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Why Companies Offer Loyalty or Reward Schemes

By: Christine Whitfield BA (hons) - Updated: 26 Sep 2012 | comments*Discuss
Loyalty Scheme Card Provider Consumer

While many loyalty schemes are good for the consumer we all know we don’t get anything for nothing in this world. Obviously there is something in it for the providers too. But what?

By there name it is clear loyalty schemes are in theory provided to loyal customers. They are designed to reward customers who are loyal to the provider be it a store, hotel or airline. In doing so the provider hopes the customer will be encouraged to return.

Obviously the type of scheme affects what the reward for the provider will be.

How Do Store Cards Benefit Providers?

With store cards the benefit for providers is the interest the consumer pays on the card and the fact that the ability to pay on card means the customer may be more likely to shop at the store. The interest on these cards is often quite high so the provider can earn some extra money on the purchase. Store cards are extremely popular as buying on credit is very much in fashion these days with the ‘buy now pay later’ culture that the UK finds itself in today.

How Do Loyalty Cards Benefit Providers?

Loyalty cards are very beneficial to consumers as they are provided with points which they can then use as credit in that store. The points are collected each time a purchase is made. Often there are deals on offer which enable the customer to earn maximum points. Loyalty card holders in some shops are automatically entitled to collecting a free magazine advertising the stores products and offering values which offer double or treble points on some products.

Therefore when a product on sale is advertised as providing 100 points the voucher will enable the customer to collect 200 or 300 points. These points are effectively credit in the store. Many consumers will save the points until Christmas or specific time such as before a holiday etc and use them then. For the provider the benefit is the consumer is likely to return to the store on a regular basis in an attempt to either collect points or spend points they have already collected.

How Do Airmiles & Hotel Loyalty Schemes Benefit Providers?

With air miles and hotel loyalty schemes the premise is more or less the same as with store loyalty schemes. The provider hopes that by providing ‘free’ flights or hotel stays the consumer is encouraged to continue using that air line or hotel chain.

Consumers should bear in mind the old adage that ‘you get nothing for free’ and be aware of any scheme they sign up for. It is obvious the provider is providing the schemes as much for their own benefit as the consumer’s however in most cases there are clear benefits to the consumer and, a lot of the time, at little or no cost to them. Take advantage of the free schemes on offer but check with the provider to be sure you are not losing out in any way.

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