What are Loyalty Programs?

Loyalty programs are structured loyalty marketing efforts that reward, and therefore encourage, loyal buying behavior — behavior that is potentially beneficial to the firm. In loyalty marketing generally and in loyalty retailing more specifically, a loyalty card, rewards card, points card, advantage card, or club card is a plastic or paper card, visually similar to a credit card or debit card, that identifies the card holder as a member in a loyalty program.[2] Loyalty cards are a system of the loyalty business model. In the United Kingdom, it is typically called a loyalty card, in Canada a rewards card or a points card, and in the United States either a discount card, a club card or a rewards card. Cards typically have a barcode or magstripe that can be easily scanned, and some are even chip cards. Small keying cards (also known as keytags) that serve as key fobs are often used for convenience in carrying and ease of access.

A retail establishment or a retail group may issue a loyalty card to a consumer who can then use it as a form of identification when dealing with that retailer. By presenting the card, the purchaser is typically entitled to either a discount on the current purchase, or an allotment of points that can be used for future purchases. Hence, the card is the visible means of implementing a type of what economists call a two-part tariff.

The card issuer requests or requires customers seeking the issuance of a loyalty card to provide a usually minimal amount of identifying or demographic data, such as name and address. Application forms usually entail agreements by the store concerning customer privacy, typically non-disclosure (by the store) of non-aggregate data about customers. The store — one might expect — uses aggregate data internally (and sometimes externally) as part of its marketing research. These cards can be used to determine, for example, a given customer’s favorite brand of beer, or whether he or she is a vegetarian.

Where a customer has provided sufficient identifying information, the loyalty card may also be used to access such information to expedite verification during receipt of cheques or dispensing of medical prescription preparations, or for other membership privileges (e.g., access to a club lounge in airports, using a frequent flyer card).

Loyalty programs are predominantly run by retailers and the service industry, but recent advances in proof of purchase systems and supporting technology is now increasing participation by manufacturers of consumer products.



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