What Does a Business Really Buy When It Offers Its Customers a Loyalty Program?
Author: The CompassBG team
Published:
When a business offers a loyalty program, it is not simply buying personal data. It is buying additional sales at a low cost, more frequent interaction with the customer and a direct relationship with them that does not depend on advertising platforms. In CompassBG's experience, the cost of a well-managed program is between 10 and 20% of the revenue it brings in.
Petrol stations, supermarket chains, clothing stores. Almost every large retailer has a customer card with points. Many people assume the only reason is collecting data. In our view, that is at best half of the answer.
A loyalty program changes the very relationship between the customer and the brand. A one-sided purchase becomes a two-way partnership: the customer gives the brand something, and the brand gives something back in return.
Watch our video on loyalty programs on YouTube (in Bulgarian). In it we use real numbers to explain how points and tiers increase sales. Watch the video.
1. What does a business really buy with a loyalty program?
A business buys three things: higher revenue from each customer, longer attention from them and a direct communication channel. Points and bonuses are simply the price it pays for these.
The program has two main goals. The first is to increase revenue. The second is to increase satisfaction and retain the customer, so that they interact with the brand for longer. The second goal brings major benefits on its own, because a retained customer buys again without any new advertising spend.
Research by Frederick Reichheld of Bain & Company, cited by Harvard Business Review, shows that increasing customer retention by 5% can raise profits by between 25% and 95%. The same article notes that acquiring a new customer costs 5 to 25 times more than retaining an existing one.
2. Why do large chains run loyalty programs if it is not just about the data?
Because the program turns a casual shopper into a partner who has a reason to come back. The data is a useful side effect, not the main goal.
A customer who collects points already has something "with you". This changes how they choose where to shop next time. Instead of comparing prices alone, they also work out what they would lose by going to a competitor.
3. How do points increase the value of the next order?
The customer sees the points they have collected as a gift, so they tend to buy more than they planned. This is the psychology that works in your favour.
Example:
Let us say the customer gets 1 point for every €1 spent. After spending €1,000 they have 1,000 points, which are worth a €100 bonus. On their next order they use the points to take part of the bill off. Because they see the points as a gift, they easily go over the amount they had intended to spend.
4. How much does a €100 bonus really cost the business?
With a standard 40% margin, a €100 bonus costs the business around €60, not €100. The discount is covered with goods, not with cash.
| Metric | Value in the example |
|---|---|
| Amount spent by the customer | €1,000 |
| Points collected | 1,000 points |
| Bonus value for the customer | €100 |
| Real cost to the business at a 40% margin | €60 |
| Expected revenue from the following purchases | between €1,500 and €2,000 |
If we asked whether you would pay €60 up front for advertising that will generate between €1,500 and €2,000 in revenue, the answer would almost certainly be "yes". A loyalty program works on the same logic, but the cost comes after the sale, not before it.
5. What should you do when the customer chooses a free product?
Use the moment to offer an additional product. The customer arrives ready to shop, and the free product is the occasion, not the goal.
Whether they walk into the physical store, visit the online store or call by phone, they have already liked a product and are inclined to be your customer. The team's role is to use this mindset and offer something that complements the gift. In both cases, a discount or a free product, the revenue from the customer grows at minimal cost.
We describe a similar approach in our article on a profitable Black Friday campaign, where a gift with the purchase replaces the price discount.
6. How do tiers in the program make the customer buy more?
Tiers give the customer a goal, and people speed up their purchases as they get closer to it. Each tier brings more points, a higher value per point or new bonuses.
An example structure:
First tier
At €1,000 spent.
Second tier
Up to €10,000 spent.
Third tier
Up to €20,000 spent.
People tend to spend a little more to reach the next tier and receive bigger bonuses.
This effect has also been proven in research. Researchers at Columbia Business School found that members of a "buy 10 coffees, get 1 free" program bought more often the closer they were to the reward. Customers with a 12-stamp card on which 2 stamps had already been given completed the 10 purchases faster than those with a regular 10-stamp card.
7. Why is frequent interaction with the brand so valuable?
Every time the customer checks their tier and points, they think about your brand without you paying for that attention. When it is implemented and visualised properly, the tier system creates regular reasons for contact.
The customer checks which tier they are on, how many points they have collected, how many they will get from the next order and what they can use them for. Add to that the notifications about reaching a new tier and earning new points. All of these improve satisfaction and the moments in which the person interacts with your company, brand and product.
The most convenient channel for such notifications is often the mobile app. Read more in our article on push notifications in online commerce.
8. How much does a loyalty program cost compared with the revenue it brings?
In the programs we run and track on an ongoing basis, the cost relative to revenue is between 10 and 20%. That is comparable to a well-performing advertising campaign.
If we asked you for €1,000 for an advertising campaign that will bring you €10,000, would you pay it? If you hired an employee for €1,000 and they brought you €10,000, would you hire them? A loyalty program puts you in front of the same decision.
To judge where the program fits in your overall costs, see also how to plan your marketing budget.
9. Does every loyalty program work?
No. A program only works when it is implemented correctly and constantly adapted to customers' needs and feedback. A one-size-fits-all points scheme rarely delivers results.
A McKinsey study of 55 publicly traded companies in North America and Europe shows that companies that spend more on loyalty or have more visible programs grow at a similar or slightly slower rate than the rest. The conclusion is not that programs do not work, but that blanket discounts without a strategy destroy value.
Our position is clear: a program has many steps and each one must be measured. The value of the points, the tier thresholds, the bonuses and the notifications are set according to the margin, the purchase frequency and the behaviour of your specific customers.
10. Where should you start if you want a loyalty program?
Start with the numbers: your margin, your average order and how often customers buy again. Only then choose points, tiers and bonuses.
1. Point value
Work out how much one point costs you at your real margin.
2. Tiers
Set tiers that are achievable but require a few more purchases.
3. Notifications
Choose a notification channel: email, Viber, push notifications in an app.
4. Cost and revenue
Track cost against revenue and adjust the rules regularly.
The most valuable thing you get is a direct relationship with your customers. In 2026, few brands can boast of having one, along with the ability to react in time to problems that are coming or have already happened. The program is a natural extension of customer retention and of the thinking described in our article on which business survives in the long term.
Technically, the program can be built into an online store or a mobile app, as part of a complete digital sales system. If you would like to discuss a program for your business, get in touch with CompassBG.
Watch the full episode on YouTube (in Bulgarian). We use real numbers to explain why a loyalty program is one of the cheapest ways to increase sales and build a direct relationship with your customers. Watch the video now.