Loyalty Programs - Good for Business?

I've now been a seller on Etsy for just over two months and I've felt like I'm getting rather consistent sales, but I'm definitely not ready to give up a day job yet! But I've been selling long enough to start having repeat customers - which is awesome! Now I'm working on a plan for what I can do to keep those customers, but not face the seller's dilemma of only getting them when you have a sale.

I've been doing a lot of research on pricing points, good selling interactions and how to market yourself/your brand. Everything I'm reading says you don't want to set yourself up to only get purchases when you're having a sale, so offering too many discounts or discounts too often can actually hurt your bottom line. I equate it to not becoming a Kohl's even though I love Kohl's. I admit, I fall into this category - when I'm looking for clothing and shoes I shop most of the time at Kohl's, but I go only when I have coupons, bonus bucks, there's a huge sale or all three. I've never purchased a full-price item at Kohl's. Not in years.

While it's less of a concern for Kohl's because my volume of purchases over the year makes up for my only buying with coupons/sales, the same can't be said for small businesses. I'm never going to have the volume of sales as a chain department store with a huge, very broad spectrum inventory. I sell unique, often rare or one of a kind, vintage items. So how does someone like myself go about building customer trust and repeat business without hurting profitability - especially when I have relatively thin margins?

After research - here's the tact I'm planning on taking and would love to hear feedback on from both buyers and other sellers!

Part One - First Time Buyers

If you purchase from my shop for the first time you'll fall into one of two categories - Buyer under $10 and Buyer over $10.

If you spend under $10 in my shop I send you a thank you note and I write a coupon code for 10% off your next purchase on it as a token of my thanks. I figure this way if you're on a budget, or if you're likely to make repeat small purchases I can still offer you a sale/coupon, but not lose $1.25 on on $5 item, which is likely to be more than half of my profit on the piece.

If you spend over $10 in my shop you get the thank you note and a coupon code for 25% off. Same thought process - if you were willing to invest in your first piece without a coupon then you'll be likely to spend over $10 again and even more likely to purchase at a higher amount if you get 25% off your entire purchase.

The only exception to this rule of thumb is if your first purchase from my shop was made with a coupon. I run promotional sales for fans of my Facebook page and Twitter followers and I'll put sales up in my shop banner on Etsy, if during your first purchase from me you used a coupon code, even if you spent over $10 I give the 10% discount code in your thank you note. This way you still get a reward, but hopefully you don't come to expect to receive a discount for every purchase.

So far this system has worked well, but just this week I had a return buyer who'd already used a coupon on her second purchase and I wanted to be able to still reward her, but not issue another coupon - which sparked all this research!

Based on what I found I had a couple of options - give an additional "free" item in the shipment of this mailing, give a sample of another product, offer a service, or start a loyalty program. Since I don't have a bunch of vintage items lying around to just toss in when someone makes a purchase and I don't actually have samples of other projects/products, I automatically ruled those out. This has left me with both the idea of developing a loyalty program and offering a service - both of which I will put into implementation.


Part Two - Loyalty Program

Here's the program I'm thinking of putting into effect - I'd love to know if you think it's appropriate, if the rewards are something you'd be interested in or even if you think it's too generous!

Return Buyer - After your second purchase in the shop I will send in your package a loyalty card/voucher. I'll add up all your previous purchases and stamp your card with your current balance. Reward points will be earned at $10 increments. For every $10 spent on merchandise (not including shipping) you'll earn 1pt. At the 5pt mark ($50 spent) you'll earn free shipping on your next order. At the 10pt mark ($100 spent) you'll earn a free item, up to $10, or $10 off your next order, whichever you prefer. If you select the free item you'll just pay the $.20 listing fee and shipping!

Once you've reached the 10 point mark I'll send you a new card with your next order and the process starts over again - at 15pts you'll earn free shipping, at 20pts a free item and so forth.

Part Three - Service

I realized when doing this research that there is a service I can provide and why people buy vintage from me - because I make it easier for them. The best service I can offer is to do custom "picking" or tracking down of a specific item or style of item they would like. It's like when Mike and Frank from American Pickers take on a client and go find items specifically for them. So once you've purchased from me a few times and you're an established customer that I can depend on to actually buy an item if I track it down for you, I will make this offer available to you.

What do you think of my three-prong business retention approach? Thoughts on how to make the program better? Other loyalty program/service items you like from vendors you deal with? I'd love to hear from you!