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You know that feeling when you walk into your local coffee shop, and the barista already knows your order? Maybe they even slide a free pastry across the counter because “it’s on the house today.”
That feeling – that mix of surprise, delight, and “I am never going anywhere else” is precisely what a great customer loyalty program scales up.
It’s not just about points or punch cards. It’s about making your customers feel seen. And in a world where switching brands is as easy as opening a new browser tab, making them feel seen is your best defense against churn.
If you’re looking to build a loyalty strategy that actually drives revenue (and doesn’t just give away margin), you’re in the right place. We’re going to break down the mechanics, the math, and the examples you need to build a program that works.
Table of Contents
- What are Customer Loyalty Programs?
- 4 Benefits of customer loyalty programs
- What Are the Types of Customer Loyalty Programs?
- How do Customer Loyalty Programs Work?
- 5 Steps to Create a Successful Customer Loyalty Program
- What Do Customers Expect From A Loyalty Program?
- Benchmarks: What a Successful Loyalty Program Looks Like
- 5 Key Challenges of A Customer Loyalty Program
- Top 6 customer loyalty program examples
- Turning Your Loyalty Program into a Growth Engine
- Frequently Asked Questions
What are Customer Loyalty Programs?
Customer Loyalty Programs are strategic marketing initiatives that reward customers for repeat purchases. Instead of a one-off transaction, these programs focus on building an ongoing relationship through points, discounts, exclusive access, VIP perks, or tiered rewards that unlock more value over time.
That’s why they’re used across industries—from retail and hospitality to SaaS and B2B services—as a proven way to turn frequent buyers into long-term, loyal advocates.
4 Benefits of customer loyalty programs
Loyalty programs have become an integral part of customer engagement strategies for businesses across various sectors. These programs not only incentivize repeat purchases but also offer a plethora of other benefits to both the company and its customers.
Here are some of the advantages:
1. Increases Customer Lifetime Value
One of the main benefits of a loyalty rewards program is that it increases customer lifetime value and encourages repeat purchases.
According to the Loyalty Big Picture report by LoyaltyOne, 95% of companies believe that their loyalty program members spend more than their non-members annually. Out of this, at least 60% of companies report that their loyalty members spend two to three times more than their other customers, and 23% believe that they spend over 4 times more!
2. Helps in Gathering Rich Customer Data for Decision Making
Another great benefit of loyalty programs is the crucial data they provide pertaining to customer behavior – their spending habits, their preferences, and their preference of various channels.
Companies can factor this important data into their product development efforts. Additionally, they can use it to fine-tune their customer retention strategies and customize their customer service, pricing, and promotional strategies.
LoyaltyOne’s report found that 61% of companies use data from their loyalty programs across at least three different departments in their organization.
3. Enhances Customer Engagement and Satisfaction
Loyalty programs encourage regular interaction between the customer and the brand. This ongoing engagement leads to increased customer satisfaction and a stronger connection with the brand. In fact, according to the 2023 report from Ebbo, 78% of consumers are more likely to shop with a brand whose loyalty program they belong to compared to one of their competitors,
This way, businesses can offer personalized experiences, making customers feel valued and understood.
4. Improves Brand Advocacy
Satisfied loyalty program members are more likely to recommend the brand to others, effectively acting as brand ambassadors.
This is crucial because, according to Nielsen, 92% of consumers trust referrals from people they know. Thus, loyalty programs can encourage members to refer friends and family, further amplifying the brand’s reach and credibility.
What Are the Types of Customer Loyalty Programs?
There are different types of loyalty programs that brands can implement depending on factors like their business size, their customers’ typical purchase frequency, and their average order value (AOV).
Here are some of the most popular types:
1. Points-Based Programs
This is the most common format for a loyalty program. Customers spend money, earn points, and redeem them for rewards. It works best for high-frequency purchases, such as coffee shops, grocery stores, and quick-service restaurants.
The greatest appeal of this kind of program is its simplicity. Customers instantly understand the math: $50 spent = 1 free coffee. You’re training behavior through accumulation while capturing purchase data.
Here’s the hidden economics: with industry-standard redemption rates hovering around 45-50%, you offer what feels like a 10% discount to customers, while your actual cost is closer to a 5-6% margin.
