How to Build a Winning Loyalty Reward Scheme: Strategies and Examples

Loyalty reward schemes have become a cornerstone in modern business strategies. In an era where customers are inundated with choices, loyalty programs offer a compelling way to keep them coming back. 

These programs are not just about giving discounts or perks—they are about creating a bond between the brand and the customer, fostering a sense of belonging and appreciation.

The idea is simple: reward your customers for their loyalty, and they will be more likely to stick with your brand. But the impact of these schemes goes far beyond just repeat purchases. When done right, a loyalty reward program can enhance customer satisfaction, increase lifetime value, and even turn customers into brand advocates.

In this blog, we’ll explore the different types of loyalty reward schemes, their benefits, how to design an effective program, challenges to be aware of, and examples of successful loyalty programs. 

Types of Loyalty Reward Schemes

Loyalty reward schemes come in various forms, each designed to cater to different customer behaviors and business objectives. Understanding the different types can help you choose the one that best aligns with your brand and audience. Let’s explore some of the most popular types of loyalty programs:

1. Points-based programs

Points-based loyalty programs are perhaps the most common. Customers earn points for every purchase or action, which they can later redeem for rewards such as discounts, free products, or special services. This model works well for businesses that have frequent transactions, as it encourages customers to return regularly to accumulate more points.

Example: The North Face’s XPLR Pass is a compelling points-based program that caters to outdoor enthusiasts. Members earn 10 points for every $1 spent, which can be redeemed for a variety of rewards, including discounts on future purchases, exclusive gear, and access to special events. What makes this program stand out is its emphasis on community engagement. 

The North Face often offers bonus points for attending events, participating in challenges, or even recycling old gear. This not only incentivizes purchases but also strengthens the brand’s connection with its environmentally-conscious customer base. 

The XPLR Pass is a great example of how a points-based system can go beyond simple transactions to create a more engaged and loyal customer community.

2. Tiered loyalty programs

Tiered loyalty programs offer different levels of rewards based on the customer’s level of engagement. The more a customer spends or interacts with the brand, the higher they climb in the tier system, unlocking better rewards and exclusive benefits. This type of program is excellent for encouraging customers to increase their spending to reach the next tier.

Example: The Hilton Honors program is a prime example of a tiered loyalty scheme that effectively encourages customer engagement and repeat business. Members start at the base level and can move up through Silver, Gold, and Diamond tiers as they accumulate more stays or points. 

Each tier offers progressively better rewards, such as room upgrades, complimentary breakfast, and access to exclusive lounges. The Hilton Honors program not only incentivizes frequent travel but also creates a sense of exclusivity and status for its members.

By offering tangible benefits that enhance the travel experience, Hilton has successfully turned its loyalty program into a key driver of customer retention and satisfaction, making it a cornerstone of the brand’s customer relationship strategy.

3. Paid loyalty programs

In paid loyalty programs, customers pay a fee to join and gain access to exclusive benefits that aren’t available to non-members. This model is particularly effective for brands that can offer significant value in exchange for the membership fee, ensuring customers feel they’re getting their money’s worth.

Example: REI Co-op Membership is a successful paid loyalty program that appeals to outdoor enthusiasts. For a one-time fee of $30, members gain lifetime access to a range of exclusive benefits, including 10% back on annual purchases, special pricing on classes and events, and access to member-only sales. 

Additionally, members have a say in the co-op’s future by voting in board elections, which fosters a deeper connection to the brand. REI’s program stands out because it aligns with the company’s values of community and sustainability. 

The one-time fee and the long-term rewards create a sense of belonging, making customers feel like they are part of something bigger, which enhances loyalty and drives repeat purchases.

4. Partnered programs

Partnered loyalty programs involve collaboration between different brands, allowing customers to earn and redeem rewards across multiple businesses. This type of program can expand a brand’s reach and provide customers with more opportunities to earn rewards, making the program more attractive.

Example: The Plenti Rewards Program, which was a multi-brand loyalty initiative in the U.S., exemplified how partnered programs can offer diverse benefits. Members could earn points through purchases at participating retailers like ExxonMobil, Macy’s, and AT&T, and then redeem those points across any of the partner brands. 

Although the program ended in 2018, it demonstrated the potential of partnered schemes to create a unified rewards system that benefits both customers and businesses. 

By allowing customers to earn and use points across various sectors—ranging from fuel to fashion to telecommunications—Plenti provided a highly flexible and appealing rewards structure. It also allowed brands to tap into each other’s customer bases, creating cross-promotion opportunities that were mutually beneficial.

