Q: I’ve heard about loyalty programs, but don’t understand how they work. Can you explain?
A: Happily. A loyalty, or rewards, program is a marketing technique that encourages repeat business by awarding something of value to loyal customers. The business deploying a rewards program usually issues some form of loyalty card by using a plastic card printing vendor to create uniquely-designed cards and/or key tags. The card, configured with a magnetic stripe or barcode, is used to identify program participants and in some cases to help track their activity. For instance, a movie theater may issue loyalty cards to customers. A theater ticket salesperson then swipes the customer’s card whenever he or she buys a ticket. The system keeps track of each customer’s purchases and rewards points accordingly. You may qualify for free popcorn, soda, tickets, etc. – each theater chain can set unique parameters for its rewards program.
Points are the most popular method of tracking progress towards rewards. Every transaction accumulates a certain number of points. When consumers have enough points, they can redeem them for specified rewards. Different rewards may require a different number of points. The airlines were pioneers of frequent flyer programs that offer reduced fares or free flights in exchange for accumulated points (miles). Airlines have received some criticism over the years for continuing to raise the required number of points necessary to gain a particular reward. Nonetheless, these programs are enormously popular with the public and do indeed help establish customer loyalty.
Loyalty program providers usually collect some data about each program member that they use in subsequent marketing research. A supermarket loyalty card can help the store track a consumer’s favorite brand of soda or cigarettes. This information can then be sold to soda or cigarette manufacturers, which use the data to identify market trends and perhaps offer free coupons to identified customers. Loyalty cards can also be used to verify the identity of a customer before dispensing a product or service. For instance, access to an airport VIP lounge may be contingent upon first producing a valid loyalty card.
Some purveyors of rewards cards also offer software packages to help manage loyalty programs. For a small business, these packages (usually they are either very inexpensive or free to card customers) save a lot of time and effort that would have been extended in trying to implement a custom program from the ground up.