The catch, however, is that you need volume for it to be effective. A once-a-month customer never accumulates enough to redeem, making the program feel pointless.
2. Tiered Programs
In this loyalty program, customers start at the bottom (Bronze) and work their way up (Silver, Gold, Platinum) based on their spending.
It typically works well for airlines, hotels, B2B SaaS companies, and luxury retailers.
Tiered loyalty structures see nearly double the ROI of non-tiered programs by incentivizing customers to increase engagement and spend as they pursue higher status levels. Essentially, you’re not giving away more; you’re engineering ambition.
The key is to make each tier feel genuinely rewarding. If Bronze and Silver offer nearly identical perks, there’s little reason for customers to aim higher. A loyalty program only works when each level unlocks clear, compelling value.
3. Paid Membership Programs
In this program, customers pay a recurring fee for instant VIP benefits. Amazon Prime is a classic example.
These programs work best when they deliver real, tangible value, such as free shipping, priority access, or exclusive deals that clearly save time or money. Once customers commit, the sunk cost effect often kicks in. Having already paid for the subscription, they’re motivated to get their money’s worth, which can lead to higher purchase frequency and larger orders.
According to the EY Loyalty Market Study 2025, 17% of customers say they want a paid subscription or membership tier with additional benefits and rewards.
That said, the model is unforgiving. If customers don’t feel the value, if the savings aren’t obvious or the experience isn’t meaningfully better than what competitors offer, they’ll cancel just as quickly as they signed up.
4. Referral Programs
Referral programs reward existing customers for bringing in new ones. They work best for B2B companies, subscription services, and businesses that already have solid word-of-mouth.
People trust peers more than promotions and the numbers prove it. Dropbox grew a staggering 3,900% in just 15 months, with 35% of signups driven by referrals. That word-of-mouth strategy was far more cost-effective than their paid ads, which ran as high as $338 per customer.
5. Punch Card Programs
This is the analog version of “buy X items, get the Yth one free,” and it works best for small, community-focused businesses.
Customers can see their progress on a physical card, which creates a simple, satisfying sense of momentum. And if you give them a head start (say, handing out cards with the first stamp already filled), they’re psychologically more likely to complete it.
The downside is that you learn nothing about who those customers are. There’s no data, no personalization, no real way to nudge them toward higher-value purchases.
How do Customer Loyalty Programs Work?
Great loyalty programs operate on four simultaneous levels:
Level 1: Incentivize Repeat Purchases
This one’s the classic — offer a reward, drive repeat purchases. It gives customers a clear reason to keep choosing you over competitors. But here’s where it gets tricky – if your reward is too generous, you’re eroding the margin. If it’s too small, nobody will bother to redeem it. The sweet spot is usually between a 10-15% effective discount (accounting for breakage).
Level 2: Increase Engagement
Good loyalty programs keep customers actively engaged. It could be something as simple as nudging people to check their points balance, or sending them a reminder email that they’re just “3 purchases away from Gold status.” Such small prompts repeatedly bring your brand back into their consideration set and keep you top-of-mind.
Starbucks, for example, sends personalized push notifications to reward members based on their purchase history. A customer who usually buys lattes might get a notification saying “Earn 2x Stars on any Frappuccino today.” This isn’t random. It’s designed to either increase Average Order Value (encourage an upgrade) or extend frequency (come back more often).
Level 3: Gather Customer Data
58% of brands are prioritizing personalization to drive retention in 2025 — and loyalty programs are a gold mine for it. When customers join, you don’t just reward them — you learn from them. You gain insights into what they buy, when they shop, how often they come back, and which offers they respond to.
With this granular level of data on customer behavior, you can optimize staffing, inventory, and marketing.
Level 4: Build Brand Relationships
Over time, transactional loyalty (“I buy for points”) shifts to emotional loyalty (“I love this brand”). Emotional customers are stickier and less price-sensitive. Research suggests that loyal customers stay with a brand for 5.1 years on average vs. 3.4 years for transactional customers.
5 Steps to Create a Successful Customer Loyalty Program
Creating a customer loyalty program is a time and cost-intensive affair. But when done well, it can give your business an edge in today’s competitive marketplace.
