What Is a Loyalty Program?

A loyalty program is a marketing strategy businesses use to reward and retain their most dedicated customers. These programs improve customer engagement by offering incentives such as free products, exclusive access, and special deals in return for continued patronage.

By providing tangible rewards, businesses foster customer connection, encouraging repeat purchases and building brand loyalty. Loyalty rewards benefit businesses and customers by offering value in exchange for loyalty. Such programs increase customer retention and satisfaction, leading to sustained revenue growth and competitive advantage.

Key Takeaways

• Loyalty rewards are a marketing strategy. Through loyalty points, customers get rewards and are incentivized to remain dedicated shoppers of the business or store.
• Incentives include free products, exclusive access, and special deals. They help businesses foster customer connection, encouraging repeat purchases and building brand loyalty.
• Rewards benefit both businesses and customers by providing value in exchange for loyalty. Programs can include point systems, exclusive events, and special discounts.
• Benefits for customers include cost savings, exclusive perks, convenience when shopping, a sense of belonging, and having a more rewarding experience.
• Examples of great loyalty discounts and rewards include Starbucks Rewards, Amazon Prime, Target Circle, Sephora Beauty Insider, and Walgreens Balance Rewards.

What Are Loyalty Programs for Shoppers?

Purpose of Loyalty Points

A customer rewards program often includes rewards such as discounts, exclusive offers, freebies, and bonus points. The primary purpose is to increase customer retention. By offering tangible benefits, businesses can create a sense of customer appreciation and value, which helps reduce churn and increase customer satisfaction. This approach aims to improve Customer Lifetime Value (CLV) and foster brand loyalty.

History and Evolution

Loyalty or membership rewards date back to the early 20th century with the introduction of trading stamp programs. Customers received stamps for purchases, which they could later redeem for products. This method evolved, and by the late 20th century, airlines pioneered frequent flyer programs, setting the stage for modern loyalty schemes.

Structuring Loyalty Benefits

Types of Loyalty Programs

• Points-based programs: customers earn loyalty points for every purchase they make, which can later be redeemed for discounts, free products, or other rewards. This type of program is prevalent in retail stores and online shopping platforms.
• Tiered programs: these programs offer different rewards based on a customer’s spending habits. Customers move to higher tiers as they spend more, unlocking exclusive benefits and more significant loyalty rewards.
• Cashback programs: instead of earning points, customers receive a percentage of their purchase amount as cashback, which can be used for future purchases. This model is commonly seen in credit card rewards programs.
• Fee-based programs: also known as membership rewards programs, they require customers to pay a fee to join. In return, they receive exclusive discounts, early access to sales, and other premium benefits.
• Coalition programs: multiple businesses come together to form a loyalty rewards program, allowing customers to earn and redeem points across a network of participating brands. An example is the Air Miles program, which is popular in Canada.
• Stamp/Punch cards: this type involves giving customers a stamp or punch for each purchase. When a certain number is collected, they receive a reward, such as a free product or discount. It’s simple and easy to implement.
• Value-based programs: these focus on aligning with customer values and causes. Donations to charities or sustainable practices can form part of the rewards, creating deeper connections with the brand.

How Loyalty Programs Work

1. Enrollment: customers sign up for the program, often providing basic information like their name, email, and phone number. This step may involve issuing a physical or digital loyalty card.
2. Earning points: customers earn loyalty points or rewards with each qualifying purchase. The number of points earned typically correlates with the amount spent.
3. Tracking: the business tracks the points accrued by each customer, often using software that integrates with their sales systems.
4. Redeeming rewards: once customers accumulate a certain number of points, they can redeem them for various rewards, such as discounts, free products, or exclusive experiences.
5. Expiration: some membership programs have an expiration date for points, encouraging customers to redeem their rewards within a specific timeframe.

