Historically, customer retention at dispensaries is sub-optimal, making the issue a continuing concern for operators nationwide. A Happy Cabbage study found over a five-year period, only 16 percent of customers at five separate retailers continued to shop at the same dispensary after their first visit.
What can retailers do to increase customer retention? The short answer is “implement a loyalty program.” Allow me to explain.
According to e-commerce solutions provider Yotpo, loyalty programs drive 83 percent of consumers to make repeat purchases. I can vouch for that. Since implementing a loyalty program at our dispensaries in Massachusetts, Maine, Vermont, and New York, I’ve observed an increase in customer retention as well as a noticeable uptick in the frequency of visits. It’s clear the program has been effective in encouraging customers to return more often.
Additionally, loyalty programs are particularly beneficial when launching specific brands or highlighting special offerings. In our industry, brands must be mindful of certain terminology — since words like “specials” and “deals” aren’t permitted in some markets. Developing loyalty programs is a creative way to communicate these promotions. For example, loyalty program members might gain access to “new pricing,” “price drops,” or “additional savings.”
Even with regulatory limitations, brands can do a great job creating a loyalty program that works within the rules while still offering real value to customers. A great place to start is to borrow ideas from outside industries and adapt them to fit the cannabis space. For example, visit your local Starbucks and ask the team what customers like most about their rewards program and how it fosters loyalty. This allows you to gather insights and see what strategies potentially could translate to our industry.
Types of loyalty programs
While there aren’t massive differences in how customers respond to loyalty programs across industries, the regulatory constraints we face mean we must be more creative and cautious in how we structure and present our offerings. Nevertheless, several types of loyalty programs have significant potential to retain loyal customers.
One loyalty program functions like a 5-percent-cash-back system. Essentially, customers earn 5 percent of their purchases in credits that can be used for future purchases. For example, if someone spends $100, they earn $5 in credits, which may be applied immediately or saved to accumulate in their loyalty account.
Birthday rewards allow customers to choose a product from a curated selection on their birthday or within a specified time period near that date. The store “pennies out” the price as a gift. This is where email segmentation and drip campaigns are important. Designing personalized emails to acknowledge customer birthdays and encourage a visit during that time is essential for success.
Bonus rewards compose another loyalty strategy that can prove beneficial. For instance, if a customer spends a certain amount, consider giving them a branded hat, beanie, or T-shirt as a token of appreciation. This is a good way to be committed to doing everything you can within regulatory limits to reward your customers and keep them coming back. If you give branded merch, it’s also a subtle-but-effective marketing tactic.
How to get started
Before launching, thoroughly test your program. Go through proper protocols and pressure-test the program with your team to identify and resolve any issues. Nothing harms a launch more than introducing a program with bugs or glitches. Taking the time to troubleshoot ensures a smoother experience for customers and avoids damaging their trust.
Be very clear—both internally with your team and externally with your customers and community—about the terms of your loyalty program. Clearly outline what customers stand to earn or get back. Ensure the details of your program are easily accessible: Spell out everything on your website, create a blog post about the terms and benefits, and include links to other relevant pages. Make it abundantly clear, in as many ways as you can, what the program offers, how it works, and how customers can track their rewards.
Don’t forget to gauge the impact of your loyalty program and adjust as necessary. One place to start is by looking at the lifetime spend of your loyal customers and calculating the percentage of your revenue they contribute. On top of that, track how many new customers you bring in each month, regardless of whether they sign up for rewards.
Of course you want as many people as possible to join the loyalty program, but understand that not everyone will be interested. Some customers, particularly those in older age groups, may prefer a straightforward experience. They may just want to visit the store, make their purchase, and leave without dealing with digital programs.
In mature or saturated markets, offering a loyalty program is a no-brainer. It’s essential to listen to your team and your customers to shape a program that aligns with their needs and desires. That said, don’t aim for perfection. It’s better to launch a functional program that delivers core value than to delay indefinitely while trying to ensure the finished product offers everything you envisioned. You can always make adjustments and improvements after the program is live. Avoid analysis paralysis. If your program is clear, functional, and compliant, launch it and refine over time.
A well-executed loyalty program helps you retain customers and stay competitive. If you don’t currently offer one (or haven’t even considered offering one), you risk falling behind. I strongly encourage operators to think about implementing a loyalty program and launching it within the limits of their state or market regulations. Rewarding loyal customers pays dividends in customer retention and long-term growth.
An avid consumer of and advocate for cannabis for more than twenty years, Brendan McKee is co-founder, chief financial officer, and chief operating officer at Silver Therapeutics, which operates dispensaries in Maine, Massachusetts, and Vermont. He entered the legal market with a vertical medical license in 2017 and transitioned to adult-use sales in 2019.
Dispensary loyalty program FAQ
Why is customer retention low at dispensaries?
Customer retention at dispensaries is often sub-optimal due to the abundance of choices, lack of brand loyalty, and inconsistent engagement strategies. A study by Happy Cabbage found that only 16% of customers at five separate retailers continued shopping at the same dispensary after their first visit.
How can dispensaries improve customer retention?
Dispensaries can increase customer retention by implementing a loyalty program. Studies show that loyalty programs drive repeat purchases, and dispensary operators have observed increased visit frequency and retention after launching such programs.
What are the benefits of a loyalty program for dispensaries?
Loyalty programs encourage repeat visits, enhance customer engagement, and provide a structured way to reward returning customers. They also help dispensaries stay competitive and communicate promotions in compliance with industry regulations.
What types of loyalty programs work best for dispensaries?
Some effective loyalty program models include:
Cash-back rewards: Customers earn a percentage of their purchase back as store credit.
Birthday rewards: Customers receive a free product during their birthday period.
Bonus rewards: Customers receive branded merchandise or other incentives for spending a certain amount.How do dispensaries navigate regulatory challenges when offering loyalty programs?
Since terms like “specials” and “deals” may be restricted in some markets, dispensaries can use alternative phrasing such as “new pricing” or “additional savings.” They can also study successful programs in other industries and adapt them while staying compliant.
How can dispensaries effectively promote their loyalty programs?
Dispensaries should clearly communicate loyalty program details on their website, in-store, and via personalized email campaigns. A transparent explanation of benefits ensures customers understand how to earn and redeem rewards.
What steps should dispensaries take before launching a loyalty program?
Before launching, dispensaries should:
Test the program thoroughly to eliminate bugs.
Train their staff to ensure clear communication with customers.
Make program details easily accessible online and in-store.
Track key performance metrics to gauge effectiveness and make improvements over time.What metrics should dispensaries use to measure loyalty program success?
Key metrics include customer lifetime spend, percentage of revenue from loyal customers, monthly new customer acquisition rates, and loyalty program sign-up and redemption rates.
Do all dispensary customers prefer loyalty programs?
Not necessarily. While many customers appreciate rewards, some—particularly older shoppers—may prefer a straightforward, no-frills purchasing experience. Offering a loyalty program as an option rather than a requirement ensures it benefits those who want it.
Why should dispensaries launch a loyalty program sooner rather than later?
In competitive and saturated markets, loyalty programs are essential for retaining customers and maintaining growth. Waiting too long to implement one can put a dispensary at a disadvantage. It’s better to launch a functional program and refine it over time rather than delay indefinitely.
