More than 90% of companies have some sort of loyalty program. All your big brands- Starbucks, Amazon, Sephora, Walmart have one. Even small businesses now implement some form of a loyalty program. Your local spa probably has a point collection system.


Because they bring you good business. 

They encourage your customers to come back to you again and again. They increase your sales.

With new companies entering the market every day, companies need to offer an incentive to their customers to come to them instead of going over to their competitors.  

What is a loyalty card?

Loyalty cards are an incentive aimed at existing customers to encourage them to return for repeat purchases. You are basically rewarding your customers when they are loyal to you, and come back for another visit.

Some incentives businesses can offer are discounts, cash returns, and early-bird incentives. Every time your customer purchases from you, they collect points. These points can later be redeemed to get free stuff. Often loyalty card members are also often privy to special discounts and offers.

Businesses now have three types of loyalty cards:

  • Digital Loyalty Cards
  • Plastic Loyalty Cards
  • Punch Paper Cards

Loyalty cards not only bring your customers into your shop again, they are also a gold mine for customer data. They give businesses valuable insight into their customer’s purchasing behavior. These insights can shape a business’s strategy and improve product and service offerings.

Loyalty Cards FAQ 

If you’re new to the concept of loyalty card, you might be asking yourself these questions:

Why do companies use loyalty cards?

Loyalty cards increase sales. When a customer buys from you, there is a 27% chance they will return back. Loyalty cards stack the odds in the favor the business, by offering them discounts and offer if they continue to come back to your shop. The loyalty card in their phone or wallet is direct advertising, and a constant reminder about your store.

Another reason businesses need a loyalty card is that it offers them free customer insights. All the information customer purchases in stored in a database, and used to further understand the customers and their buying behavior.

Which industries use loyalty cards?

Loyalty cards have become immensely popular in the food, beauty, cosmetic, health, retail, travel, gaming, education, and pet industry.

That being said, loyalty cards can benefit all industries. Companies that wish to attract their existing customers to buy more from them should be setting up their loyalty card program. This being said, all industries benefit from repeat customers which means all industries should develop a loyalty card program. To create an effective one, it is better to tweak the terms according to your psyche of the target customer.

Do Loyalty Cards increase sales?

Yes, Loyalty Cards increase sales. When customers are getting free stuff and discounts, they would prefer to come back to your store instead of going to your competition.

Another way loyalty cards increase sales is when these customers recommend your store to their friends. When customers win points and discounts from your store, it builds a positive relationship between the company and its customers. This positive relationship allows them to encourage their friends and family to visit their store too. 

Are Loyalty Cards Paid?

Some loyalty cards are. One example is Amazon Prime. Members pay an annual fee to become loyal members. When you are charging a fee for your loyalty card, the rewards should be worth your customer’s money.

Do Loyalty Cards Work for small businesses?

Loyalty Cards work for every business that wants to encourage repeat purchases from their existing customers. Don’t wait for your business to get big before setting up your loyalty program.

In fact, small businesses can benefit more from loyalty cards. That’s because they have a limited advertising budget. Getting new clients for their business costs more than bringing back the existing ones.

Do Loyalty Card members spend more?

From what we have analyzed, loyalty card members do spend more. The incentive of getting points and earning free stuff and discounts encourages them to spend more. Also repeat customers are more likely to try new products, and opt for upsells.

Benefits of Loyalty Cards:

loyalty program benefits disadvantages customer satisfaction retention

If you’re a business owner, here’s are some benefits of loyalty cards you will enjoy:

It brings back your customers

75% of customers say they prefer a company that offers rewards. Customers now expect businesses to reward them for their loyalty. They want brands to improve the quality of their lives, and loyalty cards are one of doing that.

Existing Customers Buy More

Your existing customers usually spend 67% more than your new customers. According to Vilfredo Pareto’s 80/20 principle, 80% of a business’s profit come from 20% of its customers. These 20% are your loyal customers who will come back more often when you offer them an incentive. 

When you buy from a business for the first time, you probably do a test run first. You would only buy the items you need. But when you visit your preferred grocery store, you pick up a few extra items also. Your existing customers are also more likely to try new offerings at your store.

Creates Brand Advocates

A good loyalty program creates a positive brand experience with the customer. When they are happy with your company, they will tell their friends and family.

You can also reward your existing customers by offering them rewards for bringing in new customers. With this incentive, your customers will become unpaid marketers.

Increases Sales

When you increase customer retention by 5%, your sales boost by 25-95%. The basic aim of a loyalty program is to increase customer retention and encourage your customers to prefer you over your competition.

Free Customer Insights

Customer Data is important if you want to stay in business for long.

A loyalty card also works as your customer database. You know what products and services are popular. You also find out the peak sales time by reviewing the sales figure.

You can tap into all this without having to invest your company’s resources into customer research. And when used right, customer insights can become the basis of an excellent growth strategy.

Improved Customer Communication

When customers sign up for your loyalty cards, you get their email addresses and contact number. Businesses can use this to create a customer database for their marketing emails and messages. They now have a direct line to their loyal customers to inform them about new products and deals.

Disadvantages of Loyalty Cards

Loyalty cards also come with their own challenges:

Everyone has a loyalty card

More than 90% of the companies have now set up loyalty cards for their customers. And most of these are almost identical. They offer the same rewards. This wears out the novelty of owning a loyalty card.

This actually offers a great opportunity for businesses to create a loyalty program that sets them apart from their competition. Review those customer insights to have a better pulse on your customers and how they want to be rewarded.

