Loyalty schemes

A loyalty scheme is a sales promotion technique that rewards customers for buying again and again. It usually works through a card, an app or an account: the more a customer spends or the more visits they make, the more rewards they unlock, such as points, discounts or free items.

For example, a pet supplies shop called Paws & Claws could give a stamp card where every tenth purchase earns a free bag of dog treats. The rewards grow with each visit, so regulars feel they are getting steadily better value.

Why loyalty schemes help a business

• Loyalty schemes can act as a form of personal selling, because the shop can give each cardholder targeted promotions and discounts. It knows what they buy, so it can send an offer for the exact product they like, such as money off cat food to a customer who buys it every month. The offer feels personal rather than generic.
• Buying habit data is collected with every scan, showing what sells, how often and alongside what. The business can use this to plan stock and aim promotions at groups of similar customers.
• Repeat purchase is encouraged, because customers return to build up rewards rather than switching to a competitor. This supports customer retention.

Drawbacks to weigh up

• The rewards have to be paid for, and so does the administration — cards, apps, staff time and the system that records points.
• Rewards and discounts cut the price the business actually receives, which reduces profit margins on those sales.
• Customer details must be collected and protected lawfully, following data protection rules: customers must know what is held and why, and the business must keep that data secure. Getting this wrong damages trust and can lead to penalties.

Loyalty schemes are therefore more than just discounts: they are a way of gathering information and keeping customers, which is only worth the cost if the extra repeat sales outweigh the rewards and running costs.