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Doug Grams at Fort Street Cycle. (Chad Hipolito/Chad Hipolito For The Globe and Mail)
Doug Grams at Fort Street Cycle. (Chad Hipolito/Chad Hipolito For The Globe and Mail)

Cash Flow

Would you get a tattoo for a discounted sandwich? Add to ...

Every customer who buys a bicycle at Fort Street Cycle in Victoria gets a card for three free tune-ups.

It’s a standard offer at most bike shops, Fort Street’s owner Doug Grams says. What sets his deal apart is that there is no expiry date on the second and third tune-ups. He also offers a 10-per-cent discount on all merchandise in the store for as long as the customer owns a bike purchased there.

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“Essentially what we’re looking for is customers for life,” says Mr. Grams, who founded the store 20 years ago with his wife Denise.

As rewards or customer-loyalty programs go, Fort Street’s is pretty low-tech. The cards are printed on standard business-card stock. There’s no magnetic stripe, or chip for scanning data about a customer’s purchases.

Mr. Grams says he has no empirical way to evaluate whether the cards and his discounts are adding to his store’s bottom line. “But if you ask me if our system works, I look at our own success and say it’s obviously working or we wouldn’t be here.”

A major challenge for small-business rewards programs is the difficulty of gauging their value, said Dr. Mara Lederman, associate professor of strategic management at the University of Toronto’s Rotman School of Management.

“If he didn’t give that discount, would he lose customers?” Dr. Lederman says. “You actually want to know that this program is changing people’s behaviour from what it otherwise would have been.”

Many loyalty programs aren’t successful. Dr. Lederman offers the example of a coffee shop chain that used to give away a free brew for every 10 purchases. “They don’t have that any more. Why? Because most of the people were already coming there every day for their coffee.”

Quick Lube Plus, an independent oil-change service in Calgary, offers a 50-per-cent discount on every fifth oil change, up to a maximum discount of $25, co-owner Mitch Drzymala says. To keep track, the company doesn’t issue cards or key-chain fobs, employees merely scan a vehicle’s identification number and let the computer take care of the rest.

“I don’t see any downside at all,” Mr. Drzymala says. “The only way we can succeed is to have the customer come back [again and again]”

Dr. Namita Bhatnagar, an associate professor of marketing at the University of Manitoba’s Asper School of Business, says the goal of a loyalty program is to teach customers “to like you in some way and hopefully stick with you in the long term.” To that end, Dr. Bhatnagar advises against a “one-size-fits-all” program and suggests implementing something creative “that is perhaps more experienced-based” instead.

Creative would describe the rewards program that Matt Fish of Lakewood, Ohio, devised for his small chain of Melt Bar and Grilled restaurants. Any customer who gets a tattoo of the chain’s grilled-cheese sandwich receives a 25-per-cent lifetime discount.

An employee at the chain confirmed that “a couple of hundred” customers have already been tattooed.

“I think that’s wonderful,” says Dr. Bhatnagar. “Only people who really love the restaurant would do that. Yes, by all means reward that kind of behaviour.”

Small businesses can buy a machine that will print rewards cards, if they choose to go that route. Aptika Inc. sells two lines of printers, which range in price from $1,100 to $10,000, says Simon Roy, the company’s account manager in Montreal.

The list of companies that have bought the machines include a yoga studio, casinos, and gyms, he says. “Previously, [owners]had a piece of paper and they plasticized it,” Mr. Roy explains. “And that was your loyalty card.”

Now, small businesses are using the machines to print cards that, depending on the model, contain magnetic strips or security chips and will integrate with a point-of-sale system, he says.

National rewards programs are also becoming available to smaller businesses.

The Chesterfield Shop, which has five locations in greater Toronto, has offered Aeroplan rewards to its customers for almost three years, owner Steve Freedman says. He was able to avoid a steep initial buy-in fee, which used to put the program beyond the reach of smaller businesses, by going through a third party, Futura Loyalty Group.

“There definitely is a cost to it,” Mr. Freedman says. “The more you do, the costlier it is. But having said that, we just think it’s worth it. It’s a good brand that fits nicely with our brand.”

Like Fort Street Cycle, The Chesterfield Shop doesn’t use any special point-of-sale equipment to manage its rewards program. It is all handled manually. The cycle shop, however, is looking at a point-of-sale system in order to gather data on its customers, Mr. Grams says.

Collecting that detailed information and crunching it can be very valuable, Dr. Bhatnagar says.

“For a small business that knows its business really well, if you find that there is someone who is really profitable, those are the ones you design your gift card or oil change for.”

Dr. Lederman, assistant professor of strategic management at the University of Toronto’s Rotman School of Management, lists three questions a small business should answer before implementing a rewards program:

  1. What benefit are you getting from the program and how do you measure those benefits? “This is all about getting repeat purchases.
  2. Assuming there are benefits, do they outweigh the costs, including the cost of running the program? “The other is the opportunity cost of the free stuff you’re giving away.
  3. Are there ways to make the program more valuable? “For small businesses, if the cost is not too high you could add value to your program by sharing it across multiple businesses.”

Dr. Namita Bhatnagar, associate professor of marketing at the University of Manitoba’s Asper School of Business, offers the following two pieces of advice about loyalty programs:

  1. It shouldn’t be a one-size-fits-all. Have customized deals for different customers. Determine which customers are the most profitable, and design the program to target them.
  2. Go beyond economic incentives because loyalty involves an emotional connection. “Small business also has connotation of mom and pop. So build that up a little bit more because you can certainly give more customized service.”

Join The Globe’s Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues: http://linkd.in/jWWdzT

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