What is a loyalty programme?
How does a loyalty programme work?
A customer signs up. They earn points, reach tiers or earn perks as they buy. Rewards can be money off, free delivery, early access or similar.
The goal is more repeat purchases. A programme can be simple or elaborate. The question is the same either way: did it change what customers do?
Why do member numbers flatter the programme?
Members often buy more than non-members. That comparison is easy to put on a dashboard. It does not prove the programme caused it.
People who already buy often tend to be the ones who join. Their habits were there before the points. This is a selection effect: you are comparing keen customers with everyone else.
So the useful comparison is not members against non-members. It is members against similar customers who did not join. That is the same question incrementality asks: what would have happened without it?
How can you measure it?
- Compare like with like. Match members to non-members with similar purchase history before the programme started.
- Hold some out. Where it is practical, leave a comparable group without the programme or an offer and compare results.
- Count the cost. Rewards are a cost, paid in margin. A reward that gives a discount to someone who would have paid full price is money lost.
The numbers to watch are repeat purchase rate and LTV (customer lifetime value, what a customer is worth over time), both compared against a control and net of what the rewards cost.
Discounts raise the same question. Read loyalty programme vs discounts: who would have bought anyway.
A loyalty programme usually means collecting customer data and sending marketing. Which consent and privacy rules apply: your counsel decides.
Worked example
Easily confused with
Loyalty programme vs A discount
A one-off price cut. A programme rewards a pattern over time.
Loyalty programme vs Discount rate
In ecommerce, how much a price was cut as a share of the original price. In finance, the same words mean something else.
Loyalty programme vs Retention
The wider aim of keeping customers buying. A programme is one tool for it. For the bigger picture, read customer retention strategy for ecommerce.
FAQ
Does a loyalty programme increase repeat purchases?
It can, but members were more loyal to begin with. Only a comparison with similar non-members shows what it added.
Is a loyalty programme worth the cost?
It depends on what it adds in margin after rewards. That is a number to measure, not assume.
Let’s find what’s actually working.
Next step. A loyalty programme is a retention decision first. See our retention and CRM service.