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Is Loyalty Best Served Locally?

Local businesses struggle to attract and retain customers. Can locally-focused loyalty programs help?

By Len Vraniak

Approximately 100 percent of all business owners expect to be successful, but the Bureau of Labor Statistics tells us that about 20 percent of small businesses fail within the first year and only about 50 percent will survive for five years. One big reason for that depressing statistic? The inability to attract and retain customers. National chains have large advertising and promotional budgets to keep customers coming through their doors. But what about small, local businesses? How can they develop and maintain a core of loyal customers? Enter local loyalty programs.

The challenge, though, is that 71 percent of people claim that loyalty programs do not create loyalty, according to a recent survey by Accenture.

For years, some local businesses have used punch card loyalty programs to hold onto their best customers. Think, for instance, of those five partially-punched "buy 10 pizzas and get one free" cards that are floating around your house somewhere. But as Andrew Gazdecki pointed out recently in Forbes, punch cards may be alienating millennials, a generation that is now 77 million strong and currently holds the largest portion of purchasing power in the US.

While millennials represent more than a quarter of the U.S. population, the concept of customer loyalty also seems to be changing across all demographic groups. It used to be enough for a loyal customer to get a deal after a certain number of purchases, and maybe an extra discount or free item on their birthday. But now, earning and maintaining customer loyalty requires more, and people's decreasing attention spans make it even harder for businesses to engage with and retain customers.

Frank Fennell, co-founder of loyalty app Klosebuy, says that the smartest businesses today view a loyalty program as "the ability to continuously engage a consumer through any means possible," but in a way that is not intrusive or annoying.

Early entrants into the "local" loyalty space included OpenTable and Belly. OpenTable, which started in 1998, focuses on the restaurant industry. Its users generally gravitate toward the platform because it is easy to use and has a clear rewards program. Rewards are generated through the platform, not through individual restaurants, which often facilitates more loyalty to the platform than to the restaurants themselves.

Other localized loyalty programs have sprung up, as entrepreneurs see more opportunities in this space. WeLocals, which is currently focused on two neighborhoods in Lower Manhattan and one in Brooklyn, also offers networking opportunities and business advice to help area entrepreneurs thrive and grow. A quick Google search for "local loyalty program" provides more than 9 million results, many for programs like WeLocals and others for businesses that have created loyalty apps or who want to create loyalty programs for individual small businesses.

"LOYALTY HAS BECOME TOO COMPLICATED, BECAUSE THERE ARE SO MANY OPTIONS"

Klosebuy's Fennell believes the key to success is creating a system that is easy for both merchants and customers to use–one that allows merchants to reach out to customers with timely, relevant offers but also makes it easy for customers to earn and redeem awards. Some of the more robust loyalty systems offer businesses the ability to track customers individually, without the customer having to share vast amounts of personal data. With some systems, business owners can see which of their promotions are most effective. And they can see that data in real time, making adjustments on the fly if necessary.

"Loyalty has become too complicated, because there are so many options," Fennell said. "If I'm a business owner, all I want is a simple way to engage with current customers and attract new ones."

While there are apps and services that can deliver that simplicity, it remains the business owner's job to create an experience that makes it easy for people to become repeat customers. No app, no matter how slick and easy to use, has the power to turn a negative customer experience into a positive one.

Now if I could just find that punch card for my pizza parlor…

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