Are Cannabis Dispensary Loyalty Programs Worth it?

A loyalty program is first and foremost about keeping your existing customers, and this makes perfect business sense: Bain & Company estimates that a 5% increase in customer retention can boost a company’s profitability by 25%.2 This is because customers become more profitable over time3, and the cost of keeping an existing customer is 5 times lower than acquiring a new one.4

Returning customers tend to buy more, refer others, pay a premium, and cost less to serve.

A loyalty programs can help your dispensary increase revenue and profit in the following ways:

Keep your best customers

A loyalty program offers a strong incentive for your best customers to stay with you. For many dispensaries, the top 20% of customers contribute 80% of the total sales.5 The ability to keep these customers is especially important for retailers in the cannabis industry, as many new competitors are trying to enter the market and steal customers. 

A loyalty program retains customers in two ways:

  • Strengthen your relationship with customers (an offensive strategy)
  • Increase customers’ cost of switching to a competitor (a defensive strategy)

Encourage more visits and larger purchases

Because of the engagement and incentives customers receive through the loyalty program, there are more reasons for them to come to the store. In addition, studies show that customers participating in loyalty programs are less price sensitive and are willing to pay price premiums.6 A recent study of dispensaries in Washington and Colorado shows that the average item price among loyalty program customers is 25% higher than non-loyalty buyers.1

Receive more customer referrals

A recent study revealed that referrals generate more than twice the sales of paid advertising.7 Most customers are happy to recommend their favorite dispensaries to friends, but often need a little incentive to act. A loyalty program makes it easy for customers to invite friends and get rewarded for it. And if your program has a mobile app, it will also be easy for customers to share your products and events with friends, bringing you new customers along the way.

Enable precision marketing

All customers are not created equal. Many dispensaries want to encourage high-value customers and discourage deal seekers. However, studies reveal that store-wide promotions often end up rewarding deal seeking behaviors.24 A loyalty program helps you fix this problem, because you can segment customers using program tiers: customers who have made enough purchases and referrals to achieve the top program tier are your best customers; you can reward them generously, give them recognition, and make them feel special. In contrast, deal seekers usually fall into the bottom tier and will have very few cherries to pick.

Another loyalty program benefit is the ability to create highly personalized and relevant marketing offers for each customer. When participating in a loyalty program, customers willingly provide a lot of valuable information about their product and lifestyle preferences. This data can help you make important business decisions, such as which promotions to offer each customer, and what product lines to carry in your dispensary. 

What scares me about this loyalty program, is that you know more about your customers in three months than I did in 30 years.

Chairman of Tesco (UK’s largest retailer)

Unleash word-of-mouth marketing

Nielsen reports that 92% of consumers believe suggestions from friends and family more than advertising.9 Beyond friends and family, 88% of people trust online reviews written by other consumers as much as they trust recommendations from personal contacts.10 And 74% of consumers identify word-of-mouth as a key influencer in their purchasing decisions.11

A loyalty program can help you get more referrals and reviews. If you reward loyalty points to customers when they refer friends, leave online reviews or share their dispensary experiences on social media, you will see a big increase of customers gained through word of mouth.

By Nora Chen