Digital punch cards for small businesses are a stupid form of loyalty marketing.

LevelUp, Groupon, and now Square are offering small businesses the equivalent of the old punch cards to help them retain customers. These mimic the traditional punch cards that many small businesses have used: for example, buy 10 coffees and get 1 free.

Although such programs are easy to understand, they aren’t creative and don’t really play to a small business’s greatest asset: being small. They also give away money in a way that isn’t particularly effective.

There’s a taqueria near me that offers a stamp with every purchase of $6 or more. Get 8 stamps and you get $6 off the next purchase. So my effective benefit is at most 75 cents per visit.

The result is that you’ll have essentially a bimodal distribution. There are the people who didn’t like your product and came in once. They might take the punch card because you hand it to them and they want to be polite. But the reward is too far away and too insignificant to get them to come back. At the other end of the spectrum, you have people who would come in anyway. I go to the taqueria because it’s close to my house and I like the food. The punch card isn’t a motivator for me. From a business perspective, it’s just lost margin.

Although small businesses often like to play like the big boys, this takes away one of their key competitive weapons. Starbucks has to have a computerized loyalty program tied to its POS system — because it has so many locations, computers have to track these data and issue rewards. Small businesses have the ability to compete on something that is much harder for chains to replicate: true personalization.

My favorite small business loyalty program didn’t have a punch card. I was a regular at Harry’s Tap Room when I lived in Virginia. As soon as I walked in, the bartender started pouring my beer. Often, he’d comp some of my beers. There was no formal program — it just happened.

On Saturdays that I’m in San Francisco, I walk to the Ferry Building and have an empanada at El Porteno. Once when I tweeted about it, they responded that the next time I’d get a free empanada. I just let Alex know when I stopped back.

That serendipity has value. It creates a more personal experience than the mechanical experience of the punch card.

I’ve seen small businesses use other tactics to reward and encourage their regular customers:

  • Letting regulars try out new products or get exclusive access to products that are in high demand.
  • Giving away pastries that otherwise would have been thrown away at closing time.
  • Naming a sandwich after a regular.
  • Meetings with the chef.

These are much more memorable than what equates to a small price discount.

Startups like the punch card model because it’s easy to replicate online and it’s an easy technology problem. But this is a problem best solved with marketing creativity.

[Top image credit: duckeesue/Shutterstock]


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