What a loyalty scheme actually returns
A loyalty scheme is not a marketing idea. It is an arithmetic one, and the arithmetic is simple enough to do on the back of a receipt before you spend anything on it.
Every scheme gives something away. The only question that matters is whether the behaviour it buys is worth more than the thing it gives. Most schemes are set up without anybody working that out, which is why so many of them quietly cost money and get blamed on the customers.
The only sum worth doing first
Take the reward. A free coffee on the tenth, say, costing you a pound in beans and milk. Now ask how many of the people collecting stamps would have come ten times anyway. If the honest answer is most of them, you have given a pound to someone who was already coming, and the scheme is a discount with extra steps.
The scheme earns its money on the margin: the people who come an eleventh time, or who choose you over the place across the road because they have four stamps with you and none with them. That margin is real, and it is smaller than the brochure suggests.
What actually changes behaviour
- Being close to the reward. Someone on eight of ten behaves differently from someone on one of ten. Starting people part way along, with two stamps for signing up, works better than a longer card from zero, which is a well-replicated finding and matches what we see in the data on client schemes.
- A reward they actually want. Ten per cent off a future order is weaker than a free side, because the free side is a thing and the ten per cent is a feeling.
- Being able to see the balance without asking. A paper card in a wallet is forgotten. A balance on their phone, or on the till screen when their number is typed in, is remembered.
What it returns besides the extra visit
The part nobody mentions is the list. A scheme that works gives you names, order histories and permission to contact people, which is worth more over a year than the extra visits are. A quiet Tuesday with a message to two hundred regulars is a lever you cannot pull without that list.
It also tells you who has stopped coming. A regular who has not ordered in six weeks is the cheapest customer you will ever win back, and you cannot spot them without a record.
When not to bother
When the repeat rate is already high and capacity is the limit. Rewarding people for queuing is not a strategy.
When it means a second card and a second app. If it does not live in the system that takes the order, staff will stop offering it inside a fortnight.
The practical version is a scheme built into the ordering and the till so the stamp happens without anybody remembering to do it, which is how we build them on ecommerce and online ordering and EPOS and till systems.