Customer loyalty or reward programs

What are customer loyalty programs?

A customer loyalty program encourages your customers to be loyal by offering incentives for customers to do repeat business with you. There are many different types of customer loyalty programs, and there's no set boundary on what a customer loyalty program can be.

Examples of loyalty programs include:

  • rewarding customers with free or discounted products or services once they've purchased a certain amount from you
  • giving benefits to customers if they join a VIP program
  • sending out discount codes or coupons to your existing customers to entice them to do business with you again
  • running competitions where customers can increase their chances of winning by buying more from you
  • providing customers with added incentives whenever they purchase from you (e.g. pledging to donate money to a charity for every purchase)
  • rewarding customers when they bring new customers to your business.

When setting up a customer loyalty program for your business, you can be as creative as you like in what will work to entice your customer base to be loyal to your business and brand.

Read our page on communicating with your customers online.

Benefits and risks of a customer loyalty program

Having a strong repeat customer base will provide your business with a steady sales income and can help your business build a strong brand and reputation.

There are many benefits, as well as risks involved when implementing a customer loyalty program in your business.

Benefits can include:

  • keeping your existing customers
  • increased sales
  • having more regular sales income to help your business through seasonal downturns throughout the year (e.g. if your business is in a popular tourist location and does well during peak tourist seasons, building a loyal customer base can help your business with sales during low tourist seasons)
  • increased brand recognition for your business
  • better business reputation and positive word of mouth
  • attracting new customers through the program.

Risks can include:

  • the customer rewards program not being effective
  • your business being unable to fulfil the promises of your loyalty program
  • difficulty in keeping track of your customers using the loyalty program
  • fraud and misuse of the loyalty program by customers or staff.
  • loss of profit and business reputation if the program is ineffective.

Tips when implementing a customer loyalty program

Putting a customer loyalty program in place can be as simple as stamping a loyalty card every time a purchase is made. Programs can also be more complicated, involving customer databases and working with partner businesses and sponsors. It's up to you to decide what type of loyalty program is best suited to your business and your customer base.

Here are some tips for implementing a customer loyalty program:

  • Research and understand your customer base so you can work out what types of loyalty programs will work for them. There's no point in making a customer loyalty program that isn't attractive to your customer base.
  • Consider the costs of implementing a customer loyalty program and weigh them up against the potential profits for your business.
  • Make sure your business is prepared. Developing a loyalty program can be a big project, so it's important that everything runs as smoothly as possible when it's launched.
  • Train your staff on the benefits of the loyalty program and how to use and promote it to your customers.
  • Make sure your business is able to deliver what you have promised in your customer loyalty program. This may involve making sure you have enough stock on-hand to cover your promotion. Read our Inventory management topic to help you manage your stock.
  • If you use a Customer Relationship Management (CRM) system, consider linking your loyalty program with your customer database and Point of Sale system. This can be useful in capturing and recording usage of your loyalty program, and tracking its effect on customer sales. This may also help you to give more personalised rewards and offers to your customers based on their past purchases.
  • Monitor the progress of your loyalty program to see whether it's working, and make changes if necessary. Read our page on Measuring customer service for tips on how to evaluate your success.

Legal and compliance issues for customer loyalty programs

There may be some legal and compliance issues depending on the type of customer loyalty program you put in place. These may include:

  • Checking to see if your program has any tax obligations, such as whether you need to charge GST on goods sold to customers through redeemed loyalty points within a program. If unsure, contact the Australian Taxation Office for more information.
  • Making sure you are meeting privacy laws if you are storing customer's personal information.
  • Checking to see if there are any registration or licensing requirements. For example, if you are running a raffle or lottery, you may need to meet certain regulations and register the competition with your state or local government. Check the Australian Business Licence and Information Service (ABLIS) website to find out more.

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