Loyalty programs reward customers for repeat purchases and interactions with a brand. They drive repeat business, encourage higher spending, and provide companies with valuable customer data that can improve marketing and product decisions.
Key takeaways
Programs offer rewards, discounts, or exclusive benefits to encourage repeat purchases.
They benefit businesses by increasing customer retention and gathering purchase-behavior data.
* Alternatives include paid membership models (e.g., Costco, Amazon Prime) that deliver loyalty through perks rather than points.
How loyalty programs work
Companies offer a variety of incentives, such as:
Points or “stars” earned on purchases that can be redeemed for discounts or free items
Early access to new products or sales
Members-only discounts or promotions
Free or expedited shipping and enhanced services
* Rewards for nonpurchase interactions (referrals, reviews, app engagement, social posts)
Typical joining process:
1. Customer registers and provides basic personal information.
2. The company issues a unique identifier (account number, card, or app profile).
3. Purchases and interactions are tracked against that identifier so rewards accumulate.
Purpose and benefits
For customers:
Reduced cost or added value through discounts, freebies, or exclusive services.
Convenience and personalization (targeted offers, personalized recommendations).
For businesses:
Increased customer retention and lifetime value.
Lower marketing costs per sale compared with acquiring new customers.
Rich, actionable data on purchase patterns, product affinities, and promotion effectiveness.
Word-of-mouth growth as satisfied members recommend the brand.
A brief history
Early loyalty efforts included stamp- and boxtop-collection programs from the late 19th century. The modern loyalty model expanded with airline frequent flyer programs in the 1980s, which inspired many contemporary retail and hospitality programs.
Example: Starbucks Rewards
Starbucks Rewards uses a mobile app where customers earn “stars” on purchases to redeem for free drinks and food. The app also:
Lets customers order ahead and pay in-app
Offers members-only content and promotions
* Encourages app funding (loading a digital card) by offering accelerated star earning
This integration of convenience and rewards reinforces habitual use and repeat visits.
Alternatives to points-based programs
Some brands build loyalty through membership models rather than traditional rewards:
Paid memberships (e.g., warehouse clubs or subscription services) grant immediate benefits like lower prices or free shipping.
Memberships can create strong retention even when not required for basic access (e.g., optional subscription services that add perks).
Common types of loyalty programs
- Points programs — Earn points per purchase and redeem later.
- Tier programs — Different benefit levels based on spending or activity.
- Paid (fee-based) programs — Immediate perks after paying a membership fee.
- Value/charity programs — Rewards that translate into donations or social impact instead of direct customer benefits.
CRM loyalty programs
A CRM-based loyalty program leverages customer relationship management tools to track interactions and personalize rewards. It aims to extend customer lifetime value through targeted offers, points, discounts, and incentives tied to purchases, feedback, referrals, and other engagement.
Examples
Popular loyalty programs include:
Starbucks Rewards
The North Face XPLR Pass
Sephora Beauty Insider
Expedia Rewards
* Chick-fil-A One
Bottom line
Loyalty programs are a strategic tool for increasing repeat business, collecting customer insights, and strengthening brand relationships. Well-designed programs align customer incentives with business goals, turning occasional shoppers into regular, higher-value customers.