Body_CustomerLoyalty.jpgby Erin McDermott.


Keeping people coming through the door has been a worry for as long as merchants have been hanging out shingles.


Just as durable have been loyalty-program enticements: the buy-100-get-one-free world of punchcards, still stuck unused in wallets everywhere; keychain fobs, lost to millions of junk drawers; and social media, home of so-called friends who come just for a discounted deal and then never return.


Now a host of companies are betting improved technology can help business owners shed new light on their elusive clientele and, more importantly, get them in the door more often and get them to stay. These digital loyalty systems are usually two-sided. On the customers’ end, an app on a smartphone can relay offers for rewards or an accumulating point system based on dollars spent, all registered with a quick swipe at the checkout. On the proprietors’ side, there’s a real-time history of who’s been spending money at your shop, how often, and what they’re buying—even at what time of the day. Together, it can make the experience highly personal and customized for both small businesses and their customers.


Numerous tech giants are digging in, creating something of a land grab for the loyalties of small businesses. Players from Facebook to Groupon to The Square and even Google are circling, as are plenty of companies with a focus on small businesses.


That includes Cardagin, a digital loyalty platform based in Charlottesville, Va., with nearly 2,000 businesses in its network. Rob Masri, the company’s founder and CEO, grew up watching his father’s version of rewarding customer loyalty—a free slice of pie, or a cup of coffee on the house—at their family-style restaurant in a tiny Pearisburg, Virginia. The family came to the U.S. from Lebanon in 1977, which made the success of Charlie’s Restaurant two years later an imperative.


New technology, old-fashioned service

To thrive in a small town, it meant “the same people needed to come day after day, week after week, month after month. And if they took a break—your business was done for,” Masri says. “That sort of knowledge, and insight into the customer base, of making a customer feel welcome, greeting them by name, thanking them for their business and giving something special—that’s what [my dad] preached to us.”


On the Cardagin system, a proprietor can input messages about promotions via a Web-based platform. On the app, users see a list of local businesses and their offers, and accrue points toward a goal with every purchase. At the register, a smallbusiness owner can instantly put a name to a face as they scan a QR code or enter the customer’s phone number (Cardagin can be used by everyone, not just those with smartphones), as well as see data points—such as customer name, order specific, and average amount spent over a day, month, and year—the Cardagin platform collects to give them an opportunity to better tailor service. The technology gives businesses a direct link to learn about their customers and reward them not only for their loyalty, but to try to entice them to come back, by sending them deals on their “usual” purchases or giving exclusive discounts.


“Everyone talks about the 20-80 rule: The 20 percent of customers that provide 80 percent of your revenue. Marriott calls them Platinum Elite. Hertz calls them the No. 1 Club,” Masri says. “But what does your local bagel shop call them? Who are they and how do you get in touch with them? That’s what this system is designed to do.”


PQ_CustomerLoyalty.jpgWhy loyalty programs work

Why are consumers so drawn to loyalty rewards? There is biology at play. Roger Dooley, author of Brainfluence and the blog Neuromarketing, says loyalty programs are most effective when they give people the ability to move closer to a goal of some kind. It’s known as the goal-gradient hypothesis. “Research shows that people behave like rats in one respect: The closer rats get to a food reward, the faster they run in a maze,” he says. “People do the same thing—as they get closer to filling up a coffee-shop loyalty card and earning a free coffee, they drink coffee more frequently.”


Businesses may not have much of a choice but to jump through hoops to keep patrons on board. “Companies are coming to the conclusion that it’s typically a lot more cost-effective to retain a customer and get more business from that customer than it is to try and find new customers and break them in,” says Dooley. “Prospecting for new customers is very expensive. There’s a lot of businesses that don’t realize that, and they’re out there simply trying to acquire new customers and hoping for the best.”


Atlanta-based Welcomemat Services aims its mobile loyalty system at a location’s freshest customers: new residents. Using the Punchpoints smartphone app, users scan a QR code at each merchant they visit as they explore the shops in their new neighborhood, accumulating points toward a choice of a reward. Customers can share news of their loyalty via social media at each visit. Merchants can customize information on the app instantly—changing daily specials or even to offer double points on slow days. On the website, merchants can view analytics and usage trends to better understand their customers, guide service, and boost retention.


Brian Mattingly, Welcomemat’s founder and CEO, says his type of system is a step forward for small businesses in that it’s not dependent on coupons or group deal buying, which have gotten a bad rap for generating the exact opposite of “loyalty.”


“The whole daily-deal world has created a bit of a problem for some local businesses in that people have become loyal to the deals,” says Mattingly “They never become loyal to a business—they just follow the deal. Businesses are so hungry and so interested to find new regular customers because that’s how local businesses grow.”


However, not everyone sees technology as the solution to finding customer ties that bind.


Don’t forget customers have to like you first

“Loyalty is not transactional. It comes from an emotional place, a connection where people care about you, you trust them and you like them and you build a relationship,” says Carol Roth, author of “The Entrepreneur Equation.” “It needs to go deeper than that. It helps you identify your spenders, but it doesn’t help you identify your ‘senders’—the influencers, mavens, connectors, and the people who are helping you spread the word about your product or your service or business.”


“If you’re just rewarding people based on that transaction, and not necessarily based on their value to your brand indirectly, you could be missing an important segment of your customer base,” Roth says. “For a small-business owner especially, it becomes very easy to do the small things to build relationships with your customers to stand apart from the competition. While everyone is gravitating toward technology to try to automate loyalty, the people who are going to win, in my opinion, are the ones who go in the opposite direction. They’ll use technology to inform them, but then they’ll use some good old-fashioned elbow grease and offline strategies to leverage that technology to provide an outstanding experience to the customer.”

Kind of like the extras that Rob Masri’s father sometimes treated his customers to for 29 years in Pearisburg.


“It’s a question of how do we help businesses build one-on-one marketing relationships with those customers who care,” Masri says. “Businesses can spend a lot of money advertising. At the end of the day, there’s only a handful of fanatically loyal customers that every business owner will say ‘I’m happy to thank this person with something.’ The real question is: Who are those people?”