Advantages & disadvantages of loyalty cards

Loyalty cards are promotional marketing tools used by many businesses across several industries. Businesses usually distribute them in stores, online or through the mail. The main purpose of loyalty cards is to encourage repeat purchases from new or existing customers. There are several advantages to establishing a loyalty card program. Potential disadvantages also can damage business profits if the business does not develop the program properly.

Loyalty card programs can help retain customers, increase traffic and improve sales. Exclusive deals, discounts and incentives attract customers. Loyalty card incentives improve customer service and relationships with customers.

If a company requires registration to distribute a loyalty card, it can collect data that will help drive effective marketing strategies. Keeping records of past purchases can help design better promotions and advertising campaigns. For example, offering an instant discount to loyalty card holders can encourage customers to register or make frequent purchases. In return, the contact information can be used to advertise directly with customers who are more likely to buy.

Reduced advertising costs and increased return on investment (ROI) on marketing campaigns are two main business growth advantages. Loyalty cards can attract customers to a business and away from the competition. They also can improve customer lifetime value--the amount a customer spends during the lifetime of their relationship with the business--toward consistent business growth.

Loyalty cards potentially endanger business growth if a company does not develop the correct strategy. Excessive advertisements can be a turn-off and may be disregarded as junk advertisements. Furthermore, customers may feel offended if they are uncomfortable sharing sensitive information in order to get the incentives of the program.

Overuse of the loyalty card program causes other marketing campaigns to lose effect. Difficulties arise in attracting more customers willing to purchase at regular prices. As a result, customers may refuse make purchases unless there is a reduced price or other incentive. If the average customer chooses this behaviour, the business can suffer a reduction in long-term and short-term profits.

When used ineffectively, loyalty card programs actually can reduce the value of the product or service offered because customers can make assumptions about the value of brands based on the price.