Loyalty Program Benefits

🛍️ For Customers

• Cost savings: benefits such as discounts, cashback, and free products help customers save money on their purchases.
• Exclusive perks: many loyalty rewards offer members-only benefits, such as early access to sales, special promotions, and personalized offers.
• Simplicity and convenience: earning and redeeming points is typically straightforward, making it easy for customers to enjoy the perks without hassle.
• Sense of belonging: being part of a loyalty program can create a sense of community and belonging among customers, particularly in fee-based or tiered programs.
• Rewarding experience: earning and accumulating points can be a gratifying experience, encouraging customers to stay loyal to the brand.

🏢 For Businesses

• Increased customer retention: businesses incentivize repeat purchases, boosting customer retention rates.
• Better customer engagement: loyalty discounts foster a deeper connection between the brand and its customers. Engaged customers are more likely to provide valuable feedback and participate in promotional activities.
• Higher sales: customers are more likely to make larger and more frequent purchases when incentivized to earn and redeem points. Impulse buys are likelier to happen too.
• Data insights: loyalty points generate a wealth of data about customer preferences and buying behaviors. Businesses can leverage this information to tailor their marketing strategies and product offerings.
• Competitive edge: offering a well-structured program can differentiate a business from its competitors, making it more attractive to consumers looking for added value.

Examples of Great Loyalty Programs

Loyalty programs are a cornerstone of customer retention strategies for many US brands, offering a range of benefits that keep shoppers coming back. Below, we highlight some of the best loyalty programs from prominent US brands, showcasing how they effectively reward their loyal customers and stand out in a competitive market.

Starbucks Rewards

• Earn stars: members earn 2 stars for every $1 spent using a registered Starbucks card or the mobile app.
• Redeem rewards: accumulated stars can be redeemed for free drinks, food items, and other merchandise.
• Personalized offers: members receive customized offers and bonus star opportunities.
• Birthday reward: a complimentary drink or food item on the member’s birthday.

Amazon Prime

• Free shipping: unlimited free two-day shipping on eligible items.
• Prime Video: access to a vast library of movies, TV shows, and exclusive Amazon Originals.
• Prime Music: ad-free streaming of over 2 million songs.
• Exclusive deals: early access to Lightning Deals and special promotions.
• Prime Wardrobe: try before you buy fashion service with free returns.

Target Circle

• Earn rewards: members receive 1% back on every purchase to redeem on future visits.
• Personalized offers: custom deals and savings based on shopping habits.
• Community support: members can vote to direct Target’s community-giving initiatives.
• Birthday reward: special savings sent to members on their birthday.
• Exclusive access: early access to sales and special promotions.

Sephora Beauty Insider

• Earn points: members earn 1 point for every $1 spent.
• Redeem rewards: points can be redeemed for beauty products, experiences, and samples.
• Birthday gift: a free beauty gift on the member’s birthday.
• Exclusive events: access to special events, product launches, and beauty classes.
• Tiered benefits: higher tiers (VIB and Rouge) unlock additional perks, such as free shipping and exclusive rewards.

Walgreens Balance Rewards

• Earn points: members earn points on everyday purchases, prescriptions, and through the “Balance Rewards for healthy choices” initiative.
• Redeem rewards: points can be redeemed for discounts on future purchases (e.g., 1,000 points = $1).
• Personalized offers: members receive tailored deals and promotions.
• Wellness programs: participate in health and wellness challenges to earn additional points.

Loyalty Programs FAQs

What Is a Loyalty Program?

It is a structured marketing strategy designed to encourage customers to continue shopping at or using the services of a business. By offering rewards, discounts, and other incentives, businesses aim to create a sense of loyalty among their customers, ultimately driving repeat purchases and fostering long-term relationships.

How Do Loyalty Programs Work?

They operate by rewarding customers for their continued patronage. Customers typically enroll in the program, earn points or rewards for each purchase, and redeem these points for discounts, free products, or other benefits. Businesses track points using software integrated with their sales systems.

What Are the Different Types of Loyalty Programs?

Common types of loyalty programs include points-based programs, tiered programs, cashback programs, fee-based membership rewards, and coalition programs. Each type offers unique benefits tailored to meet specific business objectives and customer needs.

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