Loyalty Programs: Types, Examples & Best Practices

Loyalty programs are everywhere for a simple reason: they’re a win-win. For customers, it’s the feeling of reward and appreciation. For businesses, it’s the realization that returning customers drive more revenue at a lower cost.

But how do you set up a successful loyalty program that brings customers back? To answer your question, we’ll discuss their benefits and different types. We’ll also share top examples from brands doing it right, plus dos and don’ts to make your loyalty program stand out.

What Is a Loyalty Program?

A loyalty program, also called a rewards program or treats program, is a reward-based marketing strategy aiming to increase customer lifetime value and brand loyalty.

You can use them to retain existing customers or attract new ones and move them further down the funnel. What do customers get in return? Loyalty perks, like early access to sales or launches and personalized gifts, in exchange for repeat purchases.

In a nutshell, it keeps customers engaged without stretching your budget.

Now, how do customer loyalty programs work? The process differs based on the type, but usually it looks like this:

1. The company uses its website and other online or offline sources to invite customers to join the loyalty program.
2. People sign up by providing personal information, typically their name, email address, and phone number.
3. Once they start buying, they earn rewards based on the program structure and order value. The more customers keep shopping, the more those rewards increase.

What Are The Benefits of a Loyalty Program?

Still wondering whether a rewards program is worth your time and effort? An effective program will not only benefit your customers but also your brand.

Let’s start with that.

Benefits for brands

A loyalty program is a great asset for any business, especially for eCommerce. Here’s why:

• Boosting customer retention: Brands engage customers with regular updates that keep their offers top of mind. Also, every interaction helps you learn more about their preferences so you can target members with personalized promotions. If you’re already giving them what they need, why would they turn to a competitor?
• Encouraging brand advocacy: Loyal customers are the most trustworthy advertisers of your brand. You can use your loyalty program to reward people for referring a friend to your business or sharing user-generated content. This opens the door to word-of-mouth marketing and increased visibility at a fraction of the cost of other marketing efforts.
• Offering more touchpoints: Loyalty programs help you collect customers’ contact details so you can share irresistible rewards and nurturing resources. Other options include inviting loyalty members to events or requesting their feedback. If you use an omnichannel program, the benefits are even greater, transforming every touchpoint into a revenue opportunity.
• Building better customer profiles: 78% of shoppers are willing to share their personal data to complete a profile or quiz and get loyalty points in return. Every interaction becomes a great source of information, helping you dive deeper into their habits and needs, create detailed customer personas, and improve your targeting.

Benefits for customers

Buyers sign up for a rewards program expecting exclusive offers and early access. But what else can they get out of it?

These are the main benefits:

• Improving customer experience: Loyalty program members earn special gifts and gain access to personalized discounts and promotions. Brands can also deliver rewards to celebrate both customer and company milestones. This approach makes consumers feel seen, which is a prerequisite for boosting their overall satisfaction with your brand.
• Removing friction: When someone joins a rewards program, things get easier for them. From faster checkouts to priority support, everyday interactions become frictionless. Members don’t have to start from scratch, which saves them time and effort.
• Building community and relationships: Regular communication and rewards help businesses create long-term connections with customers, going beyond traditional transactions. Being a member of a loyalty program also comes with a sense of belonging to a special team with unique perks.

This level of exclusivity is easier to achieve if you market it as a VIP rewards program, like Michael Kors does:

Types of Loyalty Programs With Examples

Choosing the right program for your business is key to reaching your retention and revenue goals faster.

Below, we’ve collected the most popular types of rewards programs with examples so you can find the model that best suits your strategy.

1. Points-based programs

A points-based loyalty program is a classic option, mostly because it’s straightforward and more familiar to consumers.

Here, they earn points for making purchases or completing specific actions like writing a review. When customers reach the points set by the brand, they can redeem them for discounts on the next purchase, free products, or personalized experiences.

For example, a fashion brand could offer a private in-store fitting with styling recommendations tailored to the customer’s purchase history.

