Loyalty programs for small stores: how to plan, price and run one

On this page

1. 1. Decide what the program is for
2. 2. Choose the kind of program
3. 3. Work out what it costs before you launch
4. 4. Write the rules down
5. 5. Sign customers up at the counter
6. 6. Contact members within the rules
7. 7. Special rules for tobacco, alcohol and SNAP
8. 8. Train the counter
9. 9. Launch it on an ordinary week
10. 10. Measure it every month
11. 11. Common mistakes
12. Where Advantage fits

A loyalty program is a deal with your regular customers: come back more often, or spend a little more, and the store gives you something for it. Done well, it shows you who your regulars are and gives them a reason to return. Done badly, it is a discount on sales you would have made anyway.

This guide walks an independent store owner through planning a program, pricing the rewards, signing people up, following the rules and measuring the results. For quick ideas that fit a convenience store counter, see our article on loyalty programs customers actually use.

Privacy, marketing, tobacco and alcohol rules differ by state. This guide explains the federal rules and tells you what to ask about yours.

1. Decide what the program is for

Pick one goal first. Each goal points to a different kind of reward.

Goal	A reward that fits
More visits from regulars	A punch card: buy a set number, get one free
Bigger baskets	A reward for spending over a set amount, or a member price on a bundle
More sales in one category	Member prices or extra credit on that category
Bring back lapsed customers	An offer for members you have not seen in a month

Before you launch, write down the number that will tell you it is working, such as member visits per month or the average member basket. Measure it for a few weeks before the program starts, so you have something to compare against.

2. Choose the kind of program

Choose a program a customer can understand in one sentence.

• Member prices. Members pay less on chosen items. Customers see the value at once, but you give up margin on every member sale.
• Punch cards. Buy a set number, get one free. Simple, and a good fit for coffee, fountain drinks and food. Keep the count short enough that a regular gets there in a few weeks.
• Points. Customers earn points on spending and trade them for rewards. Flexible, but customers have to keep track, and so do you.
• Tiers. Bigger rewards for bigger spenders. They add rules to explain and track, so start simpler.

For the member ID, a phone number is the easiest choice. Customers know it by heart, and there is no card to carry or app to download.

3. Work out what it costs before you launch

Price every reward at what it costs you, not at its shelf price, and compare that with the extra business it needs to bring in. Our markup and margin calculator helps with the per-item math.

Two worked examples with made-up numbers

A coffee punch card. A coffee sells for $1.79 and costs you $0.35 for the coffee, cup, lid and cream. Members buy nine and get the tenth free. Each free cup costs $0.35, spread over nine paid cups, or about 4 cents a cup. Each paid cup earns you $1.44. If the card brings a member in for just one extra coffee a month, that cup pays for the rewards on about 37 paid cups.

A member price. A sandwich sells for $5.00 and costs you $3.00. A 10% member price cuts the price to $4.50 and your profit from $2.00 to $1.50. You now need four member sandwiches to earn what three full-price ones did. If members were going to buy three anyway, the program costs you $1.50 for every three sandwiches.

The trap in both cases is the same: rewards paid on visits that would have happened anyway. That is why the before-and-after measurement in Step 10 matters.

4. Write the rules down

Put the rules on one page, and post a short version at the register.

• What earns a reward, and what a reward can be used for.
• Limits, such as one reward per visit or per day.
• Whether rewards expire, and what happens to unused ones.
• How a customer leaves the program and has their number removed.
• How you will give notice before you change the rules.

If you advertise anything as “free,” follow the FTC’s guide on the word “free”. It says the item a customer must buy should be at its regular price, meaning the price you openly sold it at for a reasonably substantial period, such as 30 days. You should not raise that price to cover the free item, and every condition should be stated clearly with the offer.

If rewards take the form of a card with a dollar value, read the Consumer Financial Protection Bureau’s gift card rule. Loyalty, award and promotional cards are treated differently from gift cards, but they still need specific disclosures. Ask your state revenue department how sales tax applies to discounted and free items.

5. Sign customers up at the counter

Everything depends on the clerk asking. A program nobody mentions might as well not exist.

• Ask every customer, every time: “Do you have a rewards number?”
• If they say no, sign them up right then with their phone number.
• Give the first reward early, so new members see it work.
• Tell members what they saved on each visit.

Collect only what you will use. The FTC’s guide to protecting personal information sets out five principles. Know what personal information you have, keep only what you need, and protect what you keep. Dispose of what you no longer need, and plan for a security incident. A phone number and a first name may be all you need. Tell customers how you will use their number, on a counter sign if nowhere else.

