Marketing strategy designed to encourage customers to continue to shop at a business From Wikipedia, the free encyclopedia
"Reward website" redirects here. For cashback programs for online shopping, see Cashback website. For incentive programs for employees and dealers, see Incentive program.
A loyalty program or a 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.[1]
Various loyalty cards
Loyalty programs may be either:
Single-brand programs, such as Starbucks)
Single-corporation programs, such as the joint Gap Inc. program, work at the stores and digital channels of Gap, Banana Republic, Old Navy, and Athleta, which are all owned by Gap Inc.
Coalition loyalty programs, provide benefits to customers of multiple otherwise-unrelated businesses.[2] Examples include Rakuten Rewards which, in the U.S. offers cashback at more than 3,500 stores[3] and Air Miles which awards points for purchases from multiple merchants in each market it serves (Canada, The Netherlands, Bahrain, Qatar, and the UAE).[4]
Shopping center programs may also be based on a single or chain of shopping centers, such as the Tanger Outlets loyalty programs that can be used at merchants located at its outlet malls.
Downtown Olympia, Washington, launched a coalition loyalty program in 2021 for merchants in its downtown shopping district.[5]
In 2020 McKinsey spoke of loyalty program "ecosystems".[6]
How customers provide their account numbers
Physical loyalty cards
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.[7] 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.
Digital loyalty cards
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.[8] American Airlines no longer sends membership kits to new members of its frequent flyer program.[9]
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,[8] 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.[10]
Phone number and other methods
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.
Points
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:
merchandise or services free of charge
discounts on merchandise or services
gift cards, credit vouchers, etc. to spend with the merchant
"cashback", either:
money that the program transfers to the customer's account or
a paper check that the program mails to the customer
Tiers
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.
Membership fees
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).[11]
Depending on the program, rewards may take the form of:
merchandise or services free of charge
discounts on merchandise or services
gift cards, credit vouchers, etc. to spend with the merchant
cashback
In addition to rewards, loyalty cards were 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:
Desktop, mobile, and/or responsive versions of the website(s) for the program and/or of participating merchant(s)
Mobile apps for the program or participating merchant(s)
Paper-based mailings of account statements, promotions, and other information
Mobile apps and websites
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,[13]), which became part of Google in 2011.[14] and an Australian-based loyalty card application called Stamp Me[15] which incorporates iBeacon technology. Others, like Loopy Loyalty (HK), Loyalli (UK), Perka (US), and Whisqr Loyalty (CA), have offered similar programs.[16]Passbook by Apple is the first attempt to standardize the format of mobile loyalty cards.
Offline with mobile device
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.[17][18]
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:[19]
Retail: Supermarkets, department stores, clothing stores, beauty stores and other specialty shops
Travel and Hospitality: Airlines, passenger railways, hotels, car rental and carshare companies
Food and Beverage: Restaurants, coffee shops, fast-food chains
Financial Services: Banks, credit card companies
Telecommunications: Mobile service providers, internet service providers
Fitness and Wellness: Gyms, fitness studios, spas etc.
Automotive: Car dealerships and service centers
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.[20]
Casinos
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.[21][22] Examples of such programs include Caesars Rewards[23] (formerly called Total Rewards[24]) and MGM Resorts International's Mlife.[25]
Coffee shops
"Disloyalty" cards
As of 2011[update], 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.[26][27]
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:[28]
the integration of AI and data analytics into loyalty platforms in order to personalize customer experiences,
focusing on emotional connections, and
offering personalized rewards that resonate with individual consumer preferences
omnichannel experience to drive more interaction i.e. access across multiple physical and digital touchpoints such as in-store, via mail, e-mail, mobile apps, push notifications from the app or via SMS, websites, etc.
Loyalty programs are a means of implementing a type of what economists call a two-part tariff.
Hong Kong: Octopus Rewards,[30]MTR Corporation.[31] Different chain stores under common ownership often share the same loyalty program, such as A.S. Watson Group's MoneyBack, which can be used at Parknshop, Watsons, and Fortress stores, as well as the corporation's retail partners.[32]HKT's The club also offers a similar loyalty program.[33] Flag airline carrier Cathay Pacific operates Asia Miles, a loyalty and frequent-flyer program.[34]
India: PAYBACK India is India's largest coalition loyalty program.[35][36] German loyalty program operator Loyalty Partner took a controlling interest in i-mint in June 2010[36] and renamed the program PAYBACK India in July 2011.[35] BPCL's PetroBonus fuel card program has 2 million members.[37]Indian Oil's fleet card program XTRAPOWER and retail program XTRAREWARDS claim a combined customer base of 3 million.[38]
Iran: The first Iranian loyalty program launched in 1996.[39] East Credit Card Group Kish launched its loyalty program in 2005.[40]
Malaysia: Genting Highlands Resort loyalty card, WorldCard,[41] is valid in three countries: Malaysia, Singapore and Hong Kong.