Here are five useful steps to help you create a successful customer loyalty program, along with some great examples to inspire you.
1. Define the objectives for your customer loyalty program
Before you launch a customer loyalty program, you should have a clear understanding of what you’re seeking to achieve from it.
Do you want to increase customers’ purchase frequency and value? Do you want to lower churn? Or are you looking at enhancing customer engagement?
Chances are that you might want to do everything at once. But, the more targeted you keep your objectives, the higher the probability of your loyalty program becoming a success.
Let’s illustrate this with an example.
Say you start an ecommerce business that sells electronic goods. You decide that your broad goal is to increase your AOV by introducing a loyalty program for your elite customers.
Now here’s when you should break this goal down to make it more precise. Use the
SMART(specific, measurable, achievable, relevant, and time-bound) framework to define your goals.
- Specific – Launching a customer loyalty program that increases your AOV
- Measurable – Increasing the AOV by 15%
- Attainable – Ensuring that the 15% target is not unrealistic
- Relevant – Ensuring that the decided goal is in tune with your business’ overall strategy
- Time-Bound – Achieving the goal within the first quarter after implementing the loyalty program
This strategic approach, focused on precise objectives like increasing your AOV, will not only enhance the program’s effectiveness but also contribute significantly to your overall business strategy.
Recommended reading
15 Actionable Customer Service Goals to Improve Retention and Satisfaction
2. Use customer data to understand what they want
Once you’ve defined the main objective of your loyalty program, the next step is to use the customer data you have to craft a program that’s relevant and effective both for you and your customers.
You can use important customer service data including major milestones (birthdays, anniversaries, etc.), purchase history, social activity, purchase amount, and purchase preferences, to create targeted reward programs that drive loyalty and revenue.
Following a data-driven approach to creating a customer loyalty program allows you to provide different customers with unique and tailored experiences with the same program. It offers them greater flexibility in how they utilize their points and what rewards they receive.
3. Make Your Loyalty Program Frictionless
One of the biggest mistakes several brands make with their loyalty programs is to overcomplicate things by trying something different or path-breaking. However, simple but well-planned loyalty programs are the ones customers are usually drawn to.
Research suggests that “easy to use” is the main reason for 53% of U.S. consumers to participate in a loyalty program. And 37% of consumers say that they choose a loyalty program because it’s “easy to understand”.
Ensure that you make every aspect of your rewards system simple for customers. This includes:
- The enrolment process – Make this process as seamless as possible. Allow customers the option of enrolling via the web, mobile or your physical store. Ask them to share only a few relevant details at this point. Don’t overwhelm them with too many questions.
- The benefits – You should make it easy for customers to understand the benefits that come with their membership. For example, if yours is a point-based loyalty program, make sure customers have clarity on how they can earn new points, where they can access their balance and the ways in which they can use their points.
- The rewards redemption process – Finally, ensure the rewards redemption process is straightforward.
This approach aligns with customer preferences for simplicity and easy understanding, fostering greater participation and satisfaction.
4. Market the loyalty program effectively
Let’s be honest – any loyalty program, no matter how well-designed, isn’t going to give you the results you desire unless your customers know about it.
The time and effort you put into crafting a solid loyalty program should be the same you put into devising a strategy to promote it to your customers and prospects. Here are a few ideas to help you with your digital marketing efforts:
- The classic email announcement – Good old email is an effective (and cheap) way to reach out to your existing customer base about your loyalty program. Clearly explain details about the program including how it works, how they can enroll, and what’s in it for them. You could even offer your customers first-time promotional credits. Take a look at how Headstart Shop does this.
- Website banners and landing pages – When your customers or prospects visit your website, details about your loyalty program should grab their attention. You could use catchy website banners on your homepage that link customers to your loyalty program’s landing page. Your loyalty program’s landing page should further summarize the details of the rewards, and the redemption process. You could even include a fun video to walk customers through details of your program. Check out Nintendo’s excellent rewards landing page below.
- Promotions on social media – Social media is where you can garner the maximum number of eyeballs for your loyalty program. Use that to your advantage. Give your customers incentives to sign-up for your loyalty program, and to refer it to their friends and family. Check out how neatly HungryHarvest does this on Facebook.