Your Truly Loyal Customers Get Lost in the crowd

 A repeat customer is not necessarily a new customer. A loyal customer is someone who will keep coming back even without a loyalty card. And these people increase sales for your company not just through their purchases, but also by roping in their friends and family by recommending your business.

With your typical loyalty cards, these customers are treated the same way as any other repeat customer. To reward these loyal advocates, a good loyalty program incorporates more than one element in its reward system. Customers don’t just get rewarded for purchases, but also for additional interactions with the brand such as referring a friend, or writing a review. 

Loyalty Cards Add Checkout Time  

One drawback of customer loyalty cards is that it takes time to sign up for loyalty cards. It also increases the checkout time when customers present and get the purchase information added to the card.

One way to deal with this is to make allow customers to sign up for the card online. For this, companies need to set up digital loyalty cards.

Spamming and Privacy

To sign up for loyalty cards, customers have to give their contact details and other information to the company. With spamming and cybercrime a major concern for customers nowadays, they are sometimes reluctant to offer their details.

Companies need to install good data security in their business. This not only protects customer data but also their own data. Also, companies need to review their marketing policies to make sure they comply with the anti-spamming laws put in place by the government. These should subsequently be communicated to customers. 

5 Innovative Loyalty Cards To Copy From

A good loyalty program is one that offers more than just reward points to its customers. A good loyalty program has multiple tiers that truly understand and reward their customer psyche.

Amazon Prime

customer loyalty pros cons loyalty program examples amazon prime membership

Amazon has also been a pioneer in interesting business strategies, and their loyalty program Amazon Prime is also one of them.

Customers pay to become Amazon Prime Members, even though traditionally loyalty cards are free to subscribe. But the benefits offered by Amazon’s loyalty cards are worth it. Members can avail Prime day sale discounts, free two-day express shipping, and access to Prime TV.

When it comes to online shopping, most customers don’t want to wait for 5-7 days to receive their parcel. Offering them free shipping within two days is a no-brainer for most Amazon shoppers. Plus, exclusive discounts are another great incentive for bargain savvy online shoppers.

When developing their loyalty program, Amazon tried to understand their loyal customers and made a program that truly sparks loyalty amongst users.

Starbucks Rewards

customer loyalty pros cons starbucks rewards loyalty examples pros cons

Traditionally coffee shop offers a punch loyalty card where they earn one cup of free coffee after purchase of every 7 cups. When Starbucks launched their loyalty card, they launched a digital one through the Starbucks app.

 With Starbucks Rewards App, customers can pay through the app. They also earn extra stars (rewards) that they can use to get free products. Other rewards customers can benefit from are birthday treats, coffee refills, and also earn double points on double star days.

Starbucks also added a fun element to their reward system by offering customers to win exclusive prizes, free food, and drink by playing games on the app.

Starbucks also uses its loyalty cards to dig into its customer’s psyche.  They keep track of popular seasonal drinks, frequently visited locations, customer lifetime value, and more to better serve their loyal customer base.


sephora world of benefits customer loyalty programs advantages disadvantages

Sephora is known for its loyalty program. Sephora has 25 million loyalty card owners. These 25 million users make up 80% of the company’s annual sales.

This statistic alone should be able to convince you to set up your loyalty cards.

So, what makes Sephora’s Loyalty Cards so great?

The discounts.

As a member, you can get discounts on your preferred beauty products. Even when they aren’t on sale! And those products don’t come cheap so discounts are very appreciated. 

Bank of America Preferred Rewards Program

bank of america customer loyalty programs advantages disadvantages

Bank of America’s Preferred Rewards Program offers its loyal customers cashback rewards when their customers use their debit and credit cards at retailers, retailers, and other companies. Customers also have the option to spend this cash on the business; you can also supply employees with business credit cards with ein only and avoid affecting personal credit.


nike digital loyalty program customer loyalty programs advantages disadvantages

Nike is a global brand. The company has been innovative in many of these business approaches. Nike has developed their own app, The Nike Run Club where members earn rewards for completing their fitness milestone.

Why does this work?

Most of Nike’s customers lead an active lifestyle. With this app, they are motivated to complete their milestones AND earn rewards points at the same time.

Elements of a Good Loyalty Program

Ready to create your own loyalty program?

  1. Know Your Audience

When you understand your audience, you will know what incentives will work for them. For example, Nike created a program that resonates with its fitness-oriented audience.

  1. Create Your Incentive

A good loyalty program offers more than just one form of reward. Your loyal customers should be able to use their rewards as they want.

  1. Reward Loyalty

One drawback of loyalty cards is that consumers only sign up for them for the rewards. They probably have your loyalty card in their wallet along with your competitors and use both frequently.

A good loyalty card should ideally discourage your loyal customers from choosing your competition over you. To reward loyalty, businesses need to understand their audience and offer the right incentives.

  1. Use Technology

Digital loyalty programs make it easier for companies to extract consumer data. This consumer data is gold. If you’re not using a loyalty program to gather information about your customer’s purchase patterns, you are missing out on a key business strategy element.

Technology also makes it easier to keep track of the points and offers a variety of rewards to the customers.

Ready to start your own loyalty card program? We can help you set up a loyalty program that rewards, reaches, and retains your existing customers. Sign up for free at our website.

Ayesha M

Posted by Ayesha M

Ayesha Umair is a freelance communication designer. She has her own digital marketing setup, The Social Citrus helping small and mid-sized businesses make the most of their marketing budget.