Singapore: Loyalty programs in Singapore include GrabRewards[50] by Grab, SAFRA[51] and Plus![52] from NTUC.
Europe
Austria: The two largest loyalty programs in Austria are Payback and mo. JÖ was fully launched in 2019.
Finland: The two major retail coalitions with loyalty programs are the S-Group with their S-Etukortti card[53]) and Kesko with K-Plussa (67%).
Georgia: Georgia's biggest loyalty card program has been run by Universal Card Corporation since 2010 via UNICARD.
Germany: The largest loyalty program is Payback, launched in 2000.[54][55]HappyDigits[de] and the Shell ClubSmart program are next in size.[55]DeutschlandCard[de] was launched by Arvato in 2008. HappyDigits was disbanded by 2010.
Hungary: SuperShop and Multipoint are their main loyalty programs.
Italy: After the exit of Nectar from the market in 2015, Payback is the most popular loyalty program.[56] Supermarkets Esselunga, Coop and Il Gigante also have loyalty programs.
Latvia: One of the largest loyalty programs in Latvia which is working as an operator for many merchants is Pins.[citation needed] Another is Walmoo
Norway: The largest Norwegian loyalty program is Trumf. Trumf is a "brick and mortar" loyalty program owned by NorgesGruppen, a grocery wholesaling group in Norway.[57] KickBack.no is one of the largest online loyalty programs and cashback sites in Norway. KickBack.no is owned by Schibsted Media Group.
Republic of Ireland: Superquinn introduced its SuperClub loyalty card in 1993, the prototype for Europe. However, loyalty cards did not expand until 1997, when Tesco Ireland introduced its Clubcard scheme, shortly after its purchase of Power Supermarkets. SuperValu introduced their own loyalty club called Real Rewards. Others were:
During the late 1990s—Esso petrol program were: Tiger Miles, Maxol, Texaco and Statoil. Increasing oil prices ended these in 2005.
Game, a major computer game and hardware retailer, which merged with Electronics Boutique's programme.
Rewards From Us To You, a hotel loyalty program
Russia: MALINA, "the largest multicorporate customer loyalty program in Russia,"[58] was launched in 2006 by Loyalty Partners Vostok.[59][60] Another is Mnogo.ru.
Switzerland: Loyalty programs are popular in Switzerland, with the two main supermarket chains, Migros and Coop prominent. The M-Cumulus card can be used at the Migros supermarkets, Ex Libris, SportXX, and other retailers. The Coop Supercard earns points on purchases at Coop and a variety of other associated stores. Other stores such as Interio, a furniture retailer, are also joining the market with loyalty cards and store-based incentivized credit cards. The only coalition loyalty scheme in Switzerland is Bonus Card with a network of over 300 independent retail partners.[61] In recent years, online loyalty programs have also started to target the Swiss. First to make an offering in Switzerland was German-based Webmiles. Claiming to be Switzerland's first online bonus program, Bonuspoints was launched in early 2008 and offers incentives for shopping at 70 different online stores.
Turkey: Pegasus Airlines has a loyalty program called Pegasus Plus which gives rewards for every flight. Passengers can spend reward points as a discount without waiting to cover a full flight. Turkish Airlines has a loyalty program called Miles&Smiles.
United Kingdom: Passcard (later renamed Passkey) was in the early 1980s.[62]Sainsbury'sHomebase Spend and Save Card was another early 1980s loyalty card.[63] A later program, Tesco's ClubCard, was criticized for not offering value for money.[64]The Economist suggested that the real benefit of loyalty cards to UK outlets is the massive marketing research database potential they offer.[65]Morrisons is another program.[66] Many stores have kiosks that, with the cards, print vouchers that can be used at the till. Safeway's ABC Card was discontinued in 2000.[67] Maximiles[68] is an online coalition program.[69] Formerly operated by British Airways, Airmiles was rebranded in 2011 from Airmiles to Avios, with changes that caused members to pay taxes and fees on flights they used for redemption.[70]
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.
