the customer experience, shorten response times, and provide valuable insights. For instance, Nike uses AI-powered chatbots and virtual assistants in its loyalty program to revolutionize customer service. These tools offer personalized support, enhance searches, and efficiently manage member orders, showcasing the power of technology in providing a seamless and personalized experience.

How to Create a Successful Loyalty Program

You have planned and implemented a loyalty program. Now what? Here are some tips to ensure the success of your customer loyalty program:

Loyalty Anywhere, Anytime

Don't limit your loyalty program to just one platform. Expand it across multiple channels like your website, app, and social media. This way, customers can easily engage with your brand wherever they are, boosting loyalty and engagement.

Tailored and Personal

Make your customers feel special by personalizing rewards based on their habits and demographics. For example, if a customer is a frequent traveler, offer them travel-related rewards or discounts. This personalized approach shows that you value their business and increases their loyalty to your brand.

Rewards on Autopilot

Don't rely on manual processes to send out rewards. Use automation to send timely offers, such as birthday discounts or anniversary rewards. This ensures that customers feel appreciated and keeps them coming back for more.

Game It Up

Make your loyalty program fun and engaging by adding gamification elements. Create challenges, offer badges, or set up a points system to encourage participation. This makes the program more enjoyable for customers and motivates them to earn more rewards.

Be Unique, Go Green

Stand out from the competition by adding a unique element to your loyalty program, such as sustainability. Offer rewards for eco-friendly purchases or donate a portion of member sales to environmental causes. 

For example, beauty and skincare brand Kiehl's rewards program allows you to earn points by recycling empties, each worth 10 points, which can be redeemed for products, services, and more.

How to Promote Your Loyalty Program

Promoting your loyalty program effectively can drive customer engagement and boost retention. Here are some unique strategies:

  • In-Person Promotion: Train your staff to mention the loyalty program at checkout and provide information about its benefits. Consider using in-store signage and displays to attract attention and encourage sign-ups.
  • Social Media Promotion: Use social media platforms to promote your loyalty program. Create engaging posts that highlight the benefits of joining and encourage followers to sign up. Consider running exclusive social media promotions for loyalty program members, and share stories about your members.
  • Referral Programs: Encourage your existing members to refer their friends and family to join the loyalty program. Offer incentives such as bonus points or discounts for successful referrals.
  • Email Marketing: Use email marketing to promote your loyalty program to your existing customer base. Send targeted emails highlighting the benefits of joining and exclusive offers available to members.
  • Exclusive Memberships: Hospitality businesses should consider running exclusive membership promotions. To attract new members, highlight the benefits of membership, such as exclusive discounts or perks. 

Influencer Loyalty Programs

Influencer loyalty programs can be a powerful way to leverage influencers to promote your brand. Here's how you can create one:

  • Rewarding Influencers: Offer influencers free products or services in exchange for promoting your brand. This not only incentivizes them to create content but also allows them to experience your brand firsthand, making their promotion more authentic.
  • Referral Links: Provide influencers with unique referral links that they can share with their followers. Offer a special discount or incentive for customers who make a purchase through the influencer's link. This not only increases sales but also provides an additional source of income for the influencer.
  • Exclusive Discounts: Offer influencers an exclusive discount code that they can share with their followers. This not only incentivizes their followers to make a purchase but also tracks the effectiveness of the influencer's promotion.
  • Commission-Based Rewards: Consider offering influencers a commission for every sale made through their promotion. This incentivizes them to create high-quality content and actively promote your brand to their audience.

Brands like Native, Hello Fresh, Persona Nutrition, Revolve and more have grown by leveraging influencer loyalty. 


Using Customer Data to Evaluate and Adapt Your Loyalty Program

Data-driven metrics play a crucial role in evaluating the success of a loyalty program and making informed adjustments. Here are some key metrics to be mindful of:

  • Customer Lifetime Value (CLV):

      • Calculation: CLV = Average Purchase Value × Purchase Frequency × Customer Lifespan
      • Importance: Helps identify high-value customers and tailor rewards to maximize their lifetime value while also targeting potential customers with similar profiles. Also highlights customers at risk of churning, enabling targeted retention efforts. 
  • Active Engagement:

      • Calculation: Divide the number of customers actively participating in your loyalty program by the total number of customers over a specific period.
      • Importance: Indicates program effectiveness and member interest. Low engagement may require program adjustments or targeted promotions.
  • Repeat Purchase Rate:

      • Calculation: Number of customers who have made more than one purchase divided by total customers.
      • Importance: Reflects program impact on encouraging repeat purchases. Higher rates indicate strong customer loyalty.
  • Redemption Rate:

      • Calculation: Number of rewards redeemed divided by total rewards issued.
      • Importance: Measures how effectively rewards are being utilized. A high redemption rate indicates strong engagement and value perception.

Drive Customer Loyalty and Growth with DataCandy's Solutions

Implementing a robust loyalty program is not just about rewarding your customers; it's about investing in the future of your small business. By leveraging DataCandy's gift card and loyalty software, you can simplify the process and focus on what matters most: growing your business. You can sell gift cards, reward loyalty, automate offers, and showcase reviews to ensure customer-driven growth. 

So why wait? Join the ranks of successful businesses that have embraced loyalty programs and watch your business thrive.

Start your loyalty program now

Use the DataCandy loyalty management platform to boost customer spending and drive repeat visits.

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Akshat Biyani
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