Points systems are easy to adjust and personalize depending on the customer’s buying behavior, which helps you offer more relevant rewards.

Example: H&M Members

H&M uses a points-based system to reward loyal customers. Consumers can only sign up online, either by creating an account on their website or downloading the app. They earn points for every purchase through the site, app, or in physical stores.

H&M members enjoy several rewards and perks, such as first-access to special collections and invites to exclusive events. Cleverly enough, the brand gives 20 points to users who complete their profile. That’s zero-party data the business can later leverage to deliver tailored suggestions.

They also stand out because they align the program with their sustainability mission, rewarding  customers with conscious points for choosing environmentally-friendly items. This way, they respond to consumers’ tendency to support eco-conscious brands.

2. Tiered programs

Moving on, we have another popular type where businesses segment customers into different tiers based on their level of engagement or spending.

Each tier offers progressively better benefits, with the best ones saved for higher tier users. This incentivizes customers to make repeat purchases or increase the order value. That way, they can quickly reach the next member status.

Brands can use tier-based programs to create fun experiences and recognize the continued support of their most loyal customers. For example, a fashion brand can name one of its tiers “Style Ambassador” to give members a sense of accomplishment and expertise.

Example: Sephora Beauty Insider

Sephora’s Beauty Insider is a well-known, tiered program with multiple touchpoints and rewards. As members accumulate points, they move up through different tiers, unlocking better perks. Sephora takes it one step further by naming a tier VIB (B for Beauty), a playful twist of VIP that makes loyal customers feel like stars.

The program offers standard benefits for all tiers. Some of them include free shipping on all orders and a free birthday gift for purchases above $25. Members can also apply for the brand’s Credit Card to enjoy card members-only rewards.

The brand also uses email to notify loyal customers about existing points, upcoming rewards, and new benefits. Just like this one:

Looking to create compelling campaigns for your rewards program like Sephora does? It doesn’t take much to get started. Affordable tools like Moosend, Constant Contact, and Mailjet offer user-friendly interfaces and features to help you design, send, and optimize loyalty program emails.

If you want to see what Moosend has to offer, you can sign up for the 30-day free trial and take the platform for a spin.

Register today

3. Punch cards

This classic approach involves giving customers a physical or digital loyalty card they can use during online and offline transactions.

The business marks the physical card or adds points to the digital version after customers make a purchase. Usually, the points earned match the order’s overall value.

This program type is popular among coffee shops, restaurants, and local businesses that use it to give repeat customers free items or discounted services. This special card makes frequent buyers feel included.

The physical card is also a great alternative for older audiences, appealing to their sense of nostalgia, or non-tech-savvy users, who appreciate straightforward rewards during in-store interactions.

Example: 1001 Nuts

We couldn’t resist sharing our favorite real-life example of an effective punch card. I’ve been using 1001 Nuts’ loyalty card for many years, and it’s as simple as it gets.

For every €100 I spend, I get €5 back on my next order. On top of that, I get free branded candy for every purchase over €30.

This no-surprise system, while not flashy, does the trick for local businesses like this one, which prioritize a consistent, trustworthy rewards program.

4. Cashback programs

These programs are among customers’ favorites due to their direct value and transparency. Members get a percentage of their purchase amount back in the form of cash or vouchers to use on future purchases.

Businesses use cashback programs to convince customers to keep using their services. Consumers, on the other hand, appreciate the simplicity of the benefit. If they spend more, they’ll get back more.

Credit card companies and retailers use cashback rewards to incentivize more purchases. It’s also a common loyalty program for apps like Ibotta:

Example: Ibotta

Ibotta is an app partnering with several stores to offer cashback rewards to its users. They earn money back with every purchase, whether in-app or in-store.

To get the reward, members can choose between a gift card or having the amount deposited in their bank account. It doesn’t get simpler than that.

5. Subscription or paid programs

Subscription or paid loyalty programs have been gaining popularity.

When customers subscribe to them, they pay a monthly or yearly fee to receive exclusive benefits in return. These usually are instant rewards like free shipping, exclusive content, or personalized recommendations.