Other ways you can market your loyalty program include text messages, press releases, advertisements, influencer programs, etc. You can find influencers by Google scraping, using social media ad campaigns, and other promotional methods.
Recommended reading
5. Keep in touch with your customers
Loyalty programs are popular with customers, but let’s face it, there are tons of them in the market. It’s important to constantly remind customers of the value your program offers unless you want it to get reduced to being just another loyalty card in their wallets.
As per research, U.S. consumers are enrolled in 16.6 loyalty programs on average, but actively use only about half of them.
You need to build momentum among your customers by regularly sending them emails and texts that help them maximize their loyalty rewards. Make sure to talk about things like renewals or exclusive deals tailored to their level, usage patterns, and behavior.
For example, if a customer hasn’t availed the benefits of your loyalty program in six months, you could send them an email offering an exclusive deal to encourage them to shop with you.
Look at this simple yet fantastic “We Miss You” email campaign that The Body Shop designed to engage and attract its inactive customers.
Recommended reading
What Do Customers Expect From A Loyalty Program?
In loyalty programs, customers have specific expectations that can significantly impact their participation and overall satisfaction. Businesses should not consider these programs just as a marketing tool. They are a way to build a lasting relationship with their customers.
Understanding what customers look for in these programs is crucial for their success. Here are some key expectations:
- Value for Money: Customers join loyalty programs expecting to save money or gain added value from their regular purchases. For instance, a supermarket loyalty program might offer a 5% cashback on every purchase, which accumulates over time and can be used for future shopping. This not only incentivizes repeat purchases but also makes the customer feel like they are getting more value from their purchases.
- Relevance: The rewards and benefits of a loyalty program must align with the interests and needs of the customers. For example, a bookstore’s membership program might offer members early access to book signings or exclusive events with authors. This not only rewards customers but also aligns with their interests in reading.
- Flexibility: Customers appreciate having options on how they can redeem their rewards. For example, a clothing retailer could offer multiple redemption options, like using points for discounts, special access to sales, or exclusive merchandise. This flexibility allows customers to choose rewards that are most valuable to them.
- Recognition: Recognizing customer loyalty can be as important as the rewards themselves. A restaurant might acknowledge its regular customers by offering a surprise complimentary dish during their visit, which makes the customer feel valued and appreciated.
- Exclusivity: Exclusive offers or experiences make loyalty programs more attractive. For instance, an electronics retailer could provide its loyal customers with early access to new product launches. This exclusivity adds a sense of prestige and privilege to the loyalty program.
- Transparency: Clear and straightforward communication about how the loyalty program works is essential. A fitness center should ensure that its members clearly understand how they can earn points (like through attending classes or referring friends) and what rewards those points can be exchanged for. This transparency builds trust and encourages more active participation in the program.
Benchmarks: What a Successful Loyalty Program Looks Like
It’s hard to know if you’re doing well without a baseline. Here are the numbers you should be aiming for, broken down by program type.
| Metric | Points-Based Programs | Tiered Programs | Paid (Premium) Programs |
|---|---|---|---|
| Typical enrollment | High – easy to join, low friction | Moderate – some effort needed to reach/use tiers | Low – customers must pay, so fewer sign up |
| Active member rate | Around 40–50% of enrolled members stay active. | High – tiers and status keep people engaged | Very high – once people pay, most keep using it |
| Redemption rate | About 45–50% of issued points get redeemed | High for top tiers (elite members redeem more) | Not applicable – benefits are used instantly, not “redeemed” |
| Retention uplift | Moderate lift in retention vs. no programs | Typically higher retention than simple points programs, as status creates switching costs | Prime-style programs see ~93% annual retention |
| Average spend increase | Members spend about 12–18% more than non‑members | Customers in higher tiers increase spend by ~37% | Paid members can spend roughly 2x what non‑members do |
5 Key Challenges of A Customer Loyalty Program
Here are some challenges you may face in implementing a loyalty program (and how to overcome them).
1. Saturation and Low Engagement
Everyone has a loyalty program now. Cutting through the noise is the greatest challenge. If your program doesn’t feel meaningfully different or valuable, customers will ignore it.
How to fix it:
- Offer experiential perks, not just discounts (think early access, concierge support, exclusive content).
