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How to Create a Successful Loyalty Rewards Program in Retail

How to Create a Successful Loyalty Rewards Program in Retail

Did you know that 90% of companies have some kind of customer loyalty program? 

However, most loyalty program members aren’t actively participating in them. Research by McKinsey shows that on average, customers belong to 17 loyalty programs, but less than 50% actively engage in them. 

Clearly, there’s more to building customer loyalty than setting up a program. In order to drive engagement and repeat purchase, your rewards program should truly provide a… well, rewarding experience.

Which is exactly what we’ll discuss in this article. We’ll cover:

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What is customer loyalty?

Customer loyalty is the tendency of customers to repeatedly purchase products or services from a particular business over time. It indicates a strong and ongoing relationship between the customer and the merchant.

Rory Moss, Chief Revenue Officer at Marsello defines it best:

“Customer loyalty is a relationship with your business. It’s those positive interactions you have with customers every day and the relationships that build from them that create value.”

It’s worth noting that customer loyalty is NOT your loyalty program. A program is a tactic you can use to build loyalty, but if you’re not offering value to begin with, the program itself won’t be very successful.

Did you know? We did a webinar with Marsello that walks merchants sheds light on customer loyalty and what brands need to do to succeed. Catch it on demand below.

What is a customer loyalty program?

A customer loyalty program (aka rewards program) is a structured marketing strategy that’s designed to reward and incentivize customers for their loyalty and repeat purchases. 

Customer loyalty or rewards programs come in different forms, but the general premise remains the same: customers are offered perks, benefits or rewards in exchange for their purchases and support. 

What are the different types of loyalty programs?

The most common types of loyalty programs are:

Points-based programs

In this type of program, customers earn points for their purchases, and these points can be redeemed for rewards, discounts, or free merchandise. The more customers spend, the more points they accumulate. This then unlocks more (or higher-value) rewards, which they can use on future purchases. 

Here’s a great example of a point-based loyalty program from Brandini Toffee in Palm Springs, CA. 

Customers earn 1 point for every $1 purchase, and they can use those points to get discounts on future purchases. 100 points gets them $10 off, 200 points unlocks $20 off and 300 points unlocks $30 off.

Tiered programs

Tiered loyalty programs divide customers into different levels or tiers based on their spending or engagement levels. Each tier offers increasingly valuable rewards and benefits, motivating customers to progress to higher tiers by increasing their loyalty.

Nordstrom’s  The Nordy Club is one example of a tiered-based structure. The program has three levels—Member, Influencer and Ambassador—and customers unlock more benefits, the higher they move up in the program. 

For instance, the highest tier (Ambassador) gives people access to exclusive style events and in-home styling. 

Punch cards

Popular in small businesses or cafes, punch cards provide shoppers with a physical card that gets stamped or punched each time they make a purchase. After a certain number of punches, customers receive a free item or a discount.

Here’s an example of what that can look like:


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Paid membership programs 

Some brands offer premium, paid membership programs that provide exclusive benefits and perks to members. These programs often include features like free shipping, early access to sales, personalized offers, or enhanced customer service.

The most well-known example of this is Amazon Prime. Subscribers enjoy an array of benefits, such as free two-day shipping on eligible items, access to a vast library of streaming content, exclusive discounts, early access to sales like Prime Day, and even perks like Prime Music and Prime Reading.

Why is having a customer loyalty program important?

Implementing a customer loyalty program is important for several reasons.

1. Boosts loyalty

First, a rewards program builds customer loyalty by encouraging repeat  purchases. By giving customers a goal to work towards, such as reaching the next reward, they associate their purchases less with spending money and more with earning a prize.

Research shows that when applied to a retail setting, gamification can boost repeat visits by 30% on average.

2. Generates sales

Second, rewards programs help you generate more sales. Loyalty programs, by design, encourage shoppers to purchase more frequently, and this naturally leads to higher revenues. 

3. Gather data for better marketing

Last but certainly not least: loyalty programs give you valuable insights into your customers. 

“Arguably one of the most important aspects is about getting a better understanding of your customer base, so you can better tailor your marketing mix,” says Rory at Marsello. 

“Without that data, you have a fragmented view of your customer base. So you might be making decisions about how you’re pricing or merchandising your store sometimes based on assumptions.” 

He continues, “We often find when we deal with retailers is once we give them access to the loyalty data. They’re actually quite surprised at the insights and information about their existing customer base.”

How do customer loyalty programs work?

The short answer is it depends. The specific mechanics of loyalty programs will vary depending on the type of initiatives in place.

How points-based programs work

Points loyalty programs allow customers to earn points for their purchases, which can be accumulated and later redeemed for rewards. Customers receive a certain number of points based on their spending. These points can be exchanged for discounts, free merchandise, or other incentives. 

The more customers spend, the more points they accumulate, unlocking higher-value rewards. Points loyalty programs incentivize continued patronage and provide shoppers with a tangible benefit for their loyalty to the business.

