Loyalty program

Overview

A loyalty program or rewards program is a marketing strategy designed to encourage customers to continue to shop at or use the services of one or more businesses associated with the program.

Single-company vs. coalition programs

Loyalty programs may be either:

Single-brand programs, which may be for all stores owned by a company, such as Target, or branded stores which may be corporate-owned and franchised to independent business owners, such as McDonalds. Single-corporation programs, such as the joint Gap Inc. program, work at the stores and digital channels of Gap, Banana Republic, Old Navy, and Athleta, which are all owned by Gap Inc. Coalition loyalty programs provide benefits to customers of multiple otherwise-unrelated businesses. Examples include Rakuten Rewards which, in the U.S. offers cashback at more than 3,500 stores and Air Miles which awards points for purchases from multiple merchants in each market it serves (Canada, The Netherlands, Bahrain, Qatar, and the UAE). Shopping center programs may also be based on a single or chain of shopping centers, such as the Tanger Outlets loyalty programs that can be used at merchants located at its outlet malls. Downtown Olympia, Washington, launched a coalition loyalty program in 2021 for merchants in its downtown shopping district. In 2020, McKinsey spoke of loyalty program "ecosystems".

Physical loyalty cards

A loyalty program typically involves the operator of a particular program setting up a loyalty account for a customer of a business associated with the scheme, and then issues to the customer a loyalty card (variously called rewards card, points card, advantage card, club card, or some other name) which may be a plastic or paper card, visually similar to a credit card, that identifies the cardholder as a participant in the program. Cards may have a barcode or magstripe to more easily allow for scanning, although some are chip cards or proximity cards. U.S. supermarkets often issue two copies of the card: one credit-card sized and one that fits on a keychain, in addition to providing access to the card via a mobile app or website.

Digital loyalty cards

As of 2024, most programs in the United States offer a digital version of the loyalty card, accessed via a mobile app, and often customers can scan a QR or barcode from the app at the physical point of sale. Some programs no longer issue physical cards, or do so only as an exception, such as the Marks and Spencer's "Sparks" program. It launched in the UK In 2020 and issues physical cards only upon special request. American Airlines no longer sends membership kits to new members of its frequent-flyer program. Encouraging or forcing customers to use a mobile app to present their loyalty account number, although criticized for being unfriendly to people without smartphones including many elderly people, benefits the merchant in a number of ways. It lets them present special offers to the customer (or even push them via push notifications), tailor customer experience to the individual consumer, and understand customer behavior better, including their purchasing amounts and patterns. Similar developments have been observed in European markets, where digital loyalty programs are being adopted beyond large retail chains. A 2025 case study from Romania (among others ) describes how mobile wallet-based loyalty cards enable independent businesses to build and manage customer relationships without maintaining a proprietary mobile app. These systems use QR codes for visit tracking, deliver automated rewards, and provide merchants with direct customer insights that are often unavailable when orders are placed through third-party delivery platforms. Their lower operational cost has contributed to broader uptake among small businesses.

Phone number and other methods

At a physical point of sale, presenting a physical or digital card is not necessary at many U.S. merchants, if the customer enters the phone number associated with the account on a terminal or tells it to a cashier who enters it into the register. When purchasing online, customers usually must log in to the account on the merchant's website. However, when purchasing airline tickets from online travel agencies, customers can usually enter their airline loyalty number into the agency website and the agency will pass it onto the airline.

Points

Programs that feature points grant customers a certain number of points for each purchase, in the US often per $1 or $10 increment of spend. Once they have enough points, clients can redeem them for either:

merchandise or services free of charge discounts on merchandise or services gift cards, credit vouchers, etc. to spend with the merchant "cashback", either: money that the program transfers to the customer's account or a paper check that the program mails to the customer

Tiers

Programs with tiers define levels (such as silver, gold, and platinum levels) that customers are upgraded to when they spend enough with the merchant(s), usually over a certain period of time such as a year. For example, Sephora gives 1 point for $1 spent. Once customers earn a specific number of points, they can enter a new level with higher discounts and exclusive products.

Membership fees

In subscription-based programs, customers pay a fee to enjoy the program's benefits, for example Barnes and Noble bookstores charge members about 40 U.S. dollars per year (as of mid-2024) for its "Premium Membership and Rewards" program, which gives members a 10% discount off most merchandise. There is also a free tier which does not offer such discounts but does allow members to collect virtual "stamps" (i.e. loyalty points).

Types of rewards

Depending on the program, rewards may take the form of:

merchandise or services free of charge discounts on merchandise or services gift cards, credit vouchers, etc. to spend with the merchant cashback In addition to rewards, loyalty cards may also be used to identify consumers for benefits and other services, e.g.:

when pharmacies dispense prescriptions for access to an airport lounge (using a frequent-flyer card) when customers presented checks for payment at a point-of sale

Cashback

Programs with cashback features give customers a portion of the money that they have spent with a business (usually a defined percent which may be higher than usual during promotions). The "cash back" is rarely actually cash money, but rather takes the form of a transfer of the "cashback" amount to the customer's bank account. Examples in the U.S. include Rakuten Rewards, a coalition reward program, and many banks that give their clients cash back for using their debit cards to pay for various products and services.

Channels

Depending on the program, ways that consumers may access their loyalty account (account number, promotions, other information) may include:

Desktop, mobile, and/or responsive versions of the website(s) for the program and/or of participating merchant(s) Mobile apps for the program or participating merchant(s) At dedicated kiosks, such as in casinos Traditional methods such as: Physical membership cards Paper-based mailings of account statements, promotions, and other information

Mobile apps and websites

There has been a move away from traditional magnetic card, stamp, or punchcard based schemes to online and mobile online loyalty programs. While these schemes vary, the common element is a push toward eradication of a traditional card, in favour of an electronic equivalent. The choice of medium is often a QR code. Some prominent examples are Austrian based mobile-pocket established in 2009, the US-based Punchd (discontinued from June 2013,), which became part of Google in 2011. and an Australian-based loyalty card application called Stamp Me which incorporates iBeacon technology. Others, like Loopy Loyalty (HK), Loyalli (UK), Perka (US), and Whisqr Loyalty (CA), have offered similar programs. Passbook by Apple is the first attempt to standardize the format of mobile loyalty cards.