A loyalty program is a marketing strategy designed to encourage customers to continue to shop at or use the services of a business associated with the program.
Today, such programs cover most types of commerce, each having varying features and rewards schemes, including in banking, entertainment, hospitality, retailing and travel.
A loyalty program typically involves the operator of a particular program setting up an account for a customer of a business associated with the scheme, and then issuing to the customer a loyalty card (variously called rewards card, points card, advantage card, club card, or some other name) which may be a plastic or paper card, visually similar to a credit card, that identifies the card holder as a participant in the program.Cards may have a barcode or magstripe to more easily allow for scanning, although some are chip cards or proximity cards.
By presenting a card, customers typically receive either a discount on the current purchase, or an allotment of points that they can use for future purchases. Hence, the card is the visible means of implementing a type of what economists call a two-part tariff. Application forms for cards usually entail agreements by the store concerning customer privacy, typically non-disclosure (by the store) of non-aggregate data about customers. The store uses aggregate data internally (and sometimes externally) as part of its marketing research. Over time the data can reveal, for example, a given customer’s favorite brand of beer, or whether he or she is a vegetarian. Where a customer has provided sufficient identifying information, the loyalty card may also be used to access such information to expedite verification during receipt of cheques or dispensing medical prescription preparations, or for other membership privileges such as access to an airport lounge using a frequent-flyer card. In recent years, businesses now offer these loyalty cards in the form of a loyalty app, which means users are less likely to lose their card.
Loyalty programs have been described as a form of centralized virtual currency, one with unidirectional cash flow, since reward points can be exchanged into a good or service but not into cash.