How tiered programs work

In tiered loyalty programs, customers are categorized into different levels or tiers based on their spending or engagement. Each tier offers increasingly valuable rewards and benefits. 

Customers start at a base level and progress to higher tiers by meeting specific criteria, such as reaching a certain spending threshold. The benefits and rewards become more enticing as customers move up the tiers, providing an incentive for continued loyalty and increased engagement with the retailer.

How punch cards work

Punch card loyalty programs typically involve customers receiving a physical card that gets stamped or punched each time they make a purchase. 

After a certain number of punches or stamps, the customer becomes eligible for a free item, discount, or other reward. 

Punch cards are a more traditional way to run a loyalty program. These days, you’re much better off using a solution like Lightspeed Advanced Marketing which automates and streamlines earned rewards and redemption. 

No need to fumble with physical cards—so your team and staff will thank you.  

How paid memberships work

Paid membership loyalty programs require customers to enroll and pay a fee to gain access to exclusive benefits and perks. Members usually enjoy advantages such as free shipping, early access to sales, personalized offers, enhanced customer service, and special events. 

The membership fee contributes to additional revenue for the retailer, while customers feel valued and receive premium treatment in return. Paid membership loyalty programs create a sense of exclusivity, fostering loyalty among members and incentivizing continued engagement and purchases.

What are good customer rewards?

Not sure what kinds of rewards to provide? These are some of the most popular rewards businesses make available to loyalty program members: 

  • Discounts: For example, you could offer 50% off one item, or $10 off the next purchase.
  • Gift cards: Provide digital or physical gift cards that customers can use online or in store in exchange for points.
  • Products: Take inspiration from the classic coffee shop punch card model, which usually gives customers a free cup of coffee after they’ve purchased a certain number.
  • Collectible items: Give away branded merchandise or products that are available exclusively to loyalty members. 

How to create a successful loyalty program 

Now that we’ve talked about the fundamentals of loyalty programs, let’s discuss how you can maximize the success of your initiatives. 

 Incorporate these best practices into your rewards program so that customers want to sign up and continue to engage in the program.

Keep it simple

There are many ways to reward your customers, and while it’s tempting to introduce several bells and whistles, we recommend keeping things simple.

“Too many earn rules result in a term called ‘loyalty confusion,’ where your customers don’t understand how your rewards program works,” explains Rory. 

That’s why he advises merchants to implement an easy-to-understand structure like 1 point = $1. 

Start small

You may have many ideas for perks and loyalty events—and that’s great! However, resist the temptation to unload them all at once. Stagger your initiatives so have a steady flow of campaigns throughout the year. 

As Rory puts it, “you want to ensure your marketing team has a constant stream of new things to shout about.”

“Keep your program fresh by introducing new rewards, double points days or VIP tiers [over time].”

Run a multi-channel loyalty program

Having an online and brick-and-mortar loyalty program is great, but what’s even better is ensuring that your initiatives work seamlessly across multiple channels.

Brandini Toffee, which we talked about earlier, does an excellent job with their multi-channel loyalty. They use Marsello to power their rewards program in-store and online, and this allows customers to earn and redeem rewards across physical and digital touchpoints, 

Whether customers make a purchase in-store or on Brandini’s website, they can earn and redeem rewards seamlessly, which enhances their overall loyalty program experience.

“We focus on acquiring new members in-store and then encourage them to shop beyond our physical stores,” says Brandon Weimer Co-Founder of Brandini Toffee.

And these efforts are paying off massively. 

Brandon reveals their loyalty members account for a significant chunk of your revenue. 

“A large percentage, around 40%, of our ecommerce revenue comes from our loyal customer base.”

Reward customers for non-purchase behaviors

Generating sales is great, but don’t forget that certain non-purchase behaviors are valuable too. 

By incentivizing actions like referrals, social media engagement, and providing feedback, you can deepen customer relationships and drive word-of-mouth marketing.

Take Brandini, which offers points for things like: 

  • Creating an account (50 points) 
  • Referring a friend (20 points) 
  • Sharing on Facebook (10 points)

Other behaviors you can reward include:

  • Writing a review
  • Following you on social media

Look at the data

Tracking and analyzing your loyalty program data is essential for optimizing it. 

Things like customer behavior, purchase patterns, and preferences unveil valuable insights that enable you to tailor rewards, offers, and communication.

Top loyalty program metrics to track

As for what loyalty metrics to track, the following measures will help you determine the performance of your loyalty rewards program. 

