When several hundred frequent flier mile fans learned that there was a free shipping offer on presidential Native American $1 coins sold at face value by the U.S. Mint AND that they could earn frequent flier miles in the process, they ordered more than $1 million in coins. They charged the coins to a credit card that offered frequent-flier miles and then took the shipments straight to the bank. Shoppers' keychains are flush with "loyalty" passes that offer discounts and deals from– the average household has 12 loyalty passes, according to a study by Colloquy.

While these are more sophisticated examples of loyalty programs, they are a testament to their power. In smaller doses, these programs are great for furthering loyalty to any size business. They’re also a wonderful tool for obtaining information you can use to create products and services that meet customers’ needs and wants. Without cutting prices (a move that all too many businesses have taken in the current recession), you can spur purchases and reward customers in the process.

The reality is that there is a small percent of your customers who do most of the purchasing from your business. In the grocery store realm, the top 10 percent of customers account for nearly 40 percent of a store’s total sales, according to an analysis by Concept Shopping Inc. The study also found that these most valuable shoppers tend to remain very loyal to the store, with 95 percent continuing to shop there throughout the year. Hence, it makes business sense to focus time, effort and promotions on those top-spenders.

A few parameters to consider:

• Tell customers how they will be rewarded. Create reward cards and stamp them each time customers make an eligible purchase. You can use a frequent purchase card/punch card for purchases of anything from sub sandwiches to airport parking. Options could include: Buy five, get one free, spend $100, get a $10 gift card or earn 100 reward points with each $10 purchase and receive a 10 percent discount. Consider what these retailers do:
  • Zane’s Cycles in Branford, Conn., offers its customers free bicycle maintenance for life if they take the time to answer six questions, which store owner Greg Zane then stores in his customer database. Then, Zane targets the true cycling enthusiasts with relevant offers and special care.
  • Neiman Marcus InCircle – This “circle” continues to exceed its high-end members’ expectations. Members can redeem points for gift cards, airline miles and unique gifts not found elsewhere.
  • Harley Davidson’s Harley Owners Group (H.O.G.) leverages the bond between Harley owners and their bikes with a loyalty program that masters soft and hard benefits. It offers an exclusive “kinship” for members. For example, the Mileage Program awards pins, patches, and motorcycle medallions to H.O.G. members just for riding their Harley-Davidson® motorcycles.
• Choose rewards that have tangible value, offer choice and provide an aspirational value. If a restaurant plans to provide a free meal, be flexible in when and what the customer can choose. Having the opportunity to win a trip to Hawaii has greater aspirational value than a free cappuccino.
• Consider your budget. How much will rewards cost? Calculate financials up-front.
• Determine how you will attract people to join your program. Will the cards sit in front of your cash register? Will you advertise?
• How will you track and record transactions?
• Determine restrictions up-front.

While retail loyalty programs have many purposes, the greatest value to business is ability to identify individual customers, measure and understand their individual behaviors and engage them. In doing so, you’re more apt to keep them as customers.