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Why Loyalty Card Schemes Work and Why Companies Offer Them

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Acquiring a new customer costs seven times as much as retaining one. So it is more profitable for companies to encourage customers to stay loyal by means of loyalty card schemes. Even if they forego some of their profits on the scheme, there is still more money to be made off an existing customer than a new one.

And the interesting thing is that it starts off a cycle of purchases – the more a customer receives by way of loyalty points, the more he/she is enticed to redeem those points in the form of discounts and buy from you further. Because companies make sure that the discount can be applied to only a part of the purchase, there are still more loyalty points to had from the remaining part.

If yours is a company that sells products which are purchased only periodically, say dog food, you could co-brand your loyalty card with a service provider, like a vet or grooming care. This is a great way of ensuring that your customers don’t switch loyalty to other brands/products.

If a particular loyalty program isn’t working, then you need to check if the rewards offered are in tune with your customers’ wants/needs. Out of 29 loyalty schemes that the average American household is enrolled in, only 12 see activity. So sometimes a discount on a visit to the vet might be better than a discount from a pet groomer.

Sometimes, it could be because the points/rewards system is too complicated. In the United Kingdom, you have to spend £76 on Costa coffee to gain £1.95. Caffè Nero, another coffee chain that specializes in Italian coffee, has a simpler rewards system – all you have to do is buy nine cups to get the tenth one free. In other words, you spend £18.45 to gain £2.05.
Loyal customers spend 67% more than new customers.

Cards or digital coupons for loyalty programs?
It can be tempting to go digital. You could simply let the customer know by SMS or email (or both), how many points he/she has earned on the purchase. But the chances are high that the person would forget them after reading it. Because there are several loyalty schemes around, it is hard to remember how many points he/she has at present with your loyalty program. Unless people redeem their points, the loyalty scheme loses its significance.

Cards are better because they don’t have to remember anything. They only have to present their loyalty card at the counter and avail of a discount. This is far easier than fishing out their cellphone, searching for the email that followed their last purchase and telling the cashier the coupon code or the number of points they have accumulated. Getting a discount each time – if he/she is eligible – only makes them more loyal to you.

If the loyalty card is well-designed and made of quality material, like the thick plastic you see with credit cards, your customers are also likely to hang on to them more than ones that don’t cost much in terms of material. This makes it even easier to shop and redeem their loyalty points.