Types of Loyalty Programs That Are Pivotal for Any Brand

Loyalty programs have become a cornerstone strategy for brands looking to foster long-term relationships with their customers. Today, customer retention is more crucial than ever, as acquiring a new customer can cost five times as much as retaining an existing one. A well-executed loyalty program not only encourages repeat purchases, but also increases customer lifetime value, drives advocacy, and builds an emotional connection with your brand. 

For eCommerce business owners, marketing managers, and customer retention specialists, understanding the various types of loyalty programs can help fine-tune strategies for enhanced retention and engagement. This guide will walk you through the benefits of loyalty programs, showcase the five main types, and provide actionable insights to elevate your customer loyalty game. 

Why Are Loyalty Programs Essential? 

Loyalty programs work because they reward customers for their repeated engagement. Beyond tangible perks like points and discounts, these programs create an emotional bond that builds trust and loyalty. But don’t just take our word for it; here’s some data to support their power: 

• A consumer survey in the UK revealed that 97% of shoppers are members of at least one loyalty program, with the average shopper holding memberships in three different programs. 

• According to a recent report, loyal customers spend 67% more than new customers. 

• Loyalty leaders grow their revenue about 2.5 times faster than their competitors in industries like retail and eCommerce. 

• A study by Bain & Company revealed that increasing customer retention rates by just 5% boosts profits by 25% to 95% for eCommerce companies. 

• Research published by Forbes highlighted that loyal customers are five times as likely to repurchase, four times as likely to refer a friend, and seven times as likely to try a new product offered by eCommerce brands. 

• McKinsey & Company reported that companies with strong loyalty programs and initiatives experience 4% to 8% higher revenue growth than their market average.

For businesses, the benefits are clear. Customer loyalty programs encourage repeat purchases, offer competitive differentiation, and help gather valuable customer insights. Whether your goal is to boost average order values or reduce churn, loyalty programs are a must-have in your toolkit. 

The Five Main Types of Loyalty Programs 

Different types of loyalty programs cater to different business models and customer needs. Below are five foundational loyalty program models, their benefits, and examples to inspire you. 

1. Points-Based Loyalty Programs 

How It Works 

Customers earn points for purchases or activities, which they can later redeem for rewards like discounts, free items, or exclusive merchandise. For example, spending $1 might earn 10 points, and 100 points could translate to $10 off the next purchase. 

This is also known as the "earn and burn" loyalty principle, which is central to points-based programs. It focuses on a straightforward cycle where customers earn points through purchases, and then "burn" or redeem those points for rewards. This method creates a seamless and satisfying experience that encourages repeat transactions by providing immediate, tangible benefits. 

Why Points-Based Systems Excel for High Purchase Frequency Business Models

Points-based systems are particularly effective for businesses with high purchase frequency, because they capitalize on consistent customer engagement. 

Frequent purchases lead to quicker accumulation of points, which motivates customers to return often to redeem their rewards. This creates a reinforcing loop of engagement and loyalty. For example, coffee shops, convenience stores, or online marketplaces thrive with this model because the shorter intervals between transactions keep customers motivated and invested in the program, fostering long-term retention and boosting revenue. 

Best Suited For 

Ecommerce businesses with frequent, low-cost purchases, such as those in beauty, fashion, or snacks. 

Example 

Starbucks Rewards allows customers to collect stars for every purchase. These stars can be redeemed for menu items, and the program’s mobile app makes it seamless to track and redeem rewards. 

Pro Tip: Simplify the earning process and ensure the rewards are meaningful enough to motivate participation. 

2. Tiered Loyalty Programs 

How It Works 

Customers achieve different loyalty tiers based on their spending or engagement levels. Higher tiers come with more exclusive perks, incentivizing customers to spend more or engage more deeply. 

Best Suited For 

Brands that want to attract and retain their high-value customers. 

Example 

Sephora’s Beauty Insider program offers three tiers—Insider, VIB, and Rouge—each with increasing perks like birthday gifts, exclusive access to events, and free shipping. 

Pro Tip: Gamify the experience by showing customers how close they are to reaching the next tier. Celebrate their achievements along the way. 