6. Contact members within the rules

Texts and e-mails bring members back, and both have federal rules.

• Texts. FCC rules require a customer’s prior written consent before you send autodialed marketing texts, and customers can opt out at any time in any reasonable way. Get consent in writing at sign-up, separately from joining the program, and keep a record of it.
• E-mail. The FTC’s CAN-SPAM compliance guide lists the rules for marketing e-mail. It must have accurate sender information and an honest subject line, and say that it is an ad. It must include your physical postal address and explain how to opt out, and you must honor opt-outs within 10 business days.

States may add their own privacy and marketing rules. Ask your attorney what applies to a program of your size.

Whatever you send, keep it worth opening: one useful message a week or less, rather than a daily stream. Send offers members can use on their next visit, at the times they usually shop, and stop sending to anyone who has not opened or used an offer in months.

7. Special rules for tobacco, alcohol and SNAP

Three kinds of sales need extra care.

Tobacco

Federal rules ban free samples of tobacco products. FDA’s guidance on the free sample ban says the ban does not stop discounts, coupons or member discounts on tobacco. A free tobacco product given as a reward, such as a punch card’s free pack, should be handed over as part of a paid tobacco sale, with the usual age and ID check. A store may not hand out tobacco in exchange for a customer’s contact information or for signing up.

Federal rules also require you to sell tobacco only to customers 21 or older and to check the photo ID of anyone under 30, and FDA notes that state and local laws can be stricter. Ask your state and city whether they limit tobacco discounts or coupons before you build a tobacco reward.

If a tobacco manufacturer offers to pay for rewards, read its contract closely: which products count, how often a member can use a reward, how age is checked, and what sales data you must report.

Alcohol

Alcohol laws differ by state, and NIH’s Alcohol Policy Information System tracks them state by state. Before you put alcohol in any reward or member price, ask your state alcohol board what is allowed.

SNAP

If you accept SNAP, USDA’s equal treatment rule requires you to offer eligible foods to SNAP customers at the same prices and on the same terms as other customers. Offering discounts only to customers who pay with SNAP is a violation unless you have a waiver. In practice, a member price on an eligible food has to work the same way whether the member pays with SNAP, cash or card. If you are unsure how a reward fits the rule, ask USDA’s SNAP Retailer Service Center before you launch.

8. Train the counter

• Write a two-line script for the ask and the sign-up, and practice it with every new hire.
• Show clerks how to look up a member who forgot their number.
• Track the share of sales that carry a member number, by shift. A shift with a low share needs coaching, not blame.

9. Launch it on an ordinary week

1. Set every offer up at the register and test it with real sales, including a refund and a void.
2. Train every shift, including nights and weekends, before the first day.
3. Put signs at each register and on the door.
4. Start on an ordinary week, not a holiday rush, so problems are easy to spot and fix.
5. Check the numbers after two weeks, and again after the first month.

If you ever end the program, give members notice and time to use the rewards they have earned. Ending a program badly can undo the goodwill it built.

10. Measure it every month

Each month, look at:

• How many sales carried a member number.
• How often members came back, compared with before they joined.
• The average member basket against everyone else’s.
• What the rewards cost you, at cost, not at shelf price.
• Sales of the items on offer, against the same weeks before the program.

A worked example with made-up numbers

You have 400 active members. Before the program they visited about 4 times a month, and now they visit about 5. Each visit earns you about $2.50 in gross profit, so the extra visits are worth 400 times $2.50, or $1,000 a month. The rewards cost $450 a month at cost. The program earns about $550 a month. If the visits had not gone up, the same rewards would simply have cost you $450.

Compare against the same season, since holidays and weather change visits too. Keep the offers that pay, change the ones that do not, and tell members when something changes.

11. Common mistakes

• Too many offers at once, so nobody remembers any of them.
• Rewards so far away that customers give up.
• Clerks who stop asking after the first month.
• Changing the rules without notice.
• Collecting information you never use.
• Forgetting the tobacco and SNAP rules above.

Where Advantage fits

Advantage Loyalty is a phone-number rewards program that runs at the register. Customers type a phone number during the sale and the reward comes off that sale, with no app, card or points to track. It pairs tobacco discounts paid for by a tobacco manufacturer’s program with offers the store chooses, sets a daily limit for each number, and works inside the normal sale on the registers Advantage supports. Advantage also builds a tobacco manufacturer’s weekly scan data file from the register’s own sales and sends it every week. See Advantage Loyalty and scan data.