This reward type is designed for businesses that want to retain customers longer and invest in consistent engagement. Members, in turn, experience the value over time and stay with the brand to keep benefits coming.

One of the most popular subscription-based programs is Amazon Prime, which we’ll see below.

Example: Amazon Prime

Amazon Prime is a paid subscription program aiming to reward customers with benefits like:

• Free and fast delivery
• Unlimited video streaming
• Ad-free access to a huge selection of songs and podcasts

These perks are what keep Amazon Prime users engaged in the long term.

This doesn’t mean paid subscriptions are only for giants like Amazon. You may not offer what they do, but creating a program with unique rewards that matter to your audience will help you boost customer loyalty.

6. Frequency programs

Frequency loyalty programs encourage repeat purchases by rewarding customers based on how often they shop.

Members need to purchase within set timeframes to get the benefit. For example, they might receive a discount or a Buy One, Get One (BOGO) deal on certain days of the week.

Frequency rewards rely on the classic Fear of Missing Out (FOMO) effect. What this means is that customers keep buying at regular intervals to ensure they don’t lose the rewards offered.

This loyalty program type is widely used among hospitality businesses and airlines, such as AEGEAN:

Example: Aegean Miles and Bonus

AEGEAN Miles and Bonus is a tiered program that groups users based on the miles they accumulate within specific timeframes. For example, to reach the middle tier, members have to fly with the company at least twice and earn 12,000 miles, or with any airline as long as they collect 35,000 miles.

In return, members enjoy free Wi-Fi, 10% extra award miles, or a one-year tier hold for new parents. Aegean also leverages partnerships with brands like IKEA, BP, and hotel chains to deliver a unified customer experience.

7. Partnership programs

Speaking of partnerships, we’ll move to the next type, where brands join forces with other businesses to offer a loyalty partnership program (or coalition program).

They involve earning rewards from multiple companies for related purchases, increasing the benefits for consumers.

Shared rewards models allow businesses from different industries to enhance brand visibility. They can monetize their partnership through cross-promotions and joined discounts. For example, a cinema can team up with a local restaurant, letting members redeem ticket points for pre- or post-movie meals.

Banks or large supermarket chains are the most common examples, letting you earn points from various partners using your member card.

Example: Starbucks Rewards

Starbucks Rewards’ members get several opportunities to redeem their points in interactions with collaborative brands. One of them is Marriott Bonvoy®, where points earned from the hotel group can be converted into Starbucks Stars.

All customers need to do is sign up to both loyalty programs and link the accounts to start unlocking benefits.

8. Gamified programs

Gamification is no longer a business trend but a marketing reality, earning its place in customer loyalty, too.

While it’s not exactly a type on its own, businesses integrate gamified elements into their rewards strategy as an affordable way to engage customers and collect their data.

For customers, it’s an active and fun way to receive rewards that’s also very popular with younger audiences.

A gamification rewards program allows you to give back to your audience not only when they shop but also when they participate in activities to collect compelling prizes. Members can win by completing email challenges, entering social media contests, or completing quizzes on your site.

Example: KFC Rewards Arcade

A brilliant example of a gamified loyalty program is KFC Rewards Arcade, designed for app users. Consumers download the app, sign up, and get a chance to win one of the delicious rewards that the brand gives away.

They just have to use the app to order and join the fun by playing KFC’s arcade Hammer Time game. Tasty treats and fun, does it get better than that?

9. Referral programs

Referral programs go beyond customer loyalty, providing brands with opportunities for growth.

In a nutshell, businesses encourage existing customers to refer their friends in exchange for free products or discounts. The people they refer also get rewarded with an equivalent incentive. So, it’s a hit for all parties.

Want to hear the best part? These consumers are more likely to trust you since the person referring them already does. So, half of the job is done without you having to spend resources on paid ads or influencer marketing to drive conversions. All it takes is a little treat to referrers and their referred friends.