3. Subscription-Based Loyalty Programs 

How It Works 

Customers pay a subscription fee to access exclusive benefits, such as free shipping, exclusive discounts, or early-bird access to products. 

Best Suited For 

Businesses with recurring revenue models, such as streaming services, eCommerce brands offering repeat purchases, or retailers focusing on consumables. 

Example 

Amazon Prime is the gold standard for subscription loyalty programs. For an annual fee, members get free and faster shipping, access to exclusive deals, and add-ons like Prime Video and Prime Music. 

Pro Tip: The perceived value of the subscription must outweigh the cost for sustained participation. 

4. Value-Based Loyalty Programs 

How It Works 

Instead of traditional perks, these programs focus on shared values, such as donating a portion of each purchase to a cause or promoting sustainable practices. 

Best Suited For 

Brands aligned with purpose-driven consumers who prioritize social responsibility. 

Example 

TOMS One for One donates a pair of shoes to someone in need for every pair purchased by customers. Their value-driven approach has created an emotional bond between the brand and its community. 

Pro Tip: Identify causes that align with your brand and resonate with your customer base. Authenticity is key here. 

5. Partnered Loyalty Programs 

How It Works 

Two or more complementary brands collaborate to expand their reach and combine rewards into a single program. 

Best Suited For 

Businesses aiming to grow their customer base and improve rewards through partnerships. 

Example 

Airline and hotel chains frequently collaborate. For example, partnerships between Delta Airlines and Marriott Hotels allow customers to earn both Delta SkyMiles and Marriott Bonvoy points for the same transaction. 

Pro Tip: Select partners that complement your brand and appeal to your audience without overlapping too much. 

These five types of brand loyalty programs are just the beginning. Many businesses experiment with hybrid models or even industry-specific versions tailored to their customer base. For example, types of loyalty programs for customer retention may differ between subscription-based businesses and those with one-time purchases. 

Choosing the right loyalty program type often comes down to understanding which structure best nurtures loyalty rewards and enhances the customer experience.

What Makes a Loyalty Program Successful? 

While loyalty programs are impactful, they require thoughtful planning to achieve optimal results. Regardless of which type you adopt, consider these key elements for success. 

1. Personalization 

Tailor rewards to different customer segments based on preferences and behavior. For instance, offer discounts on frequently purchased items or exclusive experiences for top-tier members. 

2. Transparency 

Be upfront about how customers earn and redeem rewards. Ambiguity can lead to frustration and drop-offs. Keep terms and conditions clear and easy to understand. 

3. Engagement 

Regularly interact with your customers. Sending emails about their reward status, providing surprise perks, or running exclusive events can keep customers involved and invested in your program. 

4. Promotion 

Promoting your rewards program is essential to drive awareness and participation. Even the most well-designed program won't succeed if customers aren't aware of it. Utilize multiple channels like email, social media, in-store signage, and your website to highlight the benefits of joining. 

Regular communication about new rewards, updates, and exclusive offers can keep your program top of mind. A strong promotional strategy ensures your program reaches its target audience and encourages consistent engagement.

Looking for ideas on promoting your program? Check out 10 creative ideas to promote your loyalty program.

How to Choose the Right Loyalty Program for Your Brand 

Selecting the best loyalty program requires understanding your audience, industry, and business model. 

Ask yourself the following:

• What motivates your customers—discounts, exclusivity, or shared values? 

• How often do your customers make purchases? 

• Do you have the tools to effectively manage and measure a loyalty program? 

• Will your program complement or conflict with other marketing initiatives? 

• How can you differentiate from competitors’ loyalty programs? 

By answering these questions, you can determine which type of loyalty program will resonate most with your customers and align with your brand’s goals. Keep in mind that you can always test different types and adjust as needed to find the best fit for your business. As long as you prioritize personalization, transparency, and engagement, any loyalty program has the potential to drive customer retention and overall business success. 

So don’t hesitate—start implementing a loyalty program today!  Overall, incorporating a tailored, well-executed loyalty program into your business strategy is essential for building customer relationships.

Choosing the Right Tech Partner for Your Loyalty Program 

Selecting the right tech partner is a critical step in ensuring the success of your loyalty program. The software you use will serve as the backbone of your program, impacting your ability to provide seamless customer experiences, track key metrics, and scale as your business grows. An effective tech partner will help you streamline program management, enhance customer engagement, and deliver personalized rewards that resonate with your audience.

