What are loyalty and rewards programmes?

Loyalty and rewards programmes are initiatives designed to enhance the shopping experience with benefits such as exclusive discounts, special promotions, or reward points based on purchases.¹ These programmes foster customer loyalty by rewarding frequent visits and purchases.

This article includes tips, suggestions and general information. We recommend that you always do your own research and consider getting independent tax, financial and legal advice before making any important decision.

Over time, customer loyalty programmes have evolved from basic stamp cards to modern digital platforms.² Understanding how loyalty programmes work, and the benefits they offer, can help shoppers make the most of their purchases and enjoy exclusive rewards. This article explains the ins and outs of loyalty and rewards programmes and how best to use them.

How do loyalty programmes work?

Loyalty programmes exist widely across various industries, each tailored to enhance the customer experience in specific ways and help individuals increase savings while they shop.

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To get started with a loyalty programme, individuals simply sign up, providing their details to personalise rewards and track preferences.

However, there are advantages and disadvantages of loyalty programmes that should be known before joining one.³ Here's a more in-depth look.

Advantages of loyalty programmes

• Rewards and savings. Loyalty programmes offer discounts, freebies, and exclusive deals that save can money.

• Personalised experience. Customers receive tailored offers based on their preferences and purchase history.

• Recognition and appreciation. Regular patrons feel valued and appreciated for their loyalty.

• Incentive to return. Loyalty programmes encourage repeat visits or purchases to earn rewards.

Disadvantages of loyalty programmes

• Complexity and confusion. Some programmes have complicated rules or unclear benefits, making them challenging to understand and use effectively.

• Privacy concerns. Individuals may worry about how their data is collected, used, and protected.⁴

• Overconsumption. Loyalty programmes might encourage unnecessary spending to earn points or rewards.

• Lack of value. Rewards may not always be worthwhile or relevant to individual needs or preferences.

Where you may encounter loyalty programmes

Here are some examples of where loyalty programmes can be found:

• Stores. Many stores implement retail loyalty programmes to reward shoppers with discounts and exclusive offers.

• Airlines. Some of the best airline loyalty programmes provide frequent flyers with benefits such as priority boarding and complimentary upgrades.⁵

• Credit cards. Credit cards often include rewards programmes that allow users to accumulate points or cash back on their purchases. Subject to issuer’s applicable reward program terms and conditions.

• Hotels. Top hotel loyalty programmes offer benefits such as free nights, room upgrades, and exclusive amenities for regular guests.

• Supermarkets. Supermarkets also utilise these programmes, offering loyalty cards that provide savings on groceries and other essentials.

Some customer reward plans operate as coalition programmes, bringing together multiple brands to offer broader benefits and rewards.⁶ These programmes allow individuals to pay with rewards accumulated across various retailers, enhancing the value of their purchases.*

Loyalty programmes can also be found in e-commerce platforms, providing incentives for those who enjoy doing their shopping online.

Types of rewards offered by loyalty programmes

Loyalty programmes offer various reward structures designed to enhance the shopper experience and encourage repeat visits. Here are some examples:

• Points systems. Earn points for each purchase that can be redeemed for various rewards.

• Tiered memberships. Achieve different levels to unlock increasing benefits and special perks.

• Exclusive discounts. Receive special savings on products or services.

• Buying with credits. Use credits accumulated through previous transactions to make additional purchases.

These diverse reward structures help you understand that loyalty programmes cater to different preferences and needs, providing flexibility and added value for shoppers.

Things to consider before joining a loyalty programme

Understanding what makes a good loyalty programme involves weighing the benefits against potential costs and ensuring transparency in terms of value and security. Before joining a loyalty programme, consider several factors concerning user needs and expectations⁷:

• Review terms and conditions. Carefully examine how rewards are earned and redeemed, including the specifics of points accumulation for gift cards.
• Assess value and alignment. Evaluate whether the rewards offered align with spending habits and provide ongoing value over time.
• Privacy concerns. Be mindful of data collection practices and ensure your information is handled securely to shop safely.

These considerations not only help determine if a loyalty programme is effective but helps to align it with individual preferences and privacy concerns.