Rewarding regular customers is one of the oldest ideas in marketing. A coffee card with a free tenth cup is a loyalty program. So is a members’ discount at a garden centre or a points system on an online store. Run well, these programs give people another reason to come back.
Run badly, they can annoy the very customers you want to keep. Confusing rules, points that vanish and terms that change without warning all cause trouble. This guide covers how to set up a simple program, keep it fair and stay on the right side of Australian consumer law.
Decide what the program is for
Start with the result you want. You might want existing customers to visit more often, spend a little more each time or try a different product. Each aim suggests a different reward. A café chasing more frequent visits might use a stamp card, while an online shop chasing bigger orders might reward spend.
Keep the aim measurable. Note how often regular customers buy now and what they spend on average. Then you can compare those figures after a few months. The same key performance indicators for digital marketing you use elsewhere can help here, such as repeat purchase rate and average order value.
Pick a reward structure that is easy to understand
Simple programs tend to suit small businesses best. Customers should be able to explain the deal to a friend in one sentence. If they need to read a page of rules first, many will not bother. Staff also need to explain it quickly at the counter. Common structures include:
- Stamp or punch cards, such as buy nine coffees and get the tenth free
- Points for each dollar spent, swapped for a discount or gift later
- Member pricing or a members’ offer each month
- A birthday reward or a thank you after a set number of visits
- Tiers that add extra benefits as customers spend more
Whatever you choose, make the reward worth having. A reward that takes a year to reach will feel out of reach for most people. Work out what you can afford to give away and still make a profit. There are more ideas in this piece on effective incentives for your audience.
Write clear terms and conditions
Every loyalty program needs written terms. They should explain how customers join, how rewards are earned, what they can be swapped for and when they expire. Keep the language plain and put the key points where people will see them. Hidden or vague rules are where most complaints start.
The Australian Competition and Consumer Commission (ACCC) reviewed customer loyalty schemes and released a final report in December 2019. Its media release on customer loyalty schemes called on schemes to better inform consumers about how they operate. It also recommended more prominent alerts about expiring points, such as in email subject lines. The review looked at well known schemes such as frequent flyer and supermarket programs, but the same habits suit a small business.
Be careful about changing the rules later
Most programs change over time. You might want to raise the points needed for a reward or drop a reward that costs too much. Doing this suddenly can upset members who have been saving up. Give plenty of notice and consider letting people use existing points under the old rules first.
The ACCC describes standard form contracts as terms largely imposed on a take it or leave it basis, which is how many loyalty terms are offered. The ACCC’s guidance on unfair contract terms explains the rules under the Australian Consumer Law. For standard form contracts with consumers and small businesses made or renewed on or after 9 November 2023, businesses must not propose, use or rely on unfair terms. Courts can now impose substantial penalties on businesses that include them. The ACCC also suggests that if a business needs flexibility to change its product or service, the contract should let customers exit without penalty.
Handle customer information with care
Many programs collect names, contact details and purchase history. That information is valuable, so only collect what you need to run the program. The ACCC’s 2019 release raised concerns about vague privacy policies that seek broad consents over how data is collected, used and disclosed. Tell members plainly what you collect and why.
The same release warned that profiling and sharing consumer insights with third parties could lead to different prices for an identical product. It described this as an emerging risk of real consumer harm. A small business can stay clear of these concerns by keeping data use simple and not passing it on. Privacy law may also apply to your business, so check your obligations before you launch.
Use the program to stay in touch
A loyalty program gives you a reason to contact customers who have chosen to hear from you. A short monthly message about their points balance or a members’ offer keeps the business in mind. It is also a natural way of boosting your subscriber list with people who already buy from you. Every marketing message should include an easy way to unsubscribe.
You can promote the program through paid channels as well. A search ad that mentions a members’ discount can stand out from competitors. If you run paid search, this guide on how to create your Google AdWords campaign effectively covers the basics. Just check that any offer in the ad matches the program terms exactly.
Review the results
Give the program a few months before judging it. Then compare repeat visits and average spend with the figures you noted at the start. Look at how many rewards are being claimed and what they cost you. If few people claim rewards, the target may be set too high.
Ask members what they think as well. A few quick questions at the counter or in an email can tell you more than the numbers alone. Adjust one thing at a time so you can see what made the difference. When you do change the rules, give members fair notice.
Frequently asked questions
Do I need special software to run a loyalty program?
No. A printed stamp card works well for many cafés and small shops. Points programs and online stores usually need software to track balances. Start with the simplest option that fits how your customers buy.
Should loyalty points expire?
Expiry stops old points from building up as a cost to the business. If you use it, state the expiry period clearly in the terms. Remind members before their points expire, as the ACCC recommended in its loyalty scheme review.
Can I change my loyalty program after it launches?
Yes, but do it fairly. Give members clear notice and think about letting them use points they have already earned. Terms that allow one sided changes without that kind of protection may raise unfair contract term concerns.
Do the rules differ between states?
The unfair contract terms rules are national, but each state and territory has its own fair trading agency. Processes and contacts for complaints differ between states. Laws also change over time, so check current guidance before you launch.
This article is general information only and is not legal advice. Laws and processes differ between states and change over time. For advice about your own loyalty program terms, speak with a qualified lawyer.