What are loyalty schemes? (2/2)

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September 6, 2023

What are loyalty schemes for merchants?

Attention all shop owners! Are you looking for a way to increase customer loyalty and drive more sales? Introducing a loyalty program could be just what your business needs.

In this blog post, we'll explore the many benefits of loyalty programs, including increased customer loyalty, increased customer spending, improved customer data, and a competitive advantage in the marketplace. But that's not all – we'll also give you insider tips on how to create a successful loyalty program that will keep your customers coming back for more.

Do you want to know the secret to keeping your customers loyal? Are you curious about how you can use customer data to improve your business? Keep reading to find out!

Loyalty schemes 101

Loyalty schemes are programs that reward customers for their repeat purchases or loyalty to your brand. Essentially, your customers earn points or rewards for every purchase they make, which can then be redeemed for discounts, free products, or exclusive promotions.

Not only do loyalty schemes provide valuable incentives for your customers to keep shopping with your business, they also offer numerous benefits for you as a business owner. Loyalty schemes can drive repeat business, increase customer loyalty, and provide valuable customer data and insights.

Let's dive into a couple of real-life examples to see how loyalty schemes work:

  1. Coffee shops: Many coffee shops have loyalty programs that reward customers with a free drink after a certain number of purchases. For example, after 10 coffee purchases, the customer may receive a free latte. This incentivises customers to continue buying coffee at your shop, and also gives them a reward for their loyalty.
  2. Independent stores: As an independent store owner, like a bookstore or boutique, you can offer a loyalty program that offers a discount on future purchases. For example, after spending a certain amount of money, the customer may receive 10% off their next purchase. This not only rewards the customer for their loyalty, but also incentivizes them to continue shopping with you.

So, are you ready to reward your customers and drive repeat business? Consider implementing a loyalty scheme for your business and watch your customer loyalty soar!

How do loyalty schemes work?

Let's take a closer look at the economics behind loyalty schemes and how they drive customer behaviour:

  1. The psychology of reward: People love to feel valued and rewarded for their actions. Loyalty schemes tap into this psychology by offering tangible rewards for repeat purchases. This creates a positive association with your brand and incentivises customers to continue shopping with you. You can read more about the psychology of reward in this academic article.
  2. Increased customer spending: Studies have shown that customers who participate in loyalty programs tend to spend more money than those who don't. This is because they feel a sense of loyalty to your brand and want to take advantage of the rewards they've earned. Check out this research study for more information.
  3. Repeat business: Loyalty schemes encourage customers to keep coming back to your business to make purchases and earn rewards. This leads to increased repeat business and a stronger, more loyal customer base. Learn more about the impact of loyalty programs on repeat business in this academic article.

The evidence: why are loyalty schemes important?

Here are a few academic studies that discuss the effectiveness of loyalty programs compared to other types of marketing mechanisms:

  1. The Impact of Loyalty Programs on Customer Behavior: An Integrative Framework and Research Propositions by Jacob Hornuf and V. Kumar (https://www.sciencedirect.com/science/article/pii/S1048984313000384)
  2. The Effect of Loyalty Programs on Customer Retention and Loyalty: An Empirical Study by Arne De Keyser, Toon W. Taris and Mark J.P.F. Neerincx (https://link.springer.com/article/10.1023/A:1019898715657)
  3. The impact of loyalty programs on customer retention: A comparative study between traditional and online retailing by Samaneh Abolhassani and Hamid R. Odabaee (https://www.sciencedirect.com/science/article/pii/S0959399613001352)
  4. The effect of loyalty programs on customer retention: A meta-analytic review by Jeong-Eun Rhee and Moon-Gi Suh (https://www.sciencedirect.com/science/article/pii/S1042441018300281)

These studies provide evidence that loyalty programs can be a more effective way of retaining customers and increasing customer spending compared to discounts, online marketing, and affiliate schemes.