This small investment makes referral programs a solid option for most businesses, regardless of their size.

Example: Allbirds

Allbirds uses a clean structure: the customer who refers a friend gets $15 off for each new customer they bring in and the referred gets the same reward to redeem on their first order. On their referral page, they also highlight their sustainability mission as an extra nudge.

There are many use cases where email marketing can help you build and scale your referral program. For example, consider sending a campaign to promote it, informing subscribers about all the perks that go along.

Or do it like Allbirds that includes a relevant CTA in every email:

An easy way to promote your referral program is through your email campaigns.

With a user-friendly email marketing platform like Moosend or Constant Contact, you can create and send campaigns, for example to frequent buyers, asking them to refer a friend. These tools also help you automate key messages, such as sending reminder emails to loyal customers who haven’t referred anyone yet.

10. Personalized programs

Apart from the standard models, you can leverage the data at your disposal to offer tailored perks and experiences based on customer preferences and behaviors. The result is personalized loyalty programs, which are the best option for brands that prioritize deep connections with their customers.

It’s not difficult to create a program with customized rewards if you have access to information, such as:

• Age and gender
• Location
• Product, service, or category interests
• Buying behavior like purchase frequency

The more members stay engaged with your loyalty program, the more insights they offer you to further personalize the benefits offered.

Example: Nike Membership

Nike Membership stands out due to the all-in-one experience they give to members. Customers gain access to personalized recommendations and expert training or styling advice, plus product customization services.

Moreover, they join a vibrant community that never rests and has first-dibs on exciting events and new releases.

11. Value-based programs

In this different model, your loyal customers aren’t the ones receiving benefits, at least not explicitly. Their reward is that both your business and them contribute to missions they feel strong about.

Here’s how value-based programs work: instead of offering a direct incentive to members, the company donates part of the profits to one or more relevant charities.

This is a great option for brands known for their social responsibility. Financial incentives may be nice to have, but this loyalty program ensures you appeal to your customers’ deeper motivations and their need to give back to the community or environment.

Some businesses also combine other rewards types with value-based programs, offering members the option to choose if they will receive the benefits themselves or donate it to related causes.

This is the case of PetSmart and their loyalty program:

Example: PetSmart Treats Rewards

PetSmart Treats Rewards is a points-based program that covers every need a pet owner could dream of. Rewards come in the form of personalized offers, early access to sales, in-store discounts, and gifts for furry friends.

What sets it apart is that all members, regardless of the tier, can turn their points into donations to PetSmart charities. This thoughtful system helps the brand build stronger connections with their customers.

12. Omnichannel programs

Consumers want seamless experiences. This is the reason why 57% of respondents say they prefer a mix of online and in-store interactions.

Many businesses have picked on this tendency, creating loyalty programs that combine several channels to build unique customer journeys.

When it comes to online tactics, you can use email and SMS campaigns to engage existing members or attract new ones. Social media is another excellent tool to maximize your reach, asking members to post user-generated content on your accounts or participate in a contest.

Some brands ask customers to download their mobile app as a prerequisite for joining the program. This is how they engage mobile users, rewarding their in-app interactions with exclusive offers and discounts.

Last but not least comes offline marketing. Customers appreciate businesses that allow them to access deals and redeem rewards right where they are, whether that’s on the company’s website, app, or physical stores. This multichannel experience removes potential friction and simplifies participation.

Example: IKEA Family

IKEA Family is built with consumers in mind, prioritizing convenience and omnichannel rewards. Birthday treats, special offers, access to events and workshops are only some of the member-only benefits offered.

Did we mention the free cup of coffee or tea during in-store visits? That’s the warm touch that every omnichannel marketing strategy needs.

How To Set Up An Effective Loyalty Program

There are various ways to reward loyal customers for their trust. You can choose one type that fits your business objectives or mix strategies, for example points-based loyalty with punch cards.

That’s not all, though. You also need to follow some best practices to get started:

Set your goals

Before anything, you should know why you’re building a loyalty program. Setting clear objectives allows you to create a high-performing rewards system and naturally integrate it into your overall marketing strategy.