  • Average purchase cycle: This is a measure of how much time elapses between your customers’ successive purchases.
  • Repeat purchase rate: Proportion of customers who make multiple purchases, reflecting loyalty and retention. 
  • Customer lifetime value: Total revenue generated by a customer over their entire relationship with your brand. 
  • Points or reward redemption rate: Percentage of earned points or rewards that customers actually redeem. 
  • Number of customers per tier: If you have multiple tiers, this metric lets you see how members are distributed across different loyalty levels. 
  • Customer feedback: Input and opinions provided by customers to evaluate their satisfaction and preferences. 
  • Average purchase frequency rate: Average number of purchases made by customers within a specific timeframe. 
  • Loyalty program ROI: Cost of the loyalty program vs. increased revenue since implementation  

How to set up a rewards program for customers

If you’re ready to take the next step and launch a customer rewards program—a modern one that doesn’t rely on printing punch cards—follow these steps: 

  • Find a loyalty program vendor: Instead of hiring a developer to code a rewards program from scratch, you’ll be much better off working with an existing solution. Look for a loyalty program solution that integrates with your POS and CRM for ease of use, that meets your needs, such as offering omnichannel rewards, and creates a great customer experience. If you run an independent business, find a loyalty program for small, local businesses. 
  • Create a program structure: Decide how customers will garner points and earn rewards. Will you give them points for every purchase or every purchase of a certain amount (e.g., minimum $20 spend)? Will you have a point system (e.g., $1 spent equals 5 points) or just offer rewards after customers have spent a certain amount (e.g., reward after every $100 spent)?
  • Get customers to sign up: Customers need to know about your rewards program in order to sign up. Promote it using in-store signage, through email marketing and on social media. Train in-store staff to ask customers to sign up. 
  • Encourage customers to collect points upon checkout: Remind customers to enter their phone number, login, scan your app, show their membership card or do whatever else is needed to get points upon checkout.
  • Stay top of mind: Customers give you their contact info in exchange for signing up for your rewards program. Stay top of mind by sending marketing messages via email and SMS to alert them of new products, sales and other promotions. 

Loyalty program examples

Need some concrete examples of rewards programs before launching your own? Take inspiration from these real-world customer loyalty programs.

Starbucks Rewards

Coffee giant Starbucks has one of the best-known loyalty programs around: Starbucks Rewards. Customers can join via the Starbucks app, where they can track their points, check out promotions, place orders, scan their loyalty cards, store payment methods, load gift cards and more.

Members collect stars, which they can redeem for free products. Starbucks Rewards builds customer loyalty by giving participants one star per dollar spent for scanning and paying separately and for saving payment on the app. They get two stars per dollar for pre loading cash onto the app and registering a gift card.

Starbucks often offers fun challenges to boost points and spending, such as Double Star Days, which members have to activate to take advantage of.

When it comes to rewards, 25 stars leads to a free drink customization, 50 stars to a free brewed hot coffee, bakery item, or hot tea, and 400 stars to free merchandise or coffee beans.

DIG Rewards

With locations around New York City, Boston, and Philadelphia, DIG is a farm-sourced fast casual chain that’s known for healthy comfort food. DIG Rewards is their customer rewards program. 

The easiest way for customers to sign up is through DIG’s app. From the app, customers can track their progress, place orders, see their order history, track and redeem rewards and more.

DIG incentivizes customers to sign up by giving them $5 off of their first purchase as a loyalty member. Then, they earn $5 off for every $50 they spend when they scan the app at checkout. 

DIG Rewards has three tiers: Sous Chef, Chef de Cuisine and Executive Chef. Chefs de Cuisine receive a free featured item of the month, while Executive Chefs receive a free featured bowl of the month.

EWC Rewards

Waxing salon chain European Wax Center’s EWC Rewards program, gives members one point for every dollar spent on services and products, and 200 points for referrals. Customers can trade in 200 points for $10 in merchandise or service credit, which can be used in $10 increments. 

Customers can sign up and track their progress via European Wax Center’s website or app. When EWC Rewards members make appointments while logged into their accounts, their spending is automatically tracked, so there’s no need to scan anything upon checkout, making for a smooth customer experience.

My Abercrombie Rewards

Clothing retailer Abercrombie & Fitch incentivizes repeat business through My Abercrombie Rewards. Customers can join the program online, in store, or via Abercrombie’s app. New members receive 100 points just for signing up. 

This rewards program has two tiers: member and VIP. Abercrombie builds customer loyalty by giving members one point for every dollar. They can redeem 2,500 points for a $10 reward. They also receive perks like access to exclusive products, special pricing and birthday and anniversary promotions. After spending $500 over their lifetime, members get upgraded to VIPs and enjoy special offers and free shipping on all online orders. 

Wrapping up: Customer rewards programs for retailers

With a loyalty program, your business can incentivize repeat business, gamify shopping, gather data about customers, and much more. To create a successful program, you’ll need to choose a simple rewards structure, give customers an incentive to sign up, and make rewards attainable. 

Partnering with a point of sale system that includes and integrated customer rewards program can make managing your loyalty program a piece of cake. Watch a free demo of Lightspeed today to learn how we can help you manage your entire retail business including customer rewards. 

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More of this topic: Customer Experience