Loyalty System - difficult?

Dolby

Dolby

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Are they expensive or difficult to implement at all?

Say for a small shop to implement something that when a customer swipes their loyalty card, they get 5% of the purchase back in credits? When they have X number of credits, they get a free something
 
The maths and algorithms behind it can be quite tricky...
But a basic loyalty system would be pretty easy to implement IF you had access to the DB that manages transactions.
 
Careful for the accounting though :) you won't be able to recognise the revenue that you have given as loyalty points. i.e sell something for R100 and its 5% loyalty
Dr Bank 100
Cr Revenue 95
Cr Revenue received in advance 5

then when they spend the loyalty points you debit the revenue received in advance :) Just something to think about. if it was a small shop, with basic accounting systems, it can complicate things a bit.
 
Ask your accountant first whether you're reporting under full IFRS standards or not. If yes, then you need to apply IFRIC13...which isn't particularly difficult, but it needs to be done right else the auditors will give you grief (It affects revenue & the tax recon).

For a small shop though, there is a chance that IFRS for SMEs is used instead....that should be regulated in the Memorandum of Incorporation. Never really dealt with SME rules, but I'm guessing loyalty programs aren't even mentioned.
 
And pricing?

I'm guessing one needs the magnetic scanner and a standard PC to run the software?
 
4cer said:
then when they spend the loyalty points you debit the revenue received in advance :) Just something to think about. if it was a small shop, with basic accounting systems, it can complicate things a bit.
Click to expand...

What about a system that is independent of the accounting system?
Say every purchase gives a tick - and after 10 ticks you get a free purchase?

An example could be a car wash - every wash is recorded (no numbers, pricing, revenue) and on the 10th, a free wash is issues?
 
Dolby said:
What about a system that is independent of the accounting system?
Say every purchase gives a tick - and after 10 ticks you get a free purchase?

An example could be a car wash - every wash is recorded (no numbers, pricing, revenue) and on the 10th, a free wash is issues?
Click to expand...

this is going to become an accounting lecture if i explain that :P But according to IAS 18 - Revenue, you will learn nothing is really free :) it would work in a similar fashion in the end. But as said above, if the shop is small enough that it doesn't have to use IFRS accounting, it might get away with it :)
 
Here is the sad, sad tale of a good loyalty system gone bad: back in the golden times Seattle Coffee Co gave you a card to record 12 (qualifying) drinks purchases against, which already set you up for better than the miserly and frankly craptastsic 5% so many places love to offer. Thing is, if you wanted to, you could buy 12 of the cheapest, say, coffees on the menu and for your 13th could go NUTS and get the biggest baddest-ass coffee there. Which, subjectively, felt utterly like it was made of win.

Thing is, it takes a special kind of nutbar to go to those kind of lengths so, from the company POV, I'll bet that the number of people doing that was trivial ..but you COULD! And you could get a fizz from the idea of (you think) scamming them for that big coffee on #13 (conveniently forgetting just how much you'd already laid out to get to this point) and, net result, you had these great associations with the shop ...JUST what they want from you, the paying public.

Then, in a stroke of sheer, unadulterated GENIUS they pulled the system and put in, oh look, a five fscking percent off system that, and this is where it really got great, YOU HAD TO DEPOSIT YOUR OWN MONEY INTO FIRST! I was ..less.. than thrilled :mad: and, it seems, I wasn't alone.

And this was all in the name of the difference between a nominal 8.3% and 5% ..for THREE LOUSY PERCENT they utterly fvcked all that loyalty and goodwill they had earned. Bottom-line: think it through and don't shaft your clientele.
 
Erk.

That's a pretty crappy loyalty program right there!
 
Looking back I used to spend a LOT of time in Hyde Park Seattle Coffee, it was my go-to place to get away from people (yes, in public I know) 'cos they used to do soothing tunes and you could sit 'n sip 'n browse something or other and just tune out the masses. And now I just don't anymore - go figure.
 
4cer said:
Careful for the accounting though :) you won't be able to recognise the revenue that you have given as loyalty points. i.e sell something for R100 and its 5% loyalty
Dr Bank 100
Cr Revenue 95
Cr Revenue received in advance 5

then when they spend the loyalty points you debit the revenue received in advance :) Just something to think about. if it was a small shop, with basic accounting systems, it can complicate things a bit.
Click to expand...

Actually you cannot do it like that else your turning the loyalty programming into actually cash system. I've investigated loyalty systems over the last year as I'm implementing one for the wife.

You need to write off the accumulated rewards instead when they get used.
 
cbrunsdonza said:
Actually you cannot do it like that else your turning the loyalty programming into actually cash system. I've investigated loyalty systems over the last year as I'm implementing one for the wife.

You need to write off the accumulated rewards instead when they get used.
Click to expand...
No the journal 4cer posted is correct. I'd use Deferred Income, but thats a personal preference.

Thats the journal at sales time. You're probably thinking of the journal when the points get redeemed:

dr Deferred income Rxxx
cr Revenue/Deferred income amortized Rxxx

With Rxxx being: (Total points redeemed)/(Total points expected to be redeemed) * Deferred Income - what was amortized in prior periods.

The 5% calc 4cer did isn't exactly what the standard prescribes, but its close enough for the purposes of this thread I think.
 
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