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By the way, at the bottom of this page is my gift to you: a printable promotional program worksheet that you can use to help determine what promotional program will work best for your business, and even how to structure it.
A frequent-customer program rewards your current customers for coming to you regularly. It helps increase customer retention and loyalty, which in turn increases your per-customer profitability. A video store, for example, may give out a card that is signed every time a customer rents a video. After nine rentals, the tenth one is free. That’s a 10% discount, but in order to get it, the customer must first pay for nine rentals! A restaurant could give out “frequent diner” cards with a similar offer. Frequent-customer programs also benefit businesses that provide services people use regularly during the year, like car washes, gardening, dry cleaning, photocopying, or haircuts.
One key to a successful frequent-customer program is to make it quick. It should take your average frequent customer less than a year to earn the reward, and your most-frequent customers should be able to earn two or three rewards or more. Small rewards earned more-frequently are more-effective than large rewards that take years and years to earn; besides which, you should establish an expiration on points - say, a year or two from sign-up. Remember, the object is to reward frequency.
Here’s a secret weapon in frequent-customer programs, one that actually helps increase sales - and loyalty - even more. I call it a climbing reward: increased frequency earns increased rewards. Let’s say your average frequent customer uses your product or service every other week. That’s about 26 times a year. Here’s how a frequent-customer program with a climbing reward could work. After 19 purchases, they get one free; a 5% discount (1 in 20 is 5%). Then, after nine more purchases (total of 28 paid), they get one free; a 10% discount (1 in 10 is 10%). Then, after four more purchases (total of 32 paid), they get one free; a 20% discount (1 in 5 is 20%). The total discount if they go all the way (3 in 35) is a little less than 9%. And, if you’ve set a one-year expiration on the points, you’ll probably increase annual purchases from your average frequent customer from 26 to 32, a sales increase of more than 23%. Wow!
A frequent-customer program is inexpensive (just quick-print some cards), and reaps huge rewards for you because it markets you to people who are already inclined to use your business: your current customers. It is smart marketing and my A-Number-One recommendation to any small business that can implement one.
A pre-sale program gives customers a discount when they pay in advance for multiple products or services. Unlike other programs, a pre-sale program is sold, just like any other product or service your business offers; it is part of your business inventory, and must be treated as such. Generally, pre-sale programs must offer greater discounts in order to be enticing - after all, your customer must pay for it all in advance. A video store might sell a “Video Saver” coupon book with 10 rental coupons, for the price of eight rentals. That’s a 20% discount, but the business gets the money for eight rentals up front - a significant cash flow boost.
A pre-sale program can also help get future business. For example, a tire shop could sell a “Lifetime Alignment Contract,” which offers free annual alignments for the life of the customer’s tires. When the customer’s tires wear out, guess who’ll be the first to know about it and the first to offer an estimate? To keep track of usage, future services could be logged on the customer’s original receipt. Another way to track usage is to sign, stamp, or punch a membership card.
A referral program rewards current customers for referring new customers to you. Unlike the first two programs, a referral program is designed to get you new business. It is highly effective, because no other form of marketing is as believable as a personal referral from a friend. An auto dealer might offer current customers a free oil change or exterior detail for every person referred who takes a test drive. A video store might offer a free rental. A financial planner might offer an additional service, such as a free retirement planning analysis (which could help increase business from the current customer as well).
Other good all-purpose rewards include pre-paid phone cards and gift certificates for meals or entertainment.
Like a frequent-customer program, a referral program only works if you do the kind of work that earns referrals and repeat business.
A preferred-customer program rewards selected customers and potential customers with a pre-established discount. Since it lacks a “prize” to work toward, it may be less-motivating than a frequent-customer program. However, it is more-effective at getting new business, because it can be offered to entire groups of potential “preferred” customers. For example, a video store may give local residents a “Good Neighbor” card that gives them free popcorn with every rental. A coffee house might distribute an “Upsize Card” that entitles the bearers to free one-size upgrades on all their beverage purchases. A tire store can give people who buy a set of four tires a preferred-customer card that entitles them to discounts on alignments or other services. And, an auto dealer may offer fleet prices to members of a credit union.
Many small businesses can combine these promotions. The video store, for example, can fill in an extra space on the frequent customer’s card if he or she brings in a new customer who signs up for a frequent customer card and rents a video. The first customer still has to pay for eight rentals before getting that free one, plus there’s the value of the new customer’s future rentals.
Seven keys to successful sales promotion programs:
1. Make sure it offers something your customers value and will want.
2. Make it easy. The written program description and rules should fit on one side of a business card.
3. Make it relevant to your business, your competitive edge, and your customers.
4. Put your business name, address, and phone number on any promotional program card or coupon you give away.
5. Keep customers active by placing expiration dates on their program cards or coupons. One to two years from the start date is appropriate.
6. Capture names and addresses (and email addresses if appropriate) when customers sign up for your program. Use this information for cost-effective, inexpensive direct marketing via emails or postcards.
