Being rewarded for spending money is great. Grab a coffee from the same place every day? Why shouldn’t you get a free one for being a loyal customer?! But should businesses be changing the way loyalty rewards are offered to their customers? Cards take up space and are easily misplaced, with the evolution of smart phones, surely digital is the next obvious step…

What is the purpose of a loyalty reward scheme?

There are multiple reasons for loyalty reward schemes, reasons to benefit the customer and the business.

Business owners have multiple objectives to help keep their business growing, some of which are achievable with the help of loyalty schemes. They want to collect data, so they can monitor spending behaviour and tailor offers to their different audience types. They want repeat business, and new business but this can cost money! By offering rewards, they are encouraging their consumers to spend. Businesses want to promote their brand and get people talking, a loyalty scheme is a great way to get business advocates.

Customers want to get the best deals and be recognised for being a loyal consumer. Being recommended products based on previous spending is also beneficial for the customer, especially if it means money off things you actually want! Boots are a great example of a company doing this, they send their loyalty card holders, vouchers which are tailored to them personally every few months.

Let’s explore the different types…

  • Collecting points – Companies like Papa John’s offer their customers the opportunity to collect points with every purchase. Every time a loyalty card holder spends with them they are earning points, which will result in money off!
  • Collecting stamps – This is very common in coffee shops. Customers can collect a stamp for every hot drink they purchase, once they have a card full of stamps they can exchange the card for a free drink.
  • Memberships – Some offer the opportunity for customers to enrol onto their loyalty scheme, which immediately unlocks special member rewards that are not available to non-members. This encourages customers to become part of the elite and exclusive, no one wants to miss out!
  • A tiered system – Over time loyalty customers can collect points that add up and reach a point where you enter the next tier. This can be silver, gold, platinum or any other variation. Tiered systems are great because they bring out competitiveness, people want to reach that next stage.
  • Fee based – Amazon Prime is a great example of this, Amazon charge an upfront fee for a range of benefits.
  • Instant money rewards – What’s better than discounts? Instant discounts! Exclusive members are offered discounts that they can use immediately, encouraging the customer to use the offer as soon as possible.
  • Cashback rewards – A lot of loyalty rewards come in the form of cashback, the customer spends before they can earn a reward, simple!

What makes customers loyal?

There is psychology behind all of these approaches. Do you ever write a list of things to do and include a few things you’ve already done?… Well if you have you’ll know it’s because it makes that list seem more achievable!

When collecting stamps or points, our minds work exactly the same. When customers are given a reward card with a couple of stamps right off the bat, a sense of achievement is already present and they are more motivated to reach the goal.

Memberships hold the connotations of being part of something, or being in on the secret to the best deal. A tiered system and fee based rewards work the same, customers feel confident that they must be getting the best deal as they are investing in the business.

Instant money rewards and cashback rewards, fulfil instant gratification. People want to see results fast and these schemes give the consumer exactly that.

So, should the cards be ditched for digital?

There are benefits to loyalty cards and apps, which is more favourable will most likely depend on each business’ target audience. For the older generations, who may be more inclined to steer away from technology it may be more practical to stick with cards and vouchers. But as the push to be greener and more environmentally friendly persists – is digital the way forward? Cafe Nero and Greggs have opted to keep both schemes in place to appease both sides of the coin.

Starbucks, have a rewards app which allows members to collect points and pay for purchases with their phone. The app also supports the evolution of wearable solutions. Customers are able to use their Apple Watch app to pay for their daily coffee to keep in that gold tier! So even if you’ve lost your wallet and phone you can still buy a cup of coffee – how convenient!

The evolution of loyalty schemes seems to be growing towards a more digital solution, or a mixture of both. As a customer, a digital solution is far more appealing, there’s less room for error. That stamp for drink number 9 didn’t print clearly enough and now you can’t earn your free drink?! This wouldn’t be a problem with an app. Your purse or wallet is overflowing with annoying bits of card? Not with an app! Anonymity is also nearly impossible, rewards are linked to personal accounts, meaning businesses can track spending per consumer – great for the business and customer.

So if you’re thinking about starting a loyalty reward scheme for your business, take the time to research the different types and consider which will be best; paper, digital or a hybrid of both?