Loyalty Program Definition

A loyalty program is a system in which customers earn points for performing specific actions, usually while shopping. Participants can exchange points they earn for certain rewards after achieving a required amount.

Companies run loyalty programs for two reasons. One of them is to retain existing customers and attract new ones by promising them valuable rewards for sticking with the brand for a longer time. The second, which is a loyalty program side effect, is to learn more about their customers' spending habits. Loyalty programs are also fantastic for collecting zero-party data directly from customers, which is especially important given upcoming privacy changes.

How does a loyalty program work?

A company creates a list of loyalty activities – each of them grants loyalty points, but their weight can differ. Sometimes, to attract more people to a loyalty program, companies start incentivizing from the beginning by adding points for creating an account. Then, an interested customer would at least check what the loyalty program offers – and if the rewards are valuable enough, that might lead customers to become loyal ones – which means engaged and constantly returning.

Loyalty activities

There are dozens of possible activities for which companies reward loyalty program participants:

• Purchases – the most popular way to run loyalty programs is by giving points for shopping in the store. Companies try different approaches, but it's usually 1 point per dollar spent or a fixed amount of points for each order exceeding a certain amount.
• Signing up to the program or creating an account in the store – some companies offer a significant amount of loyalty points just for signing up to kick off the program. It's a strong incentive that encourages people to dig deeper into the loyalty program.
• Downloading an app – for a company that just launched their app, rewarding with loyalty points for the download is a perfect way to promote a new addition to the offer. Especially if the app is free and customers won't risk anything by downloading it.
• Leaving a review – there's nothing better than an honest, trustworthy review written by a real customer. Encourage your loyalty program participants to write a few words about their experience in exchange for points.
• Following in social media – if your company tries to be present on multiple social media channels, a group of loyal customers joining the follower groups won't hurt. Offer some points for subscribing to your YouTube channel, following the company on Twitter or TikTok, and watch the numbers grow!
• Milestone points – sometimes companies reward customers with loyalty points not for a specific activity but as a gift – for a birthday or for being a customer for a year. Such a gift will be a pleasant surprise for the most loyal customers.‍

Example of a purchase-oriented loyalty program

Sephora offers their customers the possibility to participate in their Beauty Insider Loyalty Program. How does it work? For every dollar spent on a purchase in the store (both online and at retail store locations), Sephora offers 1 Beauty Insider point. Provide your email address at the checkout and the points will automatically be added to your Beauty Insider account! After collecting the minimum of 500 points, customers are able to redeem them for $10 off their purchase which is of $10 or greater. 

Are you interested in running a loyalty program in your company? Check how to create one!