Small Merchants Use Loyalty Credits to Keep Customers From Shopping With Larger Rivals

Small businesses are having success in using a classic method to keep customers coming back.

Loyalty credits far predate the internet as an age-old customer retention tool. The most basic example of this spend-based program are “buy 10, get one free” cards that are generally either punched or stamped. Most often found these days in independent coffee shops and other small retailers, this type of rewards program is generally considered low maintenance, not even requiring a digital tracking system of any kind in some cases.

However, in today’s ConnectedEconomy™, loyalty credit programs that customers can access on their phones keep customers returning as they gamify purchasing and build punches, stamps or credits toward a free item or other incentive.

Like many other consumer-facing loyalty tools, more modernized versions of this program have evolved from a legacy system of paper cards meant to be carried in a physical wallet to the digital domain. As noted in “The 2023 Global Shopping Index,” a PYMNTS and Cybersource collaboration, consumers in 2022 used their mobile devices to gain loyalty credits in small- and medium-sized businesses (SMBs) at nearly twice the rate of larger retailers.

Analyzing this data alone, it’s difficult to determine why customers shopping at SMB retailers gain loyalty credit for purchases 44% of the time compared to 27% of larger merchants. It may be that large retailers have the budget to explore more tech-heavy loyalty offerings. Larger retailers may also have greater reserves and thus have more tolerance for promotional programs that have greater initial costs. Some of these recent innovations by big retailers gaining steam include personalized discounts through mechanisms like item-level receipt data, as well as maximizing cross-channel offerings.

The reasons driving the gap in this loyalty feature may be less important than the gap itself, as PYMNTS has found that SMBs offer promo codes and similar rewards at far lower rates than their larger competitors. Indeed, except for loyalty credit use, SMBs generally offer other mobile features for use in-store at lower rates than larger retailers.

With an overall trend of big merchants leading the way when it comes to consumer-facing innovations, it seems like a smart move for SMBs using loyalty credits to play to their strengths. Emphasizing this once-analogue offering’s ease of use on mobile platforms may split the difference of remaining less tech-intensive than other loyalty offerings while building on the success already occurring with the tools at hand.