How are loyalty cards profitable for companies

Question

I literally don’t understand how it’s profitable to spend points ie free money ??
Edit : I’m partially talking about spending points earned

In: 0

Answer 1

The idea is that in order to earn points, you have to spend money with the company. It encourages me to do all of my spending with **one** store rather than spread it out over multiple stores.

So, for example, lets say that there are two stores in my town that sell the same goods at the same profit margin (20%). Normally, I’d split my purchases across the two, but store 1 offers me a loyalty program of 3% for every dollar I spend.

Without the program, store 1 makes $50 in revenue and $10 in profit (because I split my purchases evenly).

With the program, store 1 makes $100 in revenue and $20 in profit, from which they give me $3 back – still netting $17 in profit when its over.

$17 > $10, so the loyalty program benefits them.