- Highlight the “why” of your program, not just the “what.” Customers need a reason to care.
- Personalize rewards based on customer behavior, not just spend.
2. Unredeemed Points Pile Up
More than 50% of accumulated loyalty points are never redeemed. Until a point is redeemed, it sits on your balance sheet as “deferred revenue” – a liability you legally owe. If expiration dates aren’t set properly, you’re building financial debt. And if too many customers redeem at once, it can strain cash flow.
How to fix it:
- Set clear but fair expiration timelines.
- Send nudges or reminders to encourage timely redemption.
- Build smaller, quick-win rewards that keep the redemption cycle active.
3. The Redemption Math is Tricky
Too many redemptions erode your margins. Too few mean your program is failing to engage. You need to hit the sweet spot: a 45-50% redemption rate signals healthy engagement. Below 10% and your program is essentially invisible. Above 65% and you’re being too generous.
How to fix it:
- Use A/B testing to tweak reward thresholds and value.
- Monitor redemption data monthly; not yearly.
- Tie high-cost rewards to high-value actions like referrals, reviews, or subscriptions.
4. Complexity Kills Participation
If customers need a calculator to understand how to earn or use rewards, they won’t bother. The barrier to entry must be low. But here’s the tension: simplicity often means less personalization and lower perceived value. You’re trading sophistication for adoption.
How to fix it:
- Keep onboarding frictionless.
- Offer tiered simplicity: basic rewards for all, deeper rewards for loyalists.
- Use plain language and visual aids to explain how it works.
5. Data Privacy Concerns
Loyalty programs require enrollment and data collection, which is increasingly sensitive. Customers want personalization, but they’re also wary of sharing data. You have to balance the value of their information with their comfort level, or risk damaging trust.
How to fix it:
- Be transparent about what you collect and why.
- Let users control their data preferences and opt-outs.
- Offer value in exchange for data. Make it a two-way street, not a grab.
Recommended reading
Customer Data Protection: Strategies, Best Practices and Compliance
Top 6 customer loyalty program examples
Let’s take a look at some creative customer loyalty program ideas and examples to inspire you:
1. Best B2B SaaS Loyalty Program: Salesforce Trailblazer
Salesforce flips the script on B2B loyalty. Instead of rewarding transactions, they reward education. Through their Trailblazer Community, users earn badges, points, and “Ranger” status by completing training modules and helping other users in forums.
This strategy turns customers into experts. By investing in their users’ careers, Salesforce builds incredibly deep loyalty. The stats back it up: active community members are 3x less likely to churn and purchase 2x more than those who don’t participate.
It’s a perfect example of how B2B brands can build loyalty by helping their customers succeed, rather than just selling to them.
2. The Gold Standard of Retail: Sephora Beauty Insider
Sephora’s loyalty program is widely considered the benchmark for retail loyalty. It operates on a traditional points-based system – 1 point per dollar spent, but layers it with a highly effective tiered structure (Insider, VIB, Rouge).
What sets it apart is the Rewards Bazaar. Instead of boring cash-back vouchers, members can redeem points for unique, “money-can’t-buy” experiences like masterclasses with brand founders or limited-edition merchandise.
This focus on exclusivity rather than just discounts has created a massive community of loyalists. Today, the Beauty Insider program has over 34 million members who reportedly drive 80% of Sephora’s total sales.
3. Nordstrom’s Tier-Based Loyalty Program
In 2018, luxury retailer Nordstrom introduced an exclusive loyalty program called The Nordy Club.
The tier-based program slots members into three levels on the basis of how much they spend. Obviously, the more the customers spend, the better benefits they get. Benefits include things like exclusive invites to events, style and beauty workshops, gift cards, vouchers, and first access to products.
Today, the program has upwards of 13 million members who spend four times more and make three times more visits than non-members.
It’s alright even if your goal isn’t to increase AOV like Nordstrom’s. You must still have clarity about what you want this loyalty program to help you achieve. It’ll make the rest of the creation process a lot easier.
4. Brewing Loyalty: Starbucks’ Rewarding Strategy
Starbucks Rewards is a solid example of a data-driven loyalty program at play. How it works is simple. Members earn one star for every dollar they spend on purchases they make through the app. They can further redeem these stars for food, beverages, and merchandise.