7. Track the number of discounted sales or free giveaways earned by customers.
Frequent-customer, pre-sale, referral, and preferred customer programs are four of the hardest-working, most cost-effective marketing tools your small business can use. Remember: the unique thing about these promotional programs, is that they only cost you money when they work!
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There are additional promotional tools that are often used in small business marketing. I put these in a category well below the first four because they eat into profits, and cost money to promote properly. However, they can be effective marketing tools when used and promoted correctly.
Sales: traditional, but over-used, promotions. With a carefully structured promotional program, you can give your best customers - and only your best customers - a discount of 10-20%. So why have a sale, which costs money to advertise, and discounts everything to anybody? One of the best reasons, is to clear out outdated, seasonal, or excess stock. Another is to reinforce a competitive edge of “cheapest.”
The worst reason to have a sale, is to attract new customers. You’ll only attract people who couldn’t ordinarily afford your products or services, and when your sale is over they’ll go back to their usual suppliers until your next sale. Few will become repeat customers or sources for referrals. Furthermore, frequent sales may train even your current customers to buy only during your sales too, with disastrous results. I once overheard a conversation between a customer and salesperson in an upscale men’s clothing store downtown. The customer tried on several suits, admired the latest shipment of ties, and mentioned that he needed some new shirts. Then he said, as he walked out the door, “I’ll be back when you have your next sale.” Needless to say, that particular small business didn’t survive long after this conversation took place.
Coupons: use occasionally as directed. Coupons are unmatched at introducing new products or services, getting new customers to try you, and testing the effectiveness of advertising in various media. Also, many retailers can encourage repeat business by handing out coupons with each sale at the checkstand.
Always include on your coupon a way to track where it came from. Keep your coupons fresh by placing an expiration date on them: one to two months from the date of publication or distribution is typical. Also, make sure your business name and address appears on each coupon.
Please, don’t run the same coupons over and over in your ads. They cost you three times: once to publish, again to redeem, and finally when they ruin your business because your ads don’t communicate your competitive edge!
Free samples: an irresistible introduction. The best way to introduce new products or services, is to let people experience it for free. This is especially true if your product or service is unfamiliar to them. A bakery could give away bite-sized samples of their cookies to promote cookie sales. A restaurant could offer a “buy one, get one free” deal to attract new customers or promote a new menu. A tax accountant could offer a free one-hour consultation to introduce a new investment service. Many software companies offer free trial downloads.
Contests and prize drawings: continuing publicity out of a one-time giveaway. If your small business can give away a product or service, then staging a contest or prize drawing is a terrific way to build excitement and generate new leads. Here are four keys to running a successful contest or giveaway. First, make your prizes relevant to your business. A travel agent might give away a cruise (with a local weekend getaway as a second prize), or a health club might give away a membership (with cool T-shirts as runner-up prizes). Second, make sure all your rules are clearly communicated, including who can enter, what prizes you’re offering, when and where entries are due and when a winner will be announced, and how the winning entries will be selected. Third, make sure you gather names, telephone numbers, and addresses to build your mailing list. Fourth, publicize your promotion through press releases - before, during, and after - as well as in your advertising and by word-of-mouth.
Events: another form of sampling. Many service businesses and retailers can gain new customers by staging community events. A bike shop, for example, could sponsor a major bike ride. A restaurant could participate in a community restaurant tour or food fair. A real estate office could hold a “Homebuying Fair” with guest speakers, open house tours, workshops, and lots of free literature. The tenants of a shopping mall could have an “Open House.” Staging an event helps establish your business as a source of expert assistance, and can generate awareness through the use of publicity, another key marketing tool. In addition, you can get names, addresses, and phone numbers of potential customers through registration.
Key factors in the success of your event include pre-event publicity and advertising, the quality of your presentations or demonstrations, the aggressiveness of your marketing efforts during and after the event, and (interestingly enough) refreshments.
Seminars: a convincing demonstration. You can often gain new customers or find potential customers by offering seminars on topics relevant to your product or service. This establishes you as an expert, and familiarizes potential customers with your product or service. A Thai restaurant, for example, could offer an introductory Thai cooking class. A bike shop could offer mountain-biking workshops. An investment broker could offer a seminar on retirement planning. The keys are making your seminar relevant to your business, and being a convincing presenter. Libraries and community centers often offer rooms at little or no cost for educational seminars.
Promotional programs are a way to increase sales at very little cost to you, especially when compared to mass-marketing efforts such as advertising, and indirect exposure such as public relations. For more advice about maximizing the marketing potential in your sales promotion, see the article How to promote your sales promotion, which could almost be regarded as Part 2 of this article. I recommend that you look long and hard at the first four sales programs mentioned here - frequent-customer, pre-sale, referral, and preferred customer - and make one of those your first choice. They combine low cost with high effectiveness in a way that is the very embodiment of Tightwad Marketing.
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