In most cases, this loyalty program is conducted through a plastic or paper card on the line of a credit card such that it identifies the member of the loyalty program everytime they are purchasing from the company’s products. By presenting the care while shopping, the cardholder is entitled to allotment of points or to a discount on current purchase. These points are redeemable in the future.
In economic terms, the card is used to apply a two part tariff. It is a form of virtual currency. The resultant cash flows are all unidirectional as accumulated points can be redeemed only for goods and services, not cash. The data made available from these cards can also be used in learning about the preferences of a consumer, favourite brands and can be used as input in marketing research.