Let’s see some common objectives to consider:

• Getting more referrals
• Boosting revenue
• Increasing Customer Lifetime Value (CLV)
• Reducing churn rate
• Gathering customer data

After specifying your goals, it’s time to create your value proposition. For example, if you want to increase sales, giving $10 off for every 500 points customers collect motivates them to spend more to claim the discount.

Choose the rewards 

When consumers consider joining a loyalty program, they first want to know if it matches their needs, preferences, and spending patterns.

For example, with a punch card system, you might give branded gifts once customers complete five consecutive purchases. The frequency and value of rewards usually depend on your budget and audience preferences.

Budget aside, always think from the customer’s perspective. Let’s say that a bookstore’s average order is $30 and the first reward comes once a customer hits 200 points. That milestone should represent a meaningful payoff, which couldn’t be a pen worth $4.

Discounts and cashback are great for most people. But if your customers value experiences or exclusivity, let that guide your choices. For instance, a full makeup experience in-store creates a memorable feel-good moment. It’s far more impactful than a free blush, and usually, less costly.

Decide on the budget

No matter what your specific goal is, your loyalty program should support your revenue, not eat away your budget. So, setting a marketing budget is vital.

Decide how much you can allocate by looking at average order value and buying frequency. This helps you understand what you can afford to give back over time.

Another thing to keep in mind is rewards frequency. Giving away discounts on every purchase isn’t sustainable. While you need consumers to shop frequently, they shouldn’t take loyalty perks for granted.

Make sure you also calculate promotion and software costs. For example, you might need to decide on a budget for paid ads, in-store display stands or stickers, or customer loyalty tools.

Getting this right from the start ensures your program remains sustainable as it grows.

Make the benefits and rules clear

Whether you create a points system or a tiered program, your audience needs to instantly understand what’s in it for them. This means you should make the relationship between money spent and rewards as intuitive as possible.

If your system rewards both online and offline interactions, mention the differences in points collection and redemption (if any).

Also, it’s important to create a standalone page to support your loyalty program initiative. Use simple language and straightforward copy that clearly communicates how the rewards system works.

To avoid misunderstandings, include a Terms and Conditions section. Make sure you clarify everything to be legally covered in case customers have different claims or demands. You could also add links to necessary resources for visitors to have a well-rounded view.

Caudalie does an excellent job, conveying the rewards in a visual, easy-to-grasp way. Visitors can click on different points numbers to see which specific products they can get at each stage.

Put a name on it

What’s a great loyalty program without a name that catches the eye and sticks with customers? One popular approach is to choose a benefit-oriented title, like a “Perks Card.”

Depending on your industry and target audience, you can use a pun with your brand name. For example, The Body Shop’s Love Your Body Club plays on the brand name while promoting self-acceptance and confidence.

The same goes for your program tiers. As discussed above, Sephora’s VIB tier nods to VIP, signaling that members reaching this status will receive special treatment.

Nespresso, on the other hand, groups members into connoisseurs, experts, and ambassadors to match their status with different levels of coffee expertise.

Choose the right tools

To create and run a powerful loyalty program, you need the right tools to manage tasks like member signup, points tracking, rewards management, and automated messages.

Before choosing these solutions, explore their features, ease of use, and pricing so you don’t end up increasing workload or overspending.

Here are some of the tools you’ll need to set up and promote your program:

• CRM software: CRM platforms like Salesforce, HubSpot, and Zoho CRM allow you to collect and organize customer data, track interactions, and segment your audience to tailor loyalty offers and messaging.
• Loyalty program software: Dedicated solutions such as Smile.io, LoyaltyLion, and Yotpo let you build and manage your rewards program, track performance, and gain insights into member behavior.
• Mobile app development tools: For in-app interactions or push notifications, tools like Flutter, React Native, or native iOS/Android solutions help you deliver personalized suggestions, track activity, and integrate point collection.
• Email automation platforms: Email solutions like Moosend, Constant Contact, and Klaviyo allow brands to segment audiences and personalize email promotions and program updates. Also, you can automate important campaigns, such as birthday or milestone emails.
• Customer feedback and surveys: To collect feedback from members and improve your program, you’ll need dedicated software like SurveyMonkey, Typeform, and Hotjar. These tools help you measure customer satisfaction and make tweaks based on the feedback.

