Customer Loyalty Programs work

source: Manta and BIA/Kelsey

Small business owners now spend the majority of their marketing budgets, time, and efforts on retaining and developing relationships with existing customers. They spend less than half of their money or time on new customer acquisition.

The findings of a study released today by Manta and BIA/Kelsey, which surveyed nearly 1,000 small business owners, are in stark contrast to previous studies the organizations conducted. Just two years ago, a BIA/Kelsey study found that small business owners’ primary focus was on new customer acquisition; in fact, they spent 7 times more on acquiring customers than on retaining existing ones.

The same 2012 study found that only 6 percent of small businesses were spending more than half of their budgets on keeping customers. And yet more than 61 percent of respondents to the 2014 survey claim they generate more than half of their annual revenue from repeat customers rather than new customers.

The co-authors of the new report, “Achieving Big Customer Loyalty in a Small Business World,” note that research has long indicated that acquiring new customers can be as much as 10 times more expensive than generating repeat business. And repeat customers typically spend 67 percent more on a brand than a new customer will.

But until very recently, small businesses typically focused on getting new business. The research shows, however, that only 14 percent now spend the majority of their annual marketing budget to acquire new customers, and only 20 percent are investing most of their time and effort there.

What has changed? It seems that new technologies make it easier and cheaper for small businesses to engage with existing customers than to go after new ones.

For instance, asked which media they use most for advertising and marketing, 52 percent of small businesses said Facebook and 39 percent said email marketing. Both platforms rely on having an existing social connection or email address. Only 32 percent or fewer small business owners said they now rely on newspapers, direct mail, or sponsorships—all common ways to help new customers find you—to market their goods and services.

In addition, small business owners are realizing how effective social media is for enabling loyal customers to become brand ambassadors by posting positive reviews, sharing photos of new purchases, and “checking in” at their stores.

Still, the report authors say that most small business owners don’t have clear strategies yet for connecting with their customers to drive retention and repeat sales. “Very few have a loyalty program in place and those that do often offer an unsophisticated experience that’s largely managed offline,” write Jed Williams, BIA/Kelsey’s VP of strategic consulting, and Kristy Campbell, Manta’s director of marketing.They acknowledge: “The majority of [small business] loyalty programs are offline rather than online, failing to take advantage of technologies that enable seamless implementation and deeper customer insights. Only 46 percent are in some type of digital form, like an email list, while the remainder are paper-based (31%), verbal/word-of-mouth or in another form (17%).”

But Williams says research indicates that “customer loyalty programs are starting to gain traction in the small business community,” and predicts, “over half of small businesses will launch customer loyalty programs by the end of 2014 to help their businesses become more competitive.”