The Americas
Brazil
Dotz is a coalition loyalty program in Brazil with over 50 million members[71]
Canada
Aeroplan, a coalition program centered on Air Canada with Apple, Sephora, Uber also participating[2]
The food and beverage industry also has several companies with rewards programs such as Tim Hortons' Tim's Rewards[73]
Scene+, a coalition program with participants include Cineplex-owned cinemas, Scotiabank (for spending using its cards), Sobeys grocery stores, Home Hardware , Expedia, Recipe restaurants and Rakuten Rewards.[2][74]
United States: In the US, loyalty cards have a long history.[75] Some are only online.[76][77][78] Some partner with classic credit cards.[79][80]Frequent-flyer programs and, less commonly SeaMiles[81] co-exist with programs that donate a percentage of sales to a designated charity.[82] Some American retailers either have not implemented these cards, or eliminated them, in favor of discounts for all shoppers.[83] Few states regulate club cards. As an example, supermarkets in California are subject to the Supermarket Club Card Disclosure Act of 1999.[84]
Aeroméxico Rewards, formerly Club Premier, a coalition program with participation of Aeromexico airlines and multiple otherwise unrelated retail chains
Monedero Naranja (lit. "Orange Wallet"), in which Comercial Mexicana's various supermarket brands La Comer, Fresko and City Market, participate[86]
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.[94]
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.[95]
Some companies complain that loyalty programs discount goods to people who are buying goods anyway.[75] Moreover, the expense of participating in these programs rarely generates a good return on investment. The Forte Consultancy Group regards loyalty programs as bribes.[96] 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.[97] 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.[98][99] For some customers, participating in a loyalty program (even with a fake or anonymous card) funds activities that violate privacy.[100] Consumers have also expressed concern about the integration of RFID technology into loyalty-card systems.[101]
One may view loyalty and credit-card reward-plans as modern-day examples of kickbacks.[102]
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,[103]credit-card rewards or loyalty points instead of minimizing costs for their employer.[104]
Sharp, Byron; Sharp, Anne (1997), "Loyalty programs and their impact on repeat-purchase loyalty patterns", International Journal of Research in Marketing, 14 (5): 473–486, doi:10.1016/S0167-8116(97)00022-0
Nesset, Erik; etal. "Building chain loyalty in grocery retailing by means of loyalty programs–A study of 'the Norwegian case'". Journal of Retailing and Consumer Services.
European Central Bank (October 2012). "1"(PDF). Virtual Currency Schemes. Frankfurt am Main: European Central Bank. p.5. ISBN978-92-899-0862-7. Retrieved 5 March 2014.
"Designing Best-in-Class Loyalty Programs – Getting the Benefits Right". White Paper. Forte Consultancy. Retrieved 28 April 2019. Loyalty program benefits are, in their essence, a bribe. In exchange for a set of benefits, a consumer allows the company to give those benefits to track his or her purchasing behavior.
"Discover the Best and Worst Loyalty Programs with Our New Infographic". Weekly Ads and Circulars. Retrieved 3 September 2015. The reality is, not all loyalty rewards programs actually add value. Some programs only exist to draw you in and tempt you away from competitors that could actually offer you a better deal. The worst? It turns out that just about any supermarket chain will offer you nothing but bad deals.
Blau, John (1 March 2004). "Metro Store bows to pressure from anti-RFID activists". InfoWorld. Archived from the original on 12 March 2004. Retrieved 23 November 2007. Ahead of a planned demonstration on Saturday, Metro AG decided to drop the use of RFID tags in customer loyalty cards used at its Extra Future Store supermarket in Rheinberg, Germany, where the retail group is testing several new IT retail technologies, Metro company spokesman Albrecht von Truchsess said Monday.
Compare:
Gup, Benton E. (1990). Bank Fraud: Exposing the Hidden Threat to Financial Institutions. Rolling Meadows, Illinois: Bankers Publishing Company. p.85. ISBN9781555201678. Retrieved 10 January 2021. [...] kickback and credit card schemes that are relatively small by themselves, but collectively qualify as major frauds.
Kowalik, Frank (1991). IRS Humbug: IRS Weapons of Enslavement. Oakland Park, Florida: Universalistic Publishers. p.46. ISBN9780962655203. Retrieved 10 January 2021. Among other terms used for kickbacks are sales incentive, cash back, coupon sales, commissions, and discounts.
