First, we have to understand the purpose of the program. What are we trying to achieve? What are we trying gain? If we don’t know this then we are potentially throwing money at something with no guaranteed return. Nunes & Drèze (2006a) give five core strategic drivers for the use of loyalty programs.
Encouraging additional purchases. Goods and services where consumption is flexible can be increased easily. Valued rewards, such as buy 4 get the 5th free, can lead to accelerated purchases by consumers and in turn increased overall consumption levels.
Collection of customer data and consumer behaviour insights. The greater the amount of information held about a customer the more effectively and personally they can be targeted.
Gain greater customer share.Encouraging customers to consolidate more purchases with a specific company rather than multiple ones.
Reduce churn rate. Preventing customers from defecting to other companies by providing something others cannot offer. In other words, locking them in.
Generate a profit. Besides revenues being boosted through additional sales, reward points can be sold on to other business to use as rewards for their own customers.
Source: What is the key for successful loyalty programs? | Chris’s Digital Marketing Blog