There are few things more critical to the long-term sustainability of your business than customer loyalty. According to Harvard Business Review, companies with leading loyalty rankings grow 2.5 times faster than their peers and deliver two to five times more value to shareholders over 10 years.
It’s no wonder, then, that as of 2020, over 90% of businesses have customer loyalty programs. Points programs are a prevalent and versatile type of loyalty program. You can start one with your business to increase customer satisfaction, boost sales, and build your customer base. Here’s how points programs work.
What is a points program?
A points program is a customer loyalty program whereby businesses issue customers points for making purchases, signing up for marketing communications, writing product or service reviews, referring new customers, or promoting a brand on social media, among other activities.
Businesses typically allow customers to redeem points for free products, discounts, and other rewards.
How do points programs work?
There are no preexisting rules in the world of customer reward programs. Typically, reward points accrue to a points balance, and customers can track them through your online store, a loyalty app, or a loyalty card.
Ultimately, it’s up to you to decide how your customers earn and redeem points, how much each point is worth, whether they expire, and whether points can be purchased, gifted, or shared.
Many companies also run hybrid rewards programs, which combine rewards points with other customer rewards programs. Businesses often combine points programs with the following customer loyalty program types:
- Fee-based loyalty programs. Also known as VIP programs, fee-based loyalty programs offer exclusive rights, access, and VIP perks in exchange for a membership fee. Loyalty members might receive invitations to exclusive events, early access to sales, or perks like free shipping or returns. You can combine a fee-based loyalty program with a points program by charging customers for the right to earn loyalty points, awarding fee-paying customers more points per dollar than nonpaying customers, or offering customers both program types.
- Tiered loyalty programs. Tiered loyalty programs rank customers based on purchase volume and frequency, giving extra recognition to the most valuable customers. Higher-tier members might earn access to exclusive events and more points per dollar than lower-tier members. Some tiered loyalty programs also use reward points to determine tiers.
- Value-based loyalty programs. Value-based loyalty programs let customers contribute to charities or other mission-driven organizations. You might donate a portion of every sale to an organization of the customer’s choosing or allow customers to use reward points for charitable donations.
What are the benefits of having a points program?
Points programs can help you recognize and reward your most valuable customers. They can also improve customer retention and acquisition and boost sales. Here’s how:
1. Build customer loyalty
Let’s say you own one of six bakeries in your small town. Your best-in-class marionberry turnovers and award-winning service keep customers coming back—but how can you do even better? How do you remain a hungry customer’s pastry vendor of choice, even when another shop is closer?
Imagine your bakery awards “Popover Points”: For every dollar a customer spends, they earn one Popover Point. Customers can redeem points for baked goods and beverages.
This kind of program can create loyalty and encourage repeat customers. For example, if one of your customers is choosing a bakery to cater their event, they’ll be incentivized to work with your shop to earn reward points they can redeem for free goods.
2. Earn new customers
Points programs can be a powerful customer acquisition tool. These programs add value for clients and can turn your existing customers into brand advocates by encouraging them to show off their free products or VIP status. Seventy-three percent of customers say they’re more likely to recommend companies with strong customer loyalty programs. Some points programs offer point bonuses for referrals: Sign up a friend and receive a boost to your points balance.
3. Increase sales
Points programs can incentivize repeat purchases in several ways. For example, redeeming points usually means your customers must make another store visit, and redemption shopping trips often cause customers to spend money on top of their reward points.
Shopping provides a dopamine boost—it’s called retail “therapy” for a reason. What if, on top of your customer’s new handbag, for instance, they also earned 250 reward points? Psychologically speaking, that’s two gains—a new bag, more points—for the cost of one purchase.
Four examples of loyalty points programs
Many of the best loyalty programs include points. The following four standout programs earn high marks for their brand impact and customer satisfaction:
1. Delta Skymiles
Like many other airline loyalty programs, Delta Air Lines’s Skymiles hybrid loyalty program combines points, tiered loyalty, and fee-based loyalty features.
Delta’s points program is free to join. Customers earn points (Skymiles) for miles traveled on Delta flights (or on their partner airlines), which they can redeem for air travel, hotel stays, and other rewards.
Delta also operates a co-branded credit card program through American Express. (Cards with higher annual fees, like American Express, allow customers to earn more points for purchases.) Reward points and card spending move customers up a tiered status system in which higher-status members earn more rewards per dollar spent or mile flow. VIPs also receive other rewards like first-class upgrades and expedited check-in, boarding, and bag handling.
2. Sephora Beauty Insider
Like Delta’s Skymiles program, Sephora’s Beauty Insider program combines elements of a tiered loyalty program with those of a points program.
Beauty Insider is free to join, and members earn points for every dollar they spend. Beauty Insiders can redeem points for discounts, gift cards, and free products—and the program comes with perks like member-only sales and free samples. Sephora bases member tiers on total points earned (i.e., money spent) over a calendar year. Higher-tier members get access to exclusive events and premium free products.
3. Starbucks Rewards
Starbucks Rewards was one of the first customer loyalty systems to use a dedicated loyalty app. Customers must make purchases through the company’s app to earn points (“Stars”), which allows Starbucks to collect demographic data to better serve and market to its clientele. Customers can redeem Stars in increments for free products or drink customizations.
4. REI Membership
REI, organized as a cooperative, offers a fee-based loyalty program that operates through a points structure. Although you don’t need to be an REI member to purchase from the store, members pay a one-time $30 fee to receive 10% back on full-price purchases, which they can redeem annually.
Points programs FAQ
What is a points program used for?
Small businesses use points programs to attract new customers, build customer loyalty, and incentivize repeat purchases.
Why do loyalty programs work?
Loyalty programs work for two main reasons:
- They provide a material incentive to your customers to choose your company over your competitors.
- They create a sense of ownership, belonging, and brand loyalty among your customer base.
Loyalty programs encourage repeat purchases and can transform your most loyal customers into active brand advocates.
What are the main types of loyalty programs?
What are the main types of loyalty programs?
There are four main types of loyalty programs:
- Points programs
- Tiered loyalty programs
- Fee-based loyalty programs
- Value-based loyalty programs