Would a loyalty scheme boost your small business?

If you're like most people, you probably have several loyalty cards or apps. They've become near-universal for big stores. But you don't have to be a major supermarket to have a loyalty scheme - and it could bring big benefits for your business.

Customers are increasingly signing up for loyalty schemes. Recent research from Barclays Bank found that two thirds of consumers are looking for ways to get more value from, or cut the cost of, their shopping. And when asked about how they plan to do this, more than half listed using loyalty schemes, making it more popular than buying discounted products, stockpiling or opting for a big weekly shop.

UK government figures indicate that virtually all shoppers are members of at least one supermarket loyalty scheme, and, according to Mintel’s 2025 UK Customer Loyalty in Retailing Market Report, almost three in five subscribe to four or more.

And there are big benefits for the retailer as well as the customer. Loyalty schemes tend to encourage repeat visits - and this can make a big difference to the bottom line, with research from Bain & Company indicating that increasing customer retention by as little as five per cent can see profits boosted by by as much as 95 per cent.

A loyalty scheme can also help you gather data to help you make better marketing decisions based on your particular customers' wants and needs.

So how do you go about setting one up?

The first thing is to avoid getting carried away - run the numbers, and make sure that what you're planning to offer is realistic financially. While you may want to be generous, it has to be sustainable. And while you can improve your offer after time has shown it's worth it, it's a lot harder to cut back on rewards.

Next, you need to decide on the type of loyalty scheme that's right for you - and remember that you don’t need to be Tesco. Your loyalty scheme doesn't have to be complicated. For many small businesses, a simple stamp card will work perfectly well, offering customers a deal along the lines of 'buy five, get one free'.

These can be particularly effective for businesses such as coffee shops, which customers are likely to visit often. And they also have the advantage of being quick and easy for staff to process at the point of sale - as well as very cheap to run.

However, there are downsides: paper cards are easily lost or forgotten, and don't give you any data on customer preferences or behaviour, meaning that you can't realistically offer targeted communications or personalised promotions. You'll also need to make sure they're impossible, or at least difficult, to misuse, by using a custom-designed stamp.

Next up are points-based customer loyalty programmes, whereby after racking up a certain number of points, customers can redeem them for discounts, free products or special rewards.

Based on a digital card or even an app, these will involve your business signing up for a loyalty software platform, of which there are dozens. And while some are free, these tend to be very limited in functionality; most cost around £30 to £100 a month.

They do, though, give you a lot more options.

The main advantage is that you can collect more information on your customers by being able to actually see their activity. This means, for example, that you can offer personalised benefits, such as birthday freebies, nudges if customers don't show up for a while, personalised discounts or exclusive access to sales and special offers.

You can also offer incentives to customers for, say, writing a review, referring a friend or sharing their thoughts on social media.  

Collecting customer data such as names, addresses, emails, phone numbers, bank and credit card details and health information does, though, bring certain legal responsibilities under data protection and privacy law.

The data can only be used in specifically-stated and relevant ways, kept safe and secure. It mustn't be stored for longer than necessary and can only be transferred out of the UK under certain rules - and there can be big fines if you fail to comply.

Once you've got your loyalty scheme set up, it's vital to keep monitoring how things are going to make sure it's delivering as planned - and to help you improve your offering and attract more customers.

First, you should establish your redemption rate - how many of your loyalty rewards are actually being used. If the number's low, you may need to improve your offers or make the process simpler. Similarly, tracking visit frequency can show whether customers are keen or not. You'll also want to keep an eye on the average spend per visit, and whether that's improved.

If it's working as it should, your loyalty scheme should keep your customers coming back for more - and spending more when they do.

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