gift cards
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By Mike Polner

With the holiday season coming up, small businesses are trying to figure out the best ways to maximize revenue for the end of the year and beyond. Gift cards have long been the go-to tactic, and for good reason — they’re an effective way for merchants to drive cash flow, they allow current customers to refer like-minded friends who will probably enjoy the same products, and the feeling of “free money” frequently makes shoppers spend more than the value of their gift card. All good signs for the merchant, but what happens if they don’t come back after redeeming their gift cards? What if their gift cards are never even used? In fact, 6-10% of gift card holders never redeem them, so not only do retailers lose profit, but they are losing the opportunity to turn these new customers into customers for life.

Given that gift cards are one of the most purchased items of the holiday season, it’s likely they won’t be going away any time soon. To capitalize on this craze, small businesses need to focus on what methods they can use in addition to gift cards to ensure they retain current customers, and how to keep their new gift card customers coming back after the holiday deals are gone. Data from FiveStars shows that customer lifetime value is a persistent problem for small businesses — 17% of general small business customers come back 1 month after their first visit, but that number declines over time, reaching a low 3% return after 10 months. With such a high influx of new customers coming in this holiday season, it’s important for small businesses to know how to keep them coming back months later. Here are FiveStars’ 3 top tips to drive customer loyalty and increase retention this holiday season and beyond:

  1. Enroll shoppers in a loyalty program. The easiest way to ensure you retain your current shoppers is to offer relevant deals and rewards for being a loyal customer. Whether it be as simple as sending your shoppers email updates or utilizing a loyalty tech platform, providing your current customers with personalized shopping experiences and opportunities to save on what matters to them is essential to make sure they come back. It’s important to remember that the more personalized the loyalty program, the better — a loyalty program is only as good as its ability to provide the customer with something they will actually want to buy.
  1. Send holiday promotions and discounts.Major retailers take advantage of the holiday shopping craze by offering special deals and discounts. If small retailers want to ensure they don’t lose their current customers to big businesses during such a competitive time, it’s important they keep up with holiday deals. Participating in relevant promotional holidays such as Small Business Saturday is an excellent way for small businesses to keep up with the excitement of Black Friday and Cyber Monday. Additionally, offering extra-special deals to your long term customers will strengthen the existing shopper-merchant relationship, build loyalty, increase referrals and keep retention high.
  1. Price effectively and introduce new items for the following year. During the holiday season, it’s important to effectively price your products to maximize spend. If most of your gift cards are distributed in increments of $25, you can price popular products at $24 so customers are likely to purchase additional products out of pocket. While end of the year sales are great for increasing traffic and driving revenue, it’s important to plan ahead for the following year — especially during the slower times. Utilizing the high traffic of the holiday season is a perfect opportunity to promote new, upcoming products to ensure that your loyal customers continue to come back even after the holiday products and deals are gone.

By following these three tips, small businesses can maximize holiday spend and increase the likelihood of customers coming back in the months to come. After all, increasing retention a mere 5% can increase profits by 25%-90%, so focusing efforts on driving loyalty is the key for year-long success.

Mike Polner is the VP of Product Marketing at FiveStars. FiveStars is a loyalty tech company that has helped over 12,000 merchants in America increase retention by marketing relevant deals to 17 million consumers. You can follow FiveStars on Twitter.