Skip to content

 Potential Legal Issues for an Online Business Customer Loyalty Program 

Table of Contents

As an online business owner, you must ensure your business generates profits to remain commercially sustainable. Since your customers have access to a global marketplace, the competition for their business is fierce. Rather than focus on a new product, one way to ensure you entice new customers and retain your eCommerce purchasers through brand loyalty is to create an online business customer loyalty program. However, if you decide to consider loyalty programs, you should be aware of the potential legal issues accompanying them, such as data collection methods. This article will explore the potential legal issues associated with online business customer loyalty programs. 

What is a Loyalty Program?

An online business customer loyalty program is a marketing method for you to increase and retain your customers. By offering a loyalty program, you incentivise your online purchasers to buy from you as a returning customer. Your eCommerce customer should feel appreciated and enjoy shopping with your online brand. There are various types of online business customer programs, which include those rewarding with:

  • points towards discounts;
  • gifts in return for points;
  • free perks; and
  • cashback programs.

When you run an online business, customer loyalty program for your eCommerce brand, the main potential legal issues are concerning data. Naturally, for your online customers to participate in your loyalty scheme, you will need to collect personal data from them. The primary law you must comply with is the UK GDPR. Below, we look at potential issues you could come across.

1. Lack of Choice

It is crucial that when you offer your eCommerce customers an online business loyalty program, you give them a choice whether to join this or not. Otherwise, you could fall into potential legal issues. Therefore, your loyalty program for your eCommerce brand needs to be an opt-in and permission-based one.

2. Lack of Transparency

The UK GDPR requires your eCommerce business to be transparent about processing your online customer’s data as part of your loyalty program. You must have a proper disclosure in place. If you fail to do so, you could breach legislation. 

A way to ensure you avoid these potential legal issues is to ensure you have a privacy notice that covers this. You must ensure you pass it on to all customers when you collect their data. This should explain:

  • your reason for collecting customer data is your loyalty program; 
  • that the reason for collecting the data is a lawful basis to process their data; and
  • your eCommerce customers’ rights concerning this.

3. No Lawful Basis

It is all very well adding to your privacy policy that you have a lawful basis to collect your customer’s data for your loyalty program, but what if you do not have it? This is a potential legal issue for an online business customer loyalty program, which again would cause you to breach the UK GDPR. The following are two ways that count as a lawful basis:

  • consent; or
  • legitimate business interests.

You should note that if you collect ‘special categories’ of data, which can include, for example, health issues about your customers or ethnicity, consent alone is not enough to provide a lawful basis. You will need explicit consent. Another reason you may need explicit consent is if you use your online customers’ data to create personal profiles of them. You will use this to determine what they like and how they behave. 

Front page of publication
GDPR Essentials Factsheet

This factsheet sets out how your business can become GDPR compliant.

Download Now

4. Non-Compliance With Data Laws

If you have a customer loyalty program for your online brand, you will process customer data. This is because you will need personal information to store the details of the loyalty program users. This means that the UK General Data Protection Regulations (GDPR) apply. This UK law requires you to be transparent towards your online customers. This is in terms of how you process their customer data. You need to explain, for example:

  • why you process the personal data; and
  • your online customers’ rights.

You must also ensure you have a lawful basis for using their loyalty scheme data. This can include customer consent but also could be through a legitimate business interest. However, if your customer loyalty program collects specific data, such as your customer’s ethnicity, you must obtain their explicit consent.

5. Adequate Terms and Conditions for the Customer Loyalty Program

When you create a customer loyalty program for your eCommerce website customers, you must ensure your online brand’s customer terms and conditions cover this. Alternatively, you could develop terms and conditions specifically for the customer loyalty program. Your customer loyalty program terms and conditions should include:

  • how your online customer earns rewards in the loyalty scheme; and 
  • explain if the scheme may change in the future, as customer loyalty programs are rarely static. 

Precise and robust terms and conditions decrease the risk of potential customer disputes and customer complaints.

6. Intellectual Property Infringement Concerns

The introduction of a customer loyalty program also poses intellectual property usage concerns. Some online brands may decide to give their customer loyalty programs a specific name and branding. If you do this, you must conduct a trade mark search to ensure you do not infringe on current trade marks.

Continue reading this article below the form
Need legal advice?
Call 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.

Key Takeaways

If you create an online business customer loyalty program for your eCommerce brand, you must understand the potential legal issues to avoid. These tend to be around the fact that as part of a loyalty scheme, you will collect personal data from your eCommerce customers. This means you need to comply with the GDPR. This article has outlined several potential legal issues that could arise for your online business. The first is that you fail to let customers choose whether they want to be a part of the loyalty program. Another reason is that you are not transparent enough about what you will do with their data. A good privacy policy can achieve this. The final potential legal issue the article looks at is to ensure you have a lawful basis on which to collect your eCommerce customers’ personal data.

If your online business has a customer loyalty program and you need help understanding the potential legal issues that could arise from having this program, contact our experienced eCommerce lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.  

Register for our free webinars

Spam, Cookies and Content: Legal Considerations When Leveraging Digital Marketing

Online
Understand your business’ marketing legal obligations in the digital age. Register for our free webinar today.
Register
See more webinars >

We’re an award-winning law firm

  • Award

    2023 Economic Innovator of the Year Finalist - The Spectator

  • Award

    2023 Law Company of the Year Finalist - The Lawyer Awards

  • Award

    2023 Future of Legal Services Innovation - Legal Innovation Awards

  • Award

    2021 Fastest Growing Law Firm in APAC - Financial Times