The app provides tailored suggestions to customers based on their previous orders. For example, if a customer usually orders dairy-free drinks, the app recommends vegan products from the menu. It also provides tailored offers to customers and even sends them personalized push notifications.
As a result, Starbucks’ hugely successful rewards program contributes to 40% of its total sales. It has also helped increase their same-store sales by 7%.
5. TrueBlue by JetBlue: Simplifying Sky Rewards
JetBlue is an excellent example of a brand using a simple point-based loyalty program.
Its frequent flyer program, TrueBlue, offers its members opportunities to earn reward points by flying with them or their partner airlines, using their co-branded credit cards and their shopping and dining programs.
TrueBlue’s points don’t expire. They don’t have any blackout dates. Also, unlike most other frequent-flyer programs, TrueBlue keeps it simple by offering customers only one level of elite status – TrueBlue Mosaic.
Even the process of redeeming TrueBlue points is a breeze – you can redeem the points you’ve earned to buy flight tickets for yourself or for others. You can also pay for a flight using a combination of cash and TrueBlue points. The entire process is transparent and extremely easy to understand.
Perhaps this simplicity is what’s ensured that the program launched in the year 2008 is still going strong today!
6. Elevating Loyalty with Amazon Prime
Another excellent example of a successful customer loyalty program is Amazon Prime. Launched in 2005, Prime is known for its straightforward and highly beneficial offerings.
Members enjoy a variety of perks such as free two-day shipping, access to streaming of movies, TV shows and music, exclusive shopping deals, and more. The simplicity and value of the program have contributed to its widespread popularity and customer retention.
As of 2025, Amazon boasts over 200 million subscribers across 23 different countries, demonstrating its vast reach and popularity.
Key to its success is its significant impact on sales and customer spending habits. In fact, prime customers tend to spend significantly more annually than non-Prime customers, with an average spending of about $1,400 compared to $600 by non-Prime customers.
This highlights the program’s effectiveness in boosting customer spending.
Turning Your Loyalty Program into a Growth Engine
Running a customer loyalty program is an ongoing exercise. Once you implement it, you’ll need to constantly review its performance on the basis of how customers are engaging with it, and how it’s impacting your bottom line.
Apart from tracking certain customer loyalty program KPIs, make sure you ask customers for their feedback and keep a check on your customer satisfaction scores. You could set up focus groups, send feedback surveys and conduct social polls to get customers’ inputs on what they like and dislike about your loyalty program. Accordingly, you can improve your loyalty solution and also your overall customer experience.
Frequently Asked Questions
1. How to start a customer loyalty program?
Start small. Don’t try to build a complex tiered system on day one. Launch a simple “earn and burn” (points for purchase) pilot to test your reward economics. Survey your top 10% of customers to ask what rewards they actually want.
2. What are tiers or levels in the program?
Tiers are status levels (e.g., Silver, Gold, Platinum) based on spending or engagement. They create a psychological “ladder” that motivates customers to spend just a little bit more to reach the next level of prestige and benefits. The closer you are to the next tier, the harder you work to reach it.
3. Which companies provide the best customer loyalty programs?
Sephora (Retail), Amazon (Paid), Starbucks (Points), and Salesforce (Community) are consistently ranked at the top. In the B2B space, HubSpot and Atlassian also run world-class programs built around education and community.
4. What is the future of customer loyalty programs?
The future of loyalty programs is AI-driven programs that predict what you want before you know it. It’s moving away from “points” and toward “partnerships”, where brands collaborate to offer cross-brand rewards. Emotional loyalty (built on values and community) is replacing transactional loyalty (built on discounts).
5. What are the 4 C’s of customer loyalty?
–Customer: Focus on their needs, not just your sales. What problem does your program solve for them?
–Cost: Ensure the value to the customer outweighs their cost (time/money). If they need 50 purchases to get a free drink, that’s a poor ROI for them.
–Convenience: Make it effortless to join and redeem. No complex enrollment and no hidden terms.
–Communication: Keep the dialogue open and personalized. Tell them when they’re close to a reward. Show them how much they’ve saved. Make it feel like a partnership, not a transaction.
