Oftentimes, businesses adopt a rewards program to thank their frequent customers and to encourage and increase the likelihood that they will return. While these are both excellent reasons to have a rewards program, a business must carefully consider how to structure the program and what to offer to not only promote engagement with their customer, but to also create meaningful incentives that make sense from a revenue standpoint.

If you don’t have a loyalty program, consider a recent study by Nielsen that surveyed 29,000 people in 58 countries. 60 percent of respondents reported that loyalty programs were available where they shop, and 85 percent were more likely to choose that retailer over another. The fact that most major retailers have loyalty programs should be enough to convince you that you should also have one. All of these companies can’t be wrong, or can they?

Where most loyalty programs fail is because they are not well thought out from the onset. There’s a balance that must be created between what makes sense for your business and what rewards will actually be attractive to your customers. It certainly wouldn’t make financial sense for a dealership to give away a car even to its most loyal customer, despite the fact that this would probably be a pretty desirable reward and would certainly ring the free publicity bell.

Here are a few things to consider when designing your loyalty program.

1. Reward activities that generate new business – There’s nothing more satisfying or desirable for a dealership than obtaining referrals from satisfied customers. We also know that word-of-mouth is one of the most effective forms of generating new business. Consider adding to your loyalty program an appropriate incentive for new customer referrals by existing customers. Loyal customers bring in a lot of revenue over their lives so why not encourage and reward those same customers for assisting you in your customer acquisition efforts? Religiously servicing their vehicles with you is great. However, by rewarding customers for generating new or conquest business – sales or service – you turn that loyal customer into a willing and proactive brand advocate.

1.  Make sure your incentives aren’t at the expense of revenue –Take a close look at the profit centers of your dealership when selecting rewards for your customers. Don’t offer rewards to customers that eat into your profit centers. Recent statistics show that a well-planned dealership loyalty programs will work wonders growing revenues by offering only a 4-5% average loyalty “discount.” That is typically less than most direct mail teasers dealerships often send out. How the consumer perceives a smaller “reward” can be just as effective as a free oil change. But it is dependent on how it is packaged to the customer.  If you generate a lot of revenue from oil changes, don’t offer free ones. Many dealerships choose their rewards from those services that are the most popular with their customers. However, they also tend to be the ones that generate revenue for the dealership. Consider identifying services that aren’t generating revenue and offering those as rewards. This way, your customers are still receiving value for their loyalty but it’s not coming at the expense of revenue. Many of today’s good loyalty programs will tell you exactly, by labor Op code, what services each member is using and those they are not. It’s the ones they are not using that should be incentivized.

1. Choose rewards that promote engagement – The ultimate test of the health of your loyalty program is engagement by your customers. Again, monitor which rewards are being redeemed and which ones are not. Many times a small tweak of a reward will bring up its redemption and incremental revenue generation.  Your loyalty offerings aren’t set in stone. If customers aren’t taking advantage of the offered rewards, your loyalty program isn’t working. It’s one thing for the customers to generate the points through frequent visits, and quite another for them to be doing so in an effort to earn one of your offered rewards.

The bottom line is that you want your loyalty program to encourage and reward people for their loyalty. If you’re not offering rewards that are desirable, your loyalty program has no meaning. In addition, if your loyalty program is rewarding your customers at the expense of revenue, it’s being counter-productive. A well-designed loyalty program will increase revenue, not detract from it.