Loyalty programs, whether big or small, are pretty common. Customer loyalty programs are a way for businesses to incentivise and show their appreciation to customers that support them. It could be something as simple as a free coffee after purchasing a certain amount from your local cafe or frequent flyer points. 

Loyalty programs have shown to be of interest to consumers. However, before you go ahead and start creating a loyalty program, there’s a couple of legal things to know first. 

If you want to do it right, keep reading to learn more. 

What Is A Customer Loyalty Program?

A customer loyalty program is a reward for shopping at a particular business frequently. The reward acts as an incentive for customers to return to that business, building loyalty. 

There are four main types of customer loyalty programs: 

  • Points systems – collecting points after spending a certain amount 
  • Social awareness – appealing to a customer sense of humanity by having a percentage of proceeds go to a particular charity
  • Paid programs – usually in the form of a membership fee, allowing certain benefits for members only  
  • Member levels (i.e gold tier, silver tier – the higher the class the bigger the rewards) 
Michelle runs an online clothing store. In order to encourage customer loyalty, she has an annual membership option for her customers. After paying a fee, members get access to benefits such as free standard delivery, early access to sales, birthday presents, discounts and customised clothing suggestions. 

How Do I Build Customer Loyalty?

Building customer loyalty is about more than the product itself. Customers need to not only like the product or service you are selling, but they must also have a positive experience interacting with your brand. This will contribute to the trust consumers have towards your business.

The quality of what you’re selling alone is often not enough to encourage many customers to continue buying with your brand as there is a lot of competition out there. Rather, building a relationship with customers that allows them to feel valued and rewarded is key in achieving customer loyalty. 

What Are The Benefits Of A Loyalty Program? 

Loyalty programs are a way for businesses to retain customers. As we mentioned, a great product alone is often not enough to do the trick. According to a statistic reported by Shopify, 84% of customers are more likely to stick to a certain brand if they offer customer loyalty programs. 

Loyalty programs can be used as a way to build better relationships with your customers and have them continue to interact with your business. These good relationships can also encourage them to spread the word about your business, which could lift a little weight off the responsibility of marketing your business in other ways. 

Can I Have An Online Customer Loyalty Program?

Yes, it’s possible to have a customer loyalty program that functions completely online. A customer loyalty program that is online often means that the sign up process, rewards and benefits will all be experienced online or it can be sent to the customer (for example, if the reward includes a free gift). 

Online loyalty programs often mean that customers will need to give their details to the business in order to be part of it such as their email, phone number and address. However, it’s important to note that this is considered personal information. As such, you’ll need to have a Privacy Policy in place, as it is required by the Privacy Act 1988

A Privacy Policy lets customers know that you will be collecting their personal information, as well as other details such as the purpose of collection and where you will be storing that data.

If your business conducts activities in the EU, you’ll also be subject to the General Data Protection Regulation (GDPR) which has similar requirements around data privacy – it’s important to familiarise yourself with your privacy obligations. If your business needs help, chat to our privacy lawyers for some guidance. 

Do I Need Loyalty Program Terms And Conditions?

Yes, a loyalty program’s Terms and Conditions (T&Cs) is extremely important if you plan on engaging your customers in a rewards system. 

Terms and conditions are basically a contract or agreement between you and the customer that will govern how the loyalty program is to function, what consumers can expect as well as the duties and obligations of both parties. It’s essentially what the consumer must agree to before they can further engage with your business. 

T&Cs are essential in protecting your business from potential disputes and can limit your liability for high-risk engagements. 

What Should My Terms And Conditions Cover?

The terms and conditions will cover a number of different areas, but it should also be  customised to fit the unique needs of your business. We’ve listed some of the key areas it should cover below. 


TT&Cs should cover who is able to participate in the programs and those that cannot. This should also include any age restrictions and whether it’s only available to specific regions. 


Enrolment covers how a customer can join the loyalty program and whether there are any requirements in order to keep their enrolment active. For example, a customer may need to create an account with your business with their email address in order to access the loyalty program. However, if they have not used their account in 6 months, their enrolment becomes inactive. 

Eligible Purchases

It’s important to distinguish which purchases the loyalty program covers. This includes whether all purchases on the site are included or if is limited to items bought from the date of enrolment. 

Earning Points

Terms and conditions also need to cover how points are actually earned in the program. Every dollar spent could equate to one point or certain items could have more points value than others – it’s important to make these clear in your terms and conditions to avoid confusion. 

Program Details

The program details refer to how the program actually works and where information regarding the program can be accessed. Particulars regarding the program details need to be included in a loyalty program’s terms and conditions.  

Redeeming Benefits 

Customers should also be notified of how benefits can be redeemed. Benefits can sometimes be accessed during online check outs or instore-  it’s always wise to clarify this in your T&Cs. 

Sale Or Transfer Of Points

It’s also important to address whether anything other than cashing points in for their benefits can be done. For example, customers may wish to sell or transfer their points. If this is allowed or prohibited, the terms and conditions should discuss it. 

End Of Cycle

Some rewards systems have cycles (for example, a 1 year cycle after which the points system starts again). If your rewards system is going to have a cycle, your T&Cs should set out the details around it. 

Changing Terms

You may wish to alter some of the terms of the loyalty program at some point. For example, members could begin to receive a free gift for every $200 spent. The terms and conditions should reflect what happens if the terms of the loyalty program is changed and how customers are to be notified of any changes. 


Finally, T&Cs should contain a clause on terminating the rewards program. Even if you don’t plan on having an end date, it’s always good to have a clause that allows you to shut down the program if necessary. 

Key Takeaways

Customer loyalty programs can be extremely helpful in building a better relationship with your customer base, however, it’s important to do it with the right legal protections for your business. 

To summarise what we’ve discussed: 

  • Customer loyalty programs offer rewards to loyal customers 
  • There are multiple different types of loyalty programs
  • The programs can aid in customer retention 
  • Online customer loyalty programs are possible, however, make sure you have a privacy policy in place as it will likely require getting the personal information of customers
  • Terms and conditions for your customer loyalty program is essential to cover all the main technicalities and better protect your business 

If you would like a consultation on customer loyalty programs, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

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