Loyalty program

A loyalty program or rewards program is a marketing strategy designed to encourage customers to continue to shop at or use the services of one or more businesses associated with the program.
Loyalty programs may be either: Single-brand programs, such as Starbucks)
In 2020 McKinsey spoke of loyalty program "ecosystems".
A loyalty program typically involves the operator of a particular program setting up an account for a customer of a business associated with the scheme, and then issue to the customer a loyalty card (variously called rewards card, points card, advantage card, club card, or some other name) which may be a plastic or paper card, visually similar to a credit card, that identifies the cardholder as a participant in the program. Cards may have a barcode or magstripe to more easily allow for scanning, although some are chip cards or proximity cards. U.S. supermarkets often issue two copies of the card: one credit-card sized and one that fits on a keychain, in addition to providing access to the card via a mobile app, website.
As of 2024, most programs in the United States offer a digital version of the loyalty card, accessed via a mobile app, and often customers can scan a QR or bar code from the app at the physical point of sale. Some programs now offer digital cards only or only exceptionally, such as Marks and Spencer's "Sparks" program in the UK launched in 2020 which no longer issues physical cards except upon special request. American Airlines no longer sends membership kits to new members of its frequent flyer program.
Encouraging or forcing customers to use a mobile app to present their loyalty account number, although criticized for being unfriendly to people without smartphones including many elderly people, benefits the merchant in a number of ways. It lets them present special offers to the customer (or even push them via push notifications), tailor customer experience to the individual consumer, and understand customer behavior better, including their purchasing amounts and patterns.
At a physical point of sale, presenting a physical or digital card is not necessary at many U.S. merchants, if the customer enters the phone number associated with the account on a terminal or tells it to a cashier who enters it into the register. When purchasing online, customers usually must log in to the account on the merchant's website. However, when purchasing airline tickets from online travel agencies, customers can usually enter their airline loyalty number into the agency website and the agency will pass it onto the airline.
Programs that feature points grant customers a certain number of points for each purchase, in the US often per $1 or $10 increment of spend. Once they have enough points, clients can redeem them for either:
Programs with tiers define levels (such as silver, gold, and platinum levels) that customers are upgraded to when they spend enough with the merchant(s), usually over a certain period of time such as a year. For example, Sephora gives 1 point for $1 spent. Once customers earn a specific number of points, they can enter a new level with higher discounts and exclusive products.
In subscription-based programs, customers pay a fee to enjoy the program's benefits, for example Barnes and Noble bookstores charge members about 40 U.S. dollars per year (as of mid-2024) for its "Premium Membership and Rewards" program, which gives members a 10% discount off most merchandise. There is also a free tier which does not offer such discounts but does allow members to collect virtual "stamps" (i.e. loyalty points).
Depending on the program, rewards may take the form of:
In addition to rewards, loyalty cards may also be used identify consumers for benefits and other services, e.g.:
Programs with cashback features give customers a portion of the money that they have spent with a business (usually a defined percent which may be higher than usual during promotions). The "cash back" is rarely actually cash money, but rather takes the form of a transfer of the "cashback" amount to the customer's bank account.
Examples in the U.S. include Rakuten Rewards, a coalition reward program, and many banks that give their clients cash back for using their debit cards to pay for various products and services.
Depending on the program, ways that consumers may access their loyalty account (account number, promotions, other information) may include:
There has been a move away from traditional magnetic card, stamp, or punchcard based schemes to online and mobile online loyalty programs. While these schemes vary, the common element is a push toward eradication of a traditional card, in favour of an electronic equivalent. The choice of medium is often a QR code. Some prominent examples are Austrian based mobile-pocket established in 2009, the US-based Punchd (discontinued from June 2013,), which became part of Google in 2011. and an Australian-based loyalty card application called Stamp Me which incorporates iBeacon technology. Others, like Loopy Loyalty (HK), Loyalli (UK), Perka (US), and Whisqr Loyalty (CA), have offered similar programs. Passbook by Apple is the first attempt to standardize the format of mobile loyalty cards.