5. Cashback programs

Cashback programs offer customers a percentage of their spending back as cash or credit, either directly to their account or to be used for future purchases. This straightforward approach is highly appealing to customers who prefer tangible rewards over points or tiers.

Example: Discover It Card offers a robust cashback program that has won over many customers. The card provides 5% cashback on rotating categories such as groceries, gas stations, or restaurants and 1% on all other purchases. What sets this program apart is its Cashback Match feature for new cardholders, where Discover matches all the cashback earned at the end of the first year, effectively doubling the rewards. 

This not only incentivizes cardholders to use the card more frequently but also provides immediate, tangible value. 

The simplicity of earning cash, which can be directly deposited into a bank account or used as statement credit, makes this program highly attractive. It’s an excellent example of how a straightforward cashback program can drive customer satisfaction and loyalty.

Benefits of implementing loyalty reward schemes

Loyalty reward schemes are more than just a marketing tool; they are a powerful strategy for building long-term relationships with customers. Implementing an effective loyalty program can offer numerous benefits that go beyond merely increasing sales. Here are some key advantages:

1. Increased customer retention

One of the most significant benefits of loyalty reward schemes is their ability to boost customer retention. When customers feel valued and rewarded for their loyalty, they are more likely to return to your brand instead of exploring alternatives. This consistent engagement helps to create a strong customer base that is less susceptible to competition.

Loyalty programs like Kroger’s Plus Card demonstrate how customer retention can be effectively achieved. By offering personalized discounts and fuel rewards based on shopping habits, Kroger has managed to keep customers returning to their stores. This approach not only rewards loyal customers but also builds a sense of connection and appreciation, which is crucial in a competitive retail environment.

2. Customer data insights

Loyalty programs provide valuable insights into customer behavior and preferences. By tracking how customers earn and redeem rewards, businesses can gather data that helps in personalizing marketing efforts, optimizing product offerings, and improving customer experiences. This data-driven approach allows businesses to make informed decisions that can enhance overall customer satisfaction.

For instance, Walgreens’ Balance Rewards program has been a great success in utilizing customer data. By monitoring customer purchases, Walgreens tailors promotions and discounts to individual shoppers. This personalization not only drives sales but also increases customer satisfaction, as shoppers receive offers that are relevant to their needs and preferences.

3. Enhanced brand loyalty

A well-designed loyalty reward scheme can significantly enhance brand loyalty. Customers who participate in these programs often develop an emotional connection with the brand, seeing it as more than just a place to shop. This emotional bond is what turns ordinary customers into brand advocates who are likely to promote your brand to others.

Tarte Cosmetics’ Tarte Rewards program is a great example of how brand loyalty can be enhanced. The program offers not just points for purchases but also opportunities for members to engage with the brand through social media and community events. This level of engagement creates a deeper connection with the brand, fostering loyalty that goes beyond the transactional level.

4. Higher average order value

Loyalty programs can also encourage customers to spend more. By offering rewards that require a certain level of spending, businesses can motivate customers to increase their average order value. This is especially true for tiered programs where customers strive to reach higher levels for better rewards.

Ulta Beauty’s Ultamate Rewards program has successfully increased average order values by offering points that can be redeemed for high-value products. The program’s structure encourages customers to make larger purchases to earn more points, which can then be used to redeem premium items, driving both sales and customer satisfaction.

5. Competitive advantage

In a crowded marketplace, a well-executed loyalty program can give your brand a significant competitive edge. Customers are more likely to choose a brand that offers a rewarding experience over one that doesn’t. Loyalty programs not only attract new customers but also help retain existing ones, which is crucial in maintaining market share.

Panera Bread’s MyPanera loyalty program exemplifies how a competitive advantage can be achieved. By offering personalized rewards and a seamless, digital-first experience, Panera has differentiated itself from other casual dining options. The program’s success lies in its ability to make customers feel appreciated and valued, which in turn fosters loyalty and repeat business.

Challenges in loyalty reward schemes

While loyalty reward schemes offer numerous benefits, they also come with their own set of challenges. Successfully navigating these challenges is key to ensuring the long-term effectiveness of your program. 

Here are some common challenges businesses face when implementing loyalty reward schemes:

1. Keeping customers engaged

One of the biggest challenges is maintaining customer interest over time. Even the most exciting rewards can lose their appeal if customers become accustomed to them. To keep the program fresh and engaging, it’s important to regularly introduce new rewards, promotions, or opportunities for customers to interact with your brand.

2. Balancing costs and rewards

A well-designed loyalty program needs to strike a balance between offering attractive rewards and maintaining financial sustainability. If the rewards are too generous, the program may become a financial burden. 

