Industry Terms: Loyalty Program

June 26, 2012

This is the latest installment in The Official Merchant Services Blog’s Knowledge Base effort. Well we want to make the payment processing industry’s terms and buzzwords clear. We want to remove any and all confusion merchants might have about how the industry works. Host Merchant Services promises: the company delivers personal service and clarity. So we’re going to take some time to explain how everything works. This ongoing series is where we define industry related terms and slowly build up a knowledge base and as we get more and more of these completed, we’ll collect them in our resource archive for quick and easy access. Today’s term is Loyalty Program.

Loyalty Program

A Loyalty Program is an e-commerce and channel partner term that is used to describe a program that rewards customers for making purchases from the same vendor or company. Loyalty programs may offer prizes, reward points, future discounts and other incentives designed to keep customers coming back and doing repeat business with you. Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behavior.

Loyalty Programs utilize the same common item to make the program work — a card. The type of card varies in name — called any number of things such as a loyalty card, rewards card, points card, advantage card, or club card — but the characteristics are all the same. It is a plastic or paper card, visually similar to a credit card or debit card, that identifies the card holder as a member in a loyalty program. These cards typically have a barcode or magstripe that can be easily scanned, and some are even chip cards. Small keyringcards (also known as keytags) which serve as key fobs are often used for convenience in carrying and ease of access.

The way the system works is by presenting the card, the purchaser is typically entitled to either a discount on the current purchase, or an allotment of points that can be used for future purchases. Hence, the card is the visible means of prompting return business.

Where a customer has provided extensive identifying information in the application process, the loyalty card may also be used by the company running the program to access customer data and trends in order to expedite verification during the receipt of membership privileges — such as the receipt of cheques or dispensing of medical prescriptions, access to a club lounge in airports, using a frequent flyer card, etc.

Recently there has been a move away from traditional magnetic card, stamp or punchcard based schemes to online loyalty programs. While these schemes vary, the common element is a push toward eradication of a traditional card, in favour of an electronic equivalent. The popular choice of medium is often a QR code.

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