When evaluating loyalty program software, there are several factors to consider.

First, look for a platform that offers flexibility and customization to align with your brand identity and business goals.

Scalability is another key factor—ensure the software can grow alongside your business and accommodate expanding customer bases. Additionally, user-friendly interfaces for both your team and customers are essential for smooth implementation and ongoing engagement.

Integration capabilities are equally important; the software should work seamlessly with your existing systems, such as CRM platforms, e-commerce tools, or point-of-sale systems.

Lastly, prioritize comprehensive analytics and reporting features. The ability to track customer behavior, program performance, and ROI will enable you to refine your strategy over time. By selecting a tech partner with these qualities, your loyalty program can deliver maximum value to both your business and your customers.

Platforms like Lootly provide user-friendly interfaces to set up and manage loyalty programs. Additionally, consider integrating your program with marketing apps such as Klaviyo, Mailchimp, Hubspot, and Recharge, to ensure seamless execution.

The different types of customer loyalty programs offer brands a toolkit to drive growth. By clearly identifying your needs and evaluating which types of customer loyalty program models align with your business, you can build a strategy that goes beyond perks—and focuses on sustainable, long-term engagement.

To deepen your expertise and stand out in the field, consider taking the next step and obtain a formal Loyalty Marketing Professional Certification that will help you formalize your knowledge and gain industry-recognized credentials.

Measuring the Success of a Loyalty Program 

To evaluate the effectiveness of your loyalty program, track the following KPIs regularly:

• Customer Retention Rate: Measure how well your program keeps customers coming back. 

• Loyalty Program Redemption Rates: Higher redemption rates indicate engaged and satisfied customers. 

• Average Order Value (AOV): Assess whether program members spend more per transaction. Studies show that customers who redeem rewards spend more during each transaction compared to those who do not participate in loyalty programs. This behavior is driven by the perceived value they receive from claiming rewards, encouraging them to increase their spending to maximize benefits. 

For example, a customer redeeming a discount or free product may feel incentivized to add more items to their cart, boosting sales for the brand. This correlation highlights the financial impact of an effective loyalty program and underscores the importance of motivating customers to engage with rewards.

• Referral Rates: Evaluate how often loyal customers recommend your brand.  Referred customers often bring significant value to a brand, as they are acquired through established trust and personal recommendations. Studies show that referred customers tend to spend more than those obtained through traditional advertising, as they arrive with a positive perception of the brand already in place. This trust reduces barriers to purchasing and increases the likelihood of repeat buying behavior. 

Additionally, referred customers are more likely to develop long-term loyalty, creating a ripple effect where they, in turn, refer others, amplifying the growth potential for the brand. Unlike ad-acquired customers who may need extensive nurturing to convert, referred customers are primed to engage, making them a cost-effective and high-return investment for businesses. Read on for strategies to increase loyalty program redemption rates.

Reinforce Customer Loyalty Today 

Loyalty programs are not just about perks—they’re about building relationships that last. By choosing the right loyalty program for your brand and executing it thoughtfully, you can enjoy lasting benefits, from increased retention and advocacy to higher revenue. Consider your customers' needs, align them with your brand goals, and start implementing a program that works.

 FAQs 

1. What is a loyalty program?

A loyalty program rewards customers for repeated engagement with a business through points, discounts, exclusive access, or other perks. 

2. Why are loyalty programs important for brands? 

They boost customer retention, increase lifetime value, and build a stronger connection between the brand and its customers. 

3. How many different types of loyalty programs are there for eCommerce businesses? 

There are generally five main types of loyalty programs—points-based, tiered, subscription-based, value-based, and partnered programs. 

4. What is the difference between a points-based and a tiered loyalty program? 

Points-based programs reward actions with points redeemable for rewards, while tiered programs offer escalating benefits as customers reach milestones. 

5. How do loyalty programs increase customer retention? 

They provide incentives for repeat purchases, build emotional bonds, and create a sense of exclusivity or value for customers. 

6. How to measure the success of a loyalty program? 

Track KPIs like retention rate, redemption rates, average order value, and referral rates.