On the other hand, if the rewards are too modest, customers may not find the program worth participating in. Careful planning and regular evaluation are essential to achieving this balance.

3. Fraud prevention

Loyalty programs can be targets for fraudulent activities, such as the misuse of rewards or the creation of fake accounts. Implementing robust security measures and monitoring systems is crucial to protecting the integrity of the program and ensuring that only genuine customers benefit from it.

4. Data privacy concerns

With the increasing focus on data privacy, customers are more concerned about how their personal information is used and protected. Loyalty programs often require the collection of customer data, which can raise privacy concerns. It’s important to be transparent about how data will be used, ensure compliance with data protection regulations, and implement strong security measures to protect customer information.

5. Adapting to changing customer preferences

Customer preferences and behaviors can change over time, and a loyalty program that doesn’t adapt to these changes risks becoming outdated. Regularly reviewing customer feedback and industry trends is essential for keeping the program relevant and appealing to your audience.

Examples of successful loyalty reward schemes

Examining successful loyalty reward schemes from various industries can provide valuable insights into what works and why. Here are a few case studies that highlight the effectiveness of different types of loyalty programs:

1. PetSmart Treats

PetSmart’s Treats loyalty program is tailored to pet owners, offering points for every dollar spent, which can be redeemed for discounts on future purchases or donated to animal welfare organizations. The program also includes exclusive offers, birthday treats for pets, and early access to sales. 

What sets PetSmart Treats apart is its integration with the company’s mission to support animal welfare, allowing members to feel good about their purchases. By aligning the rewards with the interests and values of its customers, PetSmart has created a program that not only drives repeat business but also fosters a sense of community and purpose among pet lovers.

2. myWaitrose

The myWaitrose loyalty program by Waitrose, a UK-based supermarket chain, is a unique example of a non-points-based scheme. Instead of accumulating points, myWaitrose members enjoy benefits like free coffee and newspapers, personalized discounts, and special offers on their favorite products. 

The program is designed to enhance the shopping experience by providing immediate, tangible benefits that are highly valued by customers. This approach has helped Waitrose build strong customer loyalty, with members frequently citing the personalized rewards as a key reason for their continued patronage.

3. Virgin Atlantic Flying Club

Virgin Atlantic’s Flying Club is a frequent flyer program that rewards members with miles for every flight, which can be redeemed for flights, cabin upgrades, and other travel-related perks. The program also offers tiered benefits, with members advancing from Red to Silver and Gold tiers as they accumulate more miles. 

Virgin Atlantic has successfully used the Flying Club to build loyalty among travelers by offering a range of rewards that cater to both frequent flyers and occasional travelers. The program’s flexibility and the variety of redemption options have made it a favorite among customers, contributing to Virgin Atlantic’s reputation for excellent customer service.

4. GameStop PowerUp Rewards

GameStop’s PowerUp Rewards program is a tiered loyalty scheme designed for gaming enthusiasts. Members earn points on every purchase, which can be redeemed for gaming-related merchandise, discounts, and exclusive offers. The program also offers a paid Pro membership tier that includes additional benefits like extra trade-in credit, a subscription to Game Informer magazine, and monthly rewards certificates. 

GameStop has successfully used PowerUp Rewards to engage its core customer base, creating a sense of community and loyalty among gamers. The program’s focus on providing value to its members has helped GameStop maintain its position as a leading retailer in the gaming industry.

5. The Body Shop Love Your Body Club

The Body Shop’s Love Your Body Club is a points-based loyalty program that rewards customers with points for every purchase, which can be redeemed for discounts on future purchases. Members also receive a birthday gift, early access to sales, and invitations to exclusive events. 

What sets the Love Your Body Club apart is its alignment with The Body Shop’s commitment to sustainability and ethical sourcing. The program not only rewards customers for their loyalty but also encourages them to engage with the brand’s values and mission. This alignment has helped The Body Shop build a loyal customer base that shares its commitment to social and environmental responsibility.

Conclusion

Loyalty reward schemes are essential for building strong customer relationships. They go beyond encouraging repeat purchases by creating lasting connections with customers. A well-designed program tailored to your audience can enhance customer retention, provide valuable insights, and give your brand a competitive edge.

Implementing a successful loyalty program involves careful planning, choosing the right rewards, and regularly updating the scheme to keep it relevant. While challenges like customer engagement and data privacy exist, the benefits far outweigh the effort. 

Businesses that align their loyalty programs with customer values and preferences are more likely to create loyal brand advocates, driving long-term success.