Most of us have a card or two from a local café tucked into our wallet, with the promise of a free cup of coffee once we've bought 10 coffees. It's a great way to engender loyalty from your customer base, but it's not just coffee shops that can benefit from rewards programmes.

An increasing number of small enterprises are using rewards programmes to incentivise their customer base to remain loyal to their business, and many are becoming scientific about measuring how successful these programmes are at keeping customers coming through the door.

Despina Zylstra, marketing manager of children's clothing brand OshKosh B'gosh has been running a rewards programme since 2009 to leverage the strong relationships the business' staff have created with customers

When the programme was set up, the business had an extensive database, but didn't have the resources to maintain it.

"We're a retailer and manufacturer; database management isn't our forte," Zylstra says. "So we decided to outsource the rewards programme."

Endless Rewards, the Australian business that manages the rewards programme, gives Zylstra comprehensive monthly reports on the number of programme users and how much they spend. Zylstra also uses Endless Rewards to manage OshKosh's email marketing campaign.

Another business that uses Endless Rewards is women's clothing retailer Rodney Clark.

General manager Marina De Luca agrees with Zylstra that outsourcing the programme makes sense for smaller enterprises. "We're a small business and we don't have the resources to maintain this sort of programme in-house," she says.

Both Zylstra and De Luca stress it's important to structure rewards programmes so customers come back to make future purchases. In OshKosh's case, 5 per cent of every purchase is added to the card to spend on the customer's next purchase. The card can also be used as a gift card, which converts to a loyalty card once the initial money is spent.

Rodney Clark maintains a two-tier programme.

A customer can become a gold member after spending $150 with the business and a platinum member at $750, either in one go or over a 12-month period. When a customer spends $10 in the store, up to $1 in rewards are added to the loyalty card to spend on a future purchase.

De Luca says she chose this approach instead of giving customers a discount on purchases because the programme is about keeping customers loyal. "With a discount you don't create loyalty; it's all about keeping customers coming back".

Neil Joseph, who runs Endless Rewards, says when it comes to putting together a rewards programme "the most important thing is that the system must be simple for the customer and merchant to understand". For example, it must be easily apparent how much customers need to spend to earn their rewards points or dollars.
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Joseph says the programme "also has to be cost-effective". He says the design of the programme will depend on the business' marketing budget and the amount of income they want the loyalty programme to generate.

He says in a small business "it's not about competing with the big retailers and it's a mistake to have too many tiers and thresholds".

To work out the right loyalty programme benefits, Joseph says it's an idea to test different programme options and also ask the customer what type of programme benefits they want.

"It's about finding the offer that works best and realising that not everyone will respond to the same offer," he says.

"You could have a formal card programme or you could simply send out letters thanking customers for their business. It's about treating customers as VIPs and encouraging them to come back again and again."

Joseph says it's important to recognise discounts don't always inspire customer loyalty: "companies that discount will only attract discount hunters as customers. A good rewards programme is all about giving customers a reason to come back and a strong loyalty programme is a good way to do that".

- BusinessDay.com.au