Running a membership or loyalty scheme for your small business can be a useful way to incentivise return customers and maintain customer base. However, it’s essential to carefully consider the terms and conditions of your loyalty scheme to make the scheme run smoothly and avoid legal complications. In this article, we cover some legal considerations to think about when creating a loyalty scheme for your small business.
Terms and conditions of your loyalty scheme
Your terms and conditions should clearly state how your loyalty scheme works. This not only provides a clear framework for you when running the loyalty scheme, but also sets clear expectations for customers when they sign up. If your shop is online, these terms and conditions can be clearly shown on your website when they sign up for the membership.
Additionally, it’s always best to provide ample notification to your customers if your loyalty scheme’s terms and conditions ever change. This might be through email or text message in addition to social media.
What system will your loyalty scheme use?
Loyalty schemes can come in a number of forms, including memberships or loyalty cards.
Implementing a membership system can incentivise customers to return by offering exclusive discounts, gifts, free shipping, or coupons depending on the number of points gained from purchases.
It can create a sense of exclusivity and privilege, or it can differentiate you from competitors, as customers can gain additional rewards for buying items that they were going to buy anyways. However, you will have to manage how membership information is stored, which can increase administrative and legal considerations.
Loyalty cards are another common form of loyalty scheme. Think of your local coffee shop, where you get a free coffee for every ten you buy. Loyalty cards can be a lot easier to manage as opposed to memberships if you have a brick and mortar shop. It can be run without a digital system as you just need cards to give to customers and an identifiable stamp.
While this can have fewer (but not zero!) legal considerations than memberships, it also means that you may not stand out as much compared to your competitors. The lower barrier to entry means that it loses its exclusivity, and it relies on the customer to keep track of their loyalty card.
How will your loyalty scheme work?
Aside from the structure of the scheme, you should also clarify how your loyalty scheme will work in practice. While the finer details will depend on your specific business, some things to consider are:
- Do customers have to pay for their membership?
- How are memberships issued? Is there a physical card or digital account?
- Do you use a point system? How does point accumulation work?
- How do customers redeem their points? What is the process of redeeming points?
- When do points expire?
- What benefits will your loyalty scheme provide? This can be extremely flexible depending on what is affordable for your business and appealing to customers. You might offer discounts, early access to new products, freebies, free shipping, premium services, or birthday gifts.
- What will your loyalty scheme not provide?
- Are there any products that will not give the customer points?
- Are there any products for which certain benefits such as discounts or offers will not apply?
- You might also state that points or loyalty cards cannot be traded in for money or any other product aside from the ones specified in your terms and conditions
- If you have multiple brick and mortar stores, can points transfer from one venue to another?
- If you allow purchases through a third party platform, do those platforms allow for individual traders’ loyalty schemes? You may need to expressly exclude these purchases from the scheme.
Avoid Unfair Contract Terms
When drafting your loyalty scheme terms, it is important to consider whether they are unfair under Australian Consumer Law. You can learn more about unfair contract terms in our article here. With loyalty schemes, some main unfair terms could be those that:
- Limit or void only one party’s performance of the contract. For example, let’s say your terms and conditions give you full discretion to refuse redemption of points. This limits your obligation to perform under the loyalty scheme and could be considered unfair.
- Only allow one party to vary the terms of the contract or fees. While it is important for you to be able to modify your loyalty scheme to suit your business as it grows, it’s important that your customers find the program reliable and trustworthy. If you want to change the terms of your loyalty scheme, there should be a set process to notify your members. You might also refresh memberships on a monthly/yearly basis, and the changes can come into effect on the next refresh. This way, it’s essentially a new contract.
Privacy and Your Loyalty Scheme
When setting up your loyalty scheme with a membership system, you also will be working with your customers’ personal information, including name, contact information, address, or payment details and history. This means that you also need to outline how you collect their personal information, why, and how you store and protect it.
The Australian Privacy Principles (APPs) outline the responsibilities of organisations under the Privacy Act 1988 (Cth). While there are exceptions to which organisations are required to follow the APPs, it’s best practice to follow the APPs regardless. Solid privacy practices help both your business’ reputation and membership signups, as customers will have peace of mind and less barriers when signing up for a membership.
What Next?
While a loyalty scheme can be your small business’ next step in gaining and retaining customers, organising your loyalty scheme raises not only administrative, but legal considerations as well. It’s best to have an experienced lawyer draft your loyalty scheme’s terms and conditions tailored to your business.
For help with your loyalty scheme, contact us for a free, no-obligation chat.