If you’re looking to engage your members at every step of their journey, you can use Moosend’s built-in automated recipes, including anniversary and loyalty campaigns, to reward customers with the right offer at the right time.

Here’s an example of a loyalty sequence created with a Moosend recipe:

Use it

Loyalty Program Mistakes To Avoid

It’s not uncommon for businesses launching a rewards program for the first time to fall into pitfalls.

To ensure seamless operation, here’s what to watch out for and avoid:

• Overcomplicating the process: Rewards programs should be simple and easy-to-follow. Too many tiers or complex terms may confuse customers and employees, leading to reduced or no participation.
• Sending generic messages: Treating all customers with the same incentives is a one-size-fits-all program. Instead, you must segment members based on behavior and preferences to personalize rewards and messages, turning every touchpoint into a meaningful interaction.
• Using a single touchpoint: Regular and omnichannel communication is key to keeping members engaged at all times. Ensure your POS, website, SMS, and emails are synced to facilitate point collection and redemption. Also, involve employees at physical locations so the offline experience matches the online.
• Relying solely on monetary rewards: Perks shouldn’t be limited to discounts. Consider non-monetary rewards, such as personalized recommendations or tickets to exclusive events. Another idea is to give a percentage of the purchase to social causes and charities they care about.
• Promoting it poorly: A loyalty program is only effective when people know about it. Invest in various channels like email marketing, push notifications, and social media to promote it. For in-store marketing, use flyers, stands, and messages on receipts. Also, your employees can encourage check-out visitors to visit your site and learn more about the program.
• Ignoring customer feedback: To optimize results, always ask for customer feedback and show you’re listening by optimizing your program accordingly. Conduct customer surveys, read through reviews, and actively engage with customers to gather more insights.
• Forgetting about disengaged members: Don’t leave out members who have never redeemed their points or those who’ve turned inactive over time. Offer the first group extra points and the second one tailored rewards that match their buying history.

Whatever you do, avoid misleading your customers and overpromising or underdelivering. Listen to your loyal customers’ needs and adjust things as you go.

Boosting Loyalty One Reward at a Time

Loyalty programs are fun and converting and every business can make it work without paying much. The examples shared above showcase their importance and all the ways successful brands are using to make the most of them.

Just draw inspiration from these use cases, choose the loyalty program type that suits your business, decide your budget and loyalty rewards, and off you go.

The key ingredient you’ll need down the line is a clear understanding of your audience’s interests and behavior. So, keep your customers front and center to adjust your rewards system and take brand advocacy to a new level.

FAQs

Let’s see short answers to common loyalty program questions:

1. What are the 3 R’s of a loyalty program?

The 3 R’s include reward, recognition, and retention, meaning the three outcomes every loyalty program should deliver. Rewards are about offering tangible value, recognition makes customers feel appreciated and members of a community, while retention encourages them to stay loyal to the brand. All three aim to strengthen relationships and turn one-time shoppers into long-term ambassadors.

2. Are loyalty programs affordable to small and local businesses?

Building a single-channel, in-store program with cashback systems or punch cards is an ideal option for SMBs and local businesses with smaller budgets. As results become tangible, you can start adding more tactics to scale your efforts. For example, many email marketing platforms offer cost-effective plans so you can start creating and sending targeted campaigns to customers.

3. How can you measure customer loyalty success?

Measuring success goes beyond tracking sales. Key metrics include customer retention rate, repeat purchase frequency, and customer lifetime value (CLV). Enrollment and reward redemption rates are also important to track how members interact with promotions and rewards. Lastly, customer feedback is always an essential factor, showing brands what they need to improve.