What Are Loyalty Programs And How Do They Work?

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Customer Loyalty

Were you aware that the average adult is enrolled in nine loyalty/rewards programs? (I’ve had many a polite staring match with clerks trying to push their store’s rewards program. Needless to say, I’m not at all surprised by this statistic.) Loyalty programs, in one form or another, have been around for many years. Though they’ve evolved through time, these systems have increasingly become a weapon for business owners to retain existing patrons.

Technology is rapidly encroaching every area of our lives and rewards programs are no exception. The advent of cloud computing has revolutionized businesses’ ability to store big data. Electronic rewards programs benefit businesses owners as well as customers. Proprietors can utilize these systems to collect customer information, track sales, and keep an eye on their retention and churn rates. This article looks to examine what loyalty programs are, where loyalty programs got their start, and how they work. So, without further ado, let’s dive in.

What Are Loyalty Programs?

Loyalty programs are rewards programs put in place by the owners of an establishment to encourage customers to return. These programs are extremely popular in businesses where customers make frequent purchases. Every rewards program is unique to the company who implements it, but they operate on roughly the same premise: The more a customer shops at your establishment, the more rewards they receive, and the more incentive they have to come back and continue shopping at your place of business.

Rewards programs typically require customers to hand over some form of personal information (name, address, etc.). In return, they are issued a unique membership card, number, or access code so they can receive their benefits. As was previously stated, modern electronic rewards programs specifically benefit business owners because they can mine a large portion of previously untapped customer data.

How Do Loyalty Programs Work?

There are a wide variety of loyalty program styles out there and each has its own unique advantages and disadvantages. Let’s go over a few of the main styles:

  • Cash Back Or Rebate Program: This type of rewards program is pretty self-explanatory: customers earn money back from their purchases. Once they reach a certain dollar amount or a certain time limit has been reached, they can redeem their rewards for cash. The rebate is usually based off of a percentage of the total purchases during the time period in question. This type of program is easy to understand but it lacks the element of instant gratification for your customers and it can also be expensive to implement.
  • Discount Program: This system offers a discount off the original price of any given item that can be applied to customers at the checkout counter. Discount programs are easy to understand and process but may give customers the impression that your regular prices are too high
  • .Frequency Programs: Many of the businesses that use this type of rewards program employ paper punch cards to keep track of their customers visits. (Buy 5 subs and the 6th is on us!) While these punch cards are low cost, they don’t track any customer information and are more open to fraud.
  • Points Programs: With these rewards programs, customers are given points, often in exchange for the amount they spend in your store. The point system is a great way to avoid discounting your merchandise, but you may need to find a way to remind your customers of their status in the rewards program.
  • Tier System: This sort of rewards program is great for keeping customers engaged on a consistent basis. To join the system, a customer must make a simple purchase. The more frequently a customer makes purchases and the cost of those purchases will determine the level of rewards they receive. This sort of program works really well for businesses with expensive merchandise.Different loyalty systems can be mixed and matched together to create your own unique loyalty program that works best for your specific business and customer needs.

Final Thoughts

Any business owner worth his or her salt will tell you that having loyal customers is vital to keeping a thriving business. Not only is retaining existing patrons about 5 to 25 times less expensive than acquiring new ones, repeat shoppers are known to spend up to 67% more when they visit your establishment. Implementing a solid loyalty program is not only an important way for you as a business owner to make sure that your customers keep returning, it is also an important metric for your churn rate. It is important to do your research before adopting any loyalty solutions for your company, but this day in age, adopting some sort of loyalty program is becoming more and more advantageous. A loyal customer is a customer you can count on returning to your business and spreading free advertisement about your brand by word of mouth. (One of the most effective forms of advertising, I might add.)

Elizabeth Cranston

Elizabeth Cranston is a writer and native Oregonian who lives in the beautiful Pacific Northwest. She enjoys researching and getting to the bottom of questions relating to the Point of Sale industry.When not writing about and researching Point of Sale software, she can usually be found overindulging in Dutch Bro’s coffee, making others laugh, or listening to music.

Elizabeth Cranston

Elizabeth Cranston

Elizabeth Cranston

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