A loyalty card program is an incentive plan that allows a retail business to

gather data about its customers. Customers are offered product discounts, coupons,
points toward merchandise or some other reward in exchange for their voluntary
participation in the program. A secondary goal of a loyalty card program is to build
repeat business by offering participating customers something that isn't available to
non-participating customers.
Loyalty cards often resemble plastic credit cards but they can also be keychain fobs
or stickers. Typically a loyalty card has a barcode or magnetic stripe that's scanned at
the point of sale (POS). The card identifies the customer and sends information
about what the customer bought to a database. The information in the database is
used to help the retailer understand and influence his customers' buying habits.

Points
It may sound pretty boring and vanilla, but the tried-and-true point accumulation system is
ubiquitous for a reason – it works. Consumers have been accustomed to earning reward points
for their purchasing behavior for decades now, and concept familiarity should not be
overlooked when instituting your own loyalty program. Not only will new subscribers be
instantly comfortable with your program, but a points system allows for a staggering amount of
variety.

Some points programs are straightforward, such as Best Buy’s Reward Zone program which
earns 1 point for every $1 spent, while some are a bit more byzantine and assign higher point
values for each dollar spent or visit to the store.

There have been studies that show higher point values may be directly correlated to increased
customer spending (earning 10 points instead of 1 for each dollar, but making the rewards cost
10 times as many points to redeem), but what matters most is an easy redemption process and
the prizes available.

Another aspect to consider adding to your points system is artificial advancement. For example,
say your pizza restaurant wants to start offering free pies to loyal customers – after crunching
the numbers, you find that after four small pizzas purchased at the full price, it makes fiscal
sense to give away a fifth one for free. Each pizza equals one point, and a free pie is earned for
every four points. You could start new members of your reward program off with a points card
with a zero balance on it… OR, you could offer them a card that requires five points for a free
pizza, but you’re going to be awesomely generous and put their first point on there for free, on
the house. In each example, the customer will have to buy four small pizzas in order to earn a
free one, but numerous studies have proven that customers in the second group are much
more likely to actually earn that free pie.

It’s a psychological aspect of feeling closer toward completion – they are already 20% of the
way to their goal when they start, versus 0% when starting out at 0/4. Plus, when the second
group earns their first free pizza, they’ll have to buy five again, not four, to earn a second free
pie, meaning more revenue for your business.

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