The fifth post in SmartBrief’s Spotlight on Customer Service series is brought to you by First Data, a global leader in electronic commerce and payment processing. Read First Data’s case study on how the Nevada Department of Motor Vehicles is using online payment to create a more seamless user experience.

Rewards programs can be more effective than other promotions because they promote a long-term relationship, while straightforward discounts become useless immediately after they are used.

If your business is offering coupons, you are competing every day with prices offered by all of your competitors. Great rewards programs, however, carve out a niche in shoppers’ buying habits and stay ingrained, regardless of what other carrots are waved in front their faces.

The trick, of course, is winning consumers over to your program. The good news is that there is no shortage of candidates. According to ACI Worldwide, three of four Americans participate in some kind of rewards program. The problem is that if you are only getting started, you’re arriving a little late to a party that’s already in full swing.

Here are some tips to help you wrangle loyal customers away from competitors.

• Decide what kind of strategy is the best fit for your company. Loyalty comes in several forms. Some loyalty programs revolve around referrals to new customers; others are based on the amount of money spent on products; some are based on how long a customer has been in the program. If your business handles many transactions or you sell products that are used regularly, you should probably lean toward a rewards program based on the number or size of transactions. If your business relies on one-time services, you probably want your rewards program to revolve around referrals.
  
• Target the right people. Rewards programs are geared toward your top 10% most frequent shoppers. If you’re a typical retailer, about half of your sales come from this group. It takes as many as 20 new customers to make up for the loss of one loyal consumer, said marketing analyst Keith Colbourn. Try to gather as much information as possible about this group. When do people in this group shop? What products are they buying? What rewards would they value? Of course, don’t limit your rewards program to your most loyal customers, because it is also your goal to attract new customers and engage as large of a group as possible.
• Offer tangible goals that are within reach. One of the most common reasons consumers give up on a rewards program is that they can’t envision it paying off in the near future. A good rule of thumb is that customers should be able to reap benefits within the first few months of participation. Also, rewards shouldn’t be too difficult to redeem. Don’t let your rewards program backfire because it frustrates your customers.
• Find out what your competitors are doing. There’s no shame in seeking out ideas from your rivals. In fact, this can be one of the best places to find out what works in your sector, or at least what’s been tried already. Look for things you like about competitors’ programs, but also try to figure out things you could improve.
• Reach out to your customers. You should use multiple avenues of communication when telling customers about your loyalty program. Maybe your in-store employees would be the most useful advocates, or maybe an e-mail campaign is best to generate interest. Most likely, a combination of marketing efforts is the most effective course of action. Even the most well-conceived rewards programs fall flat if they are not accompanied by a concerted marketing effort.

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