With the introduction of host card emulation (HCE) and near field communication (NFC) technology for mobile applications, traditional contactless smart cards for prepaid and loyalty programs are emulated in a smartphone. Google Wallet adopted these technologies for mobile off-line payment applications.
The major advantage of off-line over the online system is that the user's smartphone does not have to be online, and the transaction is fast. In addition, multiple emulated cards can be stored in a smartphone to support multi-merchant loyalty programs. Consequently, the user does not need to carry many physical cards anymore.
Today, such loyalty programs cover most types of commerce, each having varying features and rewards schemes, and range from programs of a single-location business to large chains or membership in a coalition loyalty program. Industries include:
The market approach has shifted from product-centric to a customer-centric one due to a highly competitive market and a wide array of services offered to customers, therefore, it's important that marketing strategies prioritize growing a sustainable business and increasing customer satisfaction.
Almost all major U.S. casino chains also have loyalty cards, which offer members tier credits, reward credits, comps, and other perks based on card members' "theo" from gambling, various demographic data, and spend patterns on various purchases at the casino, within the casino network, and with the casino's partners. Examples of such programs include Caesars Rewards (formerly called Total Rewards) and MGM Resorts International's Mlife.
As of 2011, some independent coffee shops in Boston, Toronto and London has set up experimental "disloyalty card" programs, which rewarded customers for visiting a variety of coffee shops.
Loyalty programs' most important benefit to merchants is that they generate data, which bring more repeat business and therefore increase sales.
Application forms for cards usually entail agreements by the store concerning customer privacy, typically non-disclosure (by the store) of non-aggregate data about customers. The store uses aggregate data internally (and sometimes externally) as part of its marketing research. Over time the data can reveal, for example, a given customer's favorite brand of beer, or whether they are a vegetarian.
As of the mid-2020s, loyalty program trends include:
Loyalty programs are a means of implementing a type of what economists call a two-part tariff.
Co-operative Membership: the Co-op Group offers a 2% (previously 5%) refund to members on Co-op branded products with 2% also going to the cardholder's nominated charity. This is only available in Co-op Group stores. It replaced the dividend benefit previously used. Other Co-op chains continue with the dividend scheme, e.g. Midcounties Co-operative. Many of these accept other Co-operative loyalty cards but generally without the same benefits. For instance Midcounties Co-operative accept Co-operative Group cards but there is no charity donation or cardholder refund.
Flybuys is the largest loyalty program in both Australia and New Zealand.
Loyalty programs have been described as a form of centralized virtual currency, one with unidirectional cash flow, since reward points can be exchanged into a good or service but not into cash.
Evidence for the effectiveness of loyalty programs is controversial. Many companies are unsure whether and how to use customer loyalty programs profitably. Many programs (regardless of location, size, or industry) are run without the appropriate metrics or target parameters.
Some companies complain that loyalty programs discount goods to people who are buying goods anyway. Moreover, the expense of participating in these programs rarely generates a good return on investment. The Forte Consultancy Group regards loyalty programs as bribes. In the case of infrequent spenders, loyalty fees provide a means of subsidizing discounts.
A 2015 study found that most supermarket loyalty cards in the United States do not offer any real value to their customers. Furthermore, commercial use of customers' personal data – collected as part of loyalty programs – has the potential for abuse; it is highly likely that consumer purchases are tracked and used for marketing research to increase the efficiency of marketing and advertising, which is one of the purposes of offering the loyalty card. For some customers, participating in a loyalty program (even with a fake or anonymous card) funds activities that violate privacy. Consumers have also expressed concern about the integration of RFID technology into loyalty-card systems.
One may view loyalty and credit-card reward-plans as modern-day examples of kickbacks. Employees who need to buy something (such as an airline flight or a hotel room) for a business trip, but who have discretion to decide which airline or hotel chain to use, have an incentive to choose the payment method that provides the most cash-back, credit-card rewards or loyalty points instead of minimizing costs for their employer.