Loyalty programs reward a company’s repeat customers with discounts, free offers, and other incentives to encourage customers to make repeat pur

How do customer loyalty programs work?

With a loyalty program, companies can offer points or benefits to customers. In return, customers redeem points for discounts, free products, rewards, or insider perks. The goal is motivating repeat purchases and building trust between customer and business.

Running a customer loyalty program means giving something, be it discounts, sales, or early access. The payoff can be huge. Benefits can include:

• More customer referrals: People tell their friends and family about great membership programs. More referrals equals more loyal customers.
• Higher customer retention: If people find value in your customer loyalty program, they’ll likely stick around longer.
• More sales: Want a higher average order value? A 2022 survey found that 79% of US consumers said loyalty programs impacted their likelihood of maintaining business with a brand. Another poll found that 80% claim to purchase more frequently from a brand after joining its loyalty program.
• Brand advocacy: A successful loyalty program can turn regular customers into brand advocates who evangelize your brand through word of mouth, a low-cost marketing strategy compared with paid ads.

Types of loyalty programs

Not every loyalty program is the same. There are different types of rewards programs you can use to build customer loyalty and earn repeat business. Here are some of the most popular:

1. Points-based loyalty programs

Points programs are the most common type of rewards programs. They let customers accumulate reward points they can redeem for freebies, cashback, perks, etc. Rewards customers don’t just earn points from purchases. They can also earn loyalty points by sharing on social media, leaving reviews, having a birthday, or through gamification.

Example: Shopee’s reward system where customers earn points for purchases, redeemable for discounts.

2. Tiered loyalty programs

Tiered customer loyalty programs are memberships where customers get different benefits depending on their rank. Businesses often rank membership into groups depending on metrics like sales or engagement.

These customer rewards programs give customers a goal. The higher their tier, the more exclusive the rewards.

Example: Grab’s membership tiers offering exclusive rewards and cashback depending on ride or food delivery usage

3. Paid loyalty programs

Paid loyalty, or fee-based loyalty programs, give customers immediate and ongoing benefits for a participation fee. These fees can be recurring or one-time.

Paid programs may require proof of value to get signups, but they can gain higher customer value from members. The most common example of a paid loyalty program is Amazon Prime. While it seems like a hard model to mimic, paid loyalty can suit many different business models.

Example: Rakuten’s cashback model where members receive a percentage of their purchase back.

4. Value-based loyalty programs

The idea behind a value-based loyalty program is to build an emotional connection with customers. It involves donating a percentage of purchases to charity or welfare programs. You can allow customers to choose from different charities or have just one that aligns with their values.

This program doesn’t actually reward customers, but it holds a special place for them, as the rewards benefit society.

Example: Lazada’s charity initiatives where users can donate loyalty points to local causes.

In fact, people will go the distance for brands they love, but they want perks in return. Some 68% of consumers in Asia expect discounts for joining a loyalty program, according to a 2023 survey by NielsenIQ. The same survey found that respondents expect to earn points and rewards, while about 40% want exclusive or early access to products.

Four Types of Loyalty Campaigns in a Loyalty Program

Loyalty platforms typically feature four main types of campaigns: Rewards Campaigns, Voucher Campaigns, Promotion Campaigns, and Referral Campaigns. Each type of campaign serves a distinct purpose and operates differently to motivate customer participation and loyalty. Here’s a detailed breakdown:

1. Rewards Campaigns

• Objective: Build long-term loyalty by rewarding customers with loyalty points or benefits when they complete specific actions.
• How It Works: Customers accumulate points through purchases or interactions with the brand. Points can be redeemed for rewards such as products, services, or exclusive perks.
• Example: Customers earn points for every purchase. When they reach 500 points, they can redeem them for a free product or a discount.

2. Voucher Campaigns

• Objective: Boost immediate sales or encourage repeat purchases by offering discount vouchers or shopping credits.
• How It Works: Customers receive vouchers upon meeting certain conditions (e.g., minimum spend, new account registration, or during special events). Vouchers can be used for discounts on future purchases or within a specified time frame.
• Example: A customer receives a 20% discount voucher for their next purchase after spending $100 in a single transaction.

3. Promotion Campaigns

• Objective: Create short-term excitement to attract new customers or drive immediate purchases through special promotions.
• How It Works: These campaigns often involve time-limited offers such as discounts, “buy one get one free” (BOGO), or special event promotions. No prior accumulation of points or vouchers is required to participate.
• Example: A 50% discount on all products during Black Friday or a free gift with purchases made during the promotional period.

4. Referral Campaigns

• Objective: Grow the customer base by encouraging existing customers to refer new ones.
• How It Works: Existing customers (referrers) share a referral code, link, or invitation with their network. When the referred person (referee) signs up, makes a purchase, or completes a specific action using the referral, both parties are rewarded. Rewards can include vouchers, loyalty points, or gifts, with conditions defined by the business.
• Example: Grab’s referral program rewards both the referrer and referee. The referrer earns ride or delivery credits when the referee completes their first transaction.

Comparison of Loyalty Campaign Types

Aspect	Referral Campaign	Rewards Campaign	Voucher Campaign	Promotion Campaign
Objective	Increase new customer acquisition through referrals	Build long-term customer loyalty	Drive immediate sales	Boost sales during short-term events
How It Works	Customers refer friends; both receive rewards upon successful referrals	Earn points through purchases; redeem for rewards	Get vouchers for discounts on future purchases	Offer limited-time discounts or gifts
Duration	Medium-term; runs continuously	Long-term; gradual accumulation	Short- to medium-term	Short-term; tied to specific events
Rewards	Both referrer and referee receive rewards	Redeemable points for rewards	Direct discount or cash equivalent vouchers	Discounts or free gifts
Example	Share referral code for discounts or perks	Earn and redeem loyalty points	20% off voucher for next purchase	50% off all items during Black Friday

Loyalty programs are a proven strategy for businesses to build long-term customer relationships, enhance brand value, and drive sales. By tailoring programs to their audience’s needs and preferences, companies can maximize customer engagement and satisfaction. Whether through points, tiers, paid memberships, or value-driven initiatives, the right loyalty program can transform casual buyers into lifelong advocates for your brand. Start exploring the best loyalty campaign strategies today to create meaningful connections and unlock sustainable business growth.