This article was originally published by Flowhub
As cannabis prohibition continues to come to an end, new markets for cannabis businesses open every day. Medical states are going recreational, multi-state operators continue to expand, new brands are launching, and more potential customers are emerging. In this crowded space, dispensaries need a strong strategy for both new customer acquisition and retention in order to stand out.
In many places, it is no longer novel to simply dispense cannabis. In order to thrive in the current climate, dispensaries need to provide their customers not only with a great product but with a great experience as well.
One of the best ways to do this is by introducing a cannabis loyalty program. Loyalty programs are a time-tested way to increase customer retention and generate revenue.
In this post, you’ll learn why loyalty programs work, how they differ in the cannabis industry compared to traditional retail, and how to structure your own program for success.
Loyalty programs work because of what’s known as the “Pareto Principle”—aka the 80/20 rule. It says that 20% of your customers account for 80% of revenue, and acquiring a new customer can cost as much as 7x more than retaining an existing one.
Because of this principle, sales teams and marketers must focus on turning existing customers into repeat customers. Dispensary loyalty programs are not supposed to please everyone. They are supposed to build relationships between you and your most loyal customers by explicitly treating them like VIPs.
Keeping these main revenue drivers happy and coming back for more is the best recipe for success. Not only do loyal customers visit more often, but they purchase a wider range of products and more of them, according to Headset. So don’t worry that curating your operation towards a select few will result in a narrow section of inventory being sold.
The cannabis industry is currently under strict and often complicated regulations on how and where it can advertise. Most traditional forms of marketing and even social media marketing are prohibited or severely limited, so retaining customers once they’ve heard of you is vital.
Traditional retailers are not nearly as restricted in their marketing efforts as cannabis dispensaries, and they still use loyalty programs. For example, Starbucks and Adidas both have comprehensive loyalty programs in place. This is a good indicator of just how important they can be for your company’s retention strategy.
While it is true that loyalty marketing for the cannabis industry is more restricted than others, in the primary markets like California, Washington, Nevada, and Colorado it is almost as unrestricted.
Restrictions on cannabis loyalty programs in certain markets are due to privacy laws that prohibit dispensary CRM systems and POS software from saving customer contact information for email and SMS marketing purposes. For example, in Oregon, personal contact information must be deleted after 48 hours. This obviously poses a problem for CRM and loyalty programs because it severely limits your ability to communicate with customers. However, springbig has solved this problem with the implementation of a dedicated electronic signature (e-sig) application that enables customers to easily opt-in to having their data stored, allowing the dispensary to keep their contact info and remain compliant with all marketing regulations.
Not all forms of loyalty rewards programs are the right fit for dispensaries, and choosing the wrong one can be toxic to your ROI. There is a common misconception that visits-based loyalty often seen at places like coffee shops is the right choice. The idea being that if a loyalty program is supposed to generate more visits you should reward customers based on visits. But unlike a coffee shop where basket sizes are generally the same across all customers where pretty much everyone is buying a drink within the range of $2-5, cannabis dispensaries have a vast array of products and a wide range of customers with different (or even unknown, i.e. everyone has a general idea what’s sold at a coffee shop, but in the budding cannabis industry there are new products created constantly) desires and spending habits.
If you are distributing points to your customers by the visit, there will be no way to accurately correlate the ratio of points to dollars spent. For example, if a customer earns 50 loyalty points for each purchase they make at your shop, on any given visit, one customer can spend $20 while another can spend $100.
Because of this, rewarding customers based on dollars spent is the most effective for cannabis dispensaries because it proportionately rewards your VIPs. Remember, the top 20% of customers account for 80% of your business, so taking care of your VIPs is one of the most important parts of a customer loyalty program.
However, this isn’t to say that you should completely ignore everyone else. You still want to entice new people to enroll in your loyalty program even if they aren’t currently a VIP. One way to do this is by implementing tiers into your loyalty program. Spend-based tiers, for example, will still reward lower spending customers but incentivize them to earn more points in order to reach the highest tier.
Simply starting a loyalty program at your dispensary does not guarantee people will actually use it. According to a study conducted by Headset, “almost 40% sign up only for one initial transaction and never return.” Since the primary purpose of a loyalty program is increasing customer retention, this problem must be addressed in order for the program to succeed.
This drop-off in participation occurs because a loyalty program only works if customers are kept informed of the latest promotions and offers available to them and properly incentivized to participate.
The solution is to extend the loyalty program outside of the confines of your physical location. Don’t let customers forget about the program as soon as they walk out the door. By maintaining contact with members through text-based loyalty and email marketing, you not only remind customers about the program but show that you actually value them as customers.
Texting is the preferred form of B2C communication: 89% of customers wished businesses used messaging services and 49% of them preferred SMS marketing over other messaging services like WhatsApp and Facebook. They are far more efficient as a digital marketing channel compared to push notifications, which are often ignored. Text messages have an open rate of 99%(!) and 90% are opened within the first 3 minutes of being received.
Text-based loyalty also removes all of the frustrating barriers to entry commonly seen in other loyalty apps and programs. Springbig is a CRM and loyalty program software built specifically for cannabis, offering a completely frictionless system that does not require new members to create a password and account. All that is needed is a phone number during the initial enrollment and that’s it! The customer’s rewards wallet is sent directly to their phone.
Don’t worry about turning your customers away because they feel spammed. Besides the fact that customers prefer texts over other forms of loyalty communications, a cannabis marketing platform that offers insights into how your customers respond to your promotions will allow you to craft personalized and targeted marketing campaigns.
Through full transactional integration between your POS (point-of-sale) and cannabis CRM providers, you can combine data streams to give you the most accurate picture of your customer’s behavior and how to adjust your marketing strategy accordingly.
Full API integration between your POS and loyalty provider ensures no gaps in data to give you the most accurate view of your KPIs. This gives dispensaries the ability to streamline their sales process making sure they are stocking exactly what the customer wants when they want it. It also provides insights into where your business is bleeding. Flowhub has numerous features that help prevent fraud and shrinkage and springbig’s platform was designed with this in mind as well. Full integration eliminates the need for tablets or any additional loyalty-specific hardware which are susceptible to internal fraud, the most common cause of shrinkage in retail.
A dispensary-specific CRM gives you the exact customer service, sales, and marketing options you need to run a successful loyalty program and is a surefire way to increase customer satisfaction and retention. When combined with text marketing capabilities and integrated with your POS, crafting custom, and targeted promotional campaigns based on insights into your inventory performance becomes as simple as a few clicks.