At its core, a loyalty program is a marketing strategy that encourages people to continue buying from a specific company. When consumers join a loyalty program at a specific retailer, they’re incentivized to repeatedly purchase products or services from that retailer.

Why should I consider starting a loyalty program?

Research has shown time and time again that loyalty programs work! According to one researcher, 84% of shoppers are more likely to shop with a company that has some kind of loyalty or reward program over companies that don’t have them. Another study showed that customers who are part of a loyalty program spend up to 57% more than customers who aren’t enrolled in the program. An additional report estimates that a company with a loyalty program can achieve 3.5 times as many transactions as a company without one. So, bottom line, loyalty programs increase revenue for companies. If you haven’t yet considered starting one, you probably should!

What are examples of strategies for loyalty programs?

Not all loyalty programs are equally effective, so it’s important to consider some of the main strategies these programs can utilize before you start one of your own:

1. Cashback – consumers get a small percentage back of what they pay for specific purchases. It’s essentially a small refund returned to the consumer’s account. Cashback can either be redeemed as cash to be used anywhere, or cash that can only be spent with that brand/retailer.
2. Personalized Offers – when retailers track individual user activity (especially through online shopping), they can offer sales or deals on products or services to specific users who would be most interested in them. Another example is offering discounts or freebies around a consumer’s birthday.
3. Points – this is similar to cashback but instead of earning cash, consumers earn points that they can accrue and then spend on additional products or services.
4. Referral bonuses – many retailers offer a certain percentage off if a consumer refers them to someone else. If they do this, consumers are given a unique promo code they can use on a future purchase.

Loyalty programs usually involve several of these strategies.

How specifically do loyalty programs change consumer spending (how do businesses actually benefit)?

Like we mentioned above, loyalty programs increase consumer spending, which is always a benefit to the business. From a marketing perspective, loyalty programs provide positive reinforcement to the consumer every time they make a purchase; this is a powerful motivator for them to continue making purchases. Loyalty programs establish goals for consumers to reach (like when they accrue a certain number of points, then they can get a free gift!), and research shows the closer humans get to achieving a specific goal, the more likely they are to go after it. Loyalty programs can also create a sense of urgency for consumers to get in on a deal or get their hands on a product before other people have access to it. With all of these effects at play, consumer spending is sure to increase, meaning business revenue will increase as well.

How can I start a loyalty program with card-linked offers?

One easy way to start a loyalty program is through creating card-linked offers (CLOs), or rewards that are activated when a user makes purchases with a specific, linked credit or debit card. You can build card-linked offers for a specific merchant almost instantly by using open banking API technology, so that every time a consumer makes a purchase there, they earn rewards. Open banking is a great way to start and run CLOs since it’s fast, inexpensive, and extremely secure.

If you’re interested in starting a loyalty program with card-linked offers, Pentadata can help! Reach out to us today to talk more about how to get your loyalty program up and running.

This is our fourth post answering common questions developers and entrepreneurs have about rewards programs, card-linked offers, and the technology to start one. You can learn about similar topics to loyalty programs in our first three posts here, here, and here.