Types of Loyalty Programs | Hydrogen Blog
Types of Loyalty Programs And How To Pick One For Your Brand

Types of Loyalty Programs And How To Pick One For Your Brand

Whether you keep a punch card for a local restaurant in your wallet or you have ever had a cashier ask if you belong to their store’s rewards program, you are likely familiar with business loyalty programs. However, you might have less experience choosing a similar program for your business. 

Brands have a lot to gain from implementing loyalty programs into their business model and inviting shoppers to join in on the fun. From free swag to exclusive discounts, rewarding customers keeps them coming back for more. A little background information can go a long way in helping you decide on the perfect program for your brand.

How Do Customer Loyalty Programs Work? 

Customer acquisition and retention are primary goals for any business. Most businesses rely on marketing to attract new people to their brand. Companies that want to keep customers coming back might consider starting a loyalty program. 

Targeting returning customers is crucial for growing a business. The probability of selling to an existing customer is nearly 14 times higher than making a sale to someone new. This statistic indicates that brands should set their sights on efforts that cater to their current customer base and encourage those people to keep returning time after time.

Loyalty programs, also called rewards programs, offer consumers an incentive to keep doing business with you. While these programs come in different forms, they share the same purpose of recognizing and rewarding customers who regularly engage with you. 

With most loyalty programs, the more a customer interacts with the brand, the more perks they get. While these incentives are excellent for consumers, your business can also benefit from using one of these programs.

Benefits of Loyalty Programs

Starting a rewards program is a unique way of giving back to your customers and making them feel valued. It also has plenty of benefits for your business, including the following.

  • Customer retention: Loyalty programs primarily aim to keep customers returning to and engaging with your business. With so much competition, shoppers take a lot into account when deciding where to spend their money. Having a reward system gives shoppers reasons to return to your brand.
  • Customer referrals: When a business has a successful loyalty program, 73% of members are more likely to recommend the brand to others. Never underestimate the power of word-of-mouth advertising. If one person loves your rewards program, they’ll tell others who will sign up as well. 
  • More sales: Implementing a loyalty program is a cost-effective way of boosting sales. Retaining current customers is much cheaper than acquiring new ones through marketing efforts. Plus, 63% of consumers say they will change their spending habits to maximize a loyalty program’s benefits. 
  • Competitive advantage: Rewards make your business stand out from the competition. Consumers are more likely to shop at places where they get perks. Your loyalty program could be the primary reason a shopper chose your store over another.

Types of Loyalty Programs

What are your options for implementing a loyalty program at your business?


Points-based programs are the most prevalent type of loyalty incentive. Customers can accumulate points by doing the following:

  • Making a purchase
  • Having a birthday
  • Making a customer referral
  • Leaving reviews
  • Sharing on social media

Once the customer reaches a designated points threshold, they will be eligible for earning rewards like cash back or other perks. 

Starbucks offers rewards as a points-based loyalty program. As customers buy beverages or food from Starbucks stores using their account, each transaction counts toward rewards called Stars. When consumers reach specific milestones, they can redeem their Stars for free drinks and food.


Tiered customer loyalty programs involve rank-based membership. With this kind of rewards program, the highest tier usually has the most benefits like free shipping or early access to new products or services. 

Sephora has a rewards program called Beauty Insider with three membership tiers. Customers move through the levels as they spend more annually on Sephora merchandise. Anyone who shops at the store can become a standard Beauty Insider. If you spend over $350 a year, you can become a VIB tier member. Spend $1,000 or more a year at Sephora, and you could become part of the Rouge tier.

Cash Back

Cash-back rewards programs are similar to point-based options. As customers make transactions with a business, their purchases are eligible for incentives, usually in the form of coupons or store credit. 

Kohl’s loyalty program is an excellent example of this concept. When a customer signs up to be a Kohl’s Rewards member, they can receive 5% back in Kohl’s Cash for every purchase they make in the store or online. They can then spend the credit on Kohl’s merchandise. 


Paid rewards programs require the customer to pay a fee to participate. This type of loyalty program is also called fee-based or premium. Participants usually pay fees on a one-time or recurring basis, like monthly payments.

One of the best-known examples of a paid rewards program is Amazon Prime. Customers pay a yearly fee in exchange for rewards like free delivery, 5% back, and access to Prime Video.


Unlike other programs, value-based loyalty programs do not offer the reward directly to the customer. Instead, buyers can contribute their rewards to a charity or welfare program. Instead of directly benefiting the participant, the reward goes to bettering society in a small yet meaningful way.

American Airlines allows customers to rack up free air miles by purchasing new flight tickets. Instead of cashing in those miles for future flights, customers can donate the equivalent value to charity. There are multiple organizations dedicated to the donation of air miles. 

Punch Card

A punch card rewards program is a classic option that businesses have used less frequently in recent years. With this kind of incentive, customers get either a physical paper card or a digital one. When they buy something, they will receive a punch on their card. Once they’ve received a specific number of punches, they can redeem their reward, which is often a free product.

An example of a digital punch card is the pizza delivery app Slice. For every 10 pizzas purchased through the app, the customer can receive one free pie.  

Free Perks

Everyone loves the feeling of getting free stuff, and some loyalty programs tap into this. Participants can enroll in the program and receive complimentary products or services as they continue shopping with your brand. 

For example, some businesses offer a branded item with the first order or waive a delivery fee when customers spend a specific amount. These freebies are small, effective gestures from the brand to the customers for doing business with them. 

Online food delivery company Grubhub encourages customers to try new restaurants on their app by giving them free perks. They may offer $5 off a particular restaurant or free delivery for a specific period to reward people for ordering on the Grubhub app and trying out a new restaurant partner. 


With loyalty card programs, shoppers receive either a credit or debit card they can use at participating stores. The cardholder can earn rewards like cash back with every transaction as long as they use the card during the purchase. 

Target stores have a loyalty card program called RedCard, where customers can save 5% on every purchase. Cardholders can use their RedCard online and in stores at their convenience. 

Hybrid Programs

Some businesses choose to combine multiple reward models to create a hybrid version. This approach allows brands to find unique ways of exciting their customers, so more people are interested in participating. 

An example of a hybrid program would be a coffee shop that uses punch cards that double as value rewards. When the customer earns all their punches, they can either accept a free coffee or donate the dollar value to charity. 

How to Pick a Loyalty Program for Your Brand

Every business is different, and there is no one-size-fits-all answer for which loyalty program will complement your brand the best. To simplify the process and choose the perfect program, consider these steps.

1. Get to Know Your Customers

Before you can narrow down the best rewards program for customers, you should ask yourself the following questions about your clientele.

  • What rewards would excite your customers or clients?
  • What perks are businesses similar to yours using right now?
  • Would these incentives influence customers to sign up?

Some businesses conduct online surveys to find these answers, while others assemble small focus groups. Once you’ve gotten a feel for what your customers want, start thinking about how your company could benefit from a loyalty program.

2. Set Goals

Next, you’ll want to establish your loyalty program’s objectives. Examples include:

  • Increase customer retention
  • Boost revenue
  • Improve brand reputation
  • Grow brand awareness

Much like other campaigns, you’ll want to set a realistic timeline for meeting these goals. You can monitor how much your rewards program benefits your business’ bottom line by setting objectives. 

3. Provide Value

Rewards are the central facet of a loyalty program. To succeed, you must provide perks customers find valuable.

If your shoppers aren’t interested in what your program offers, be flexible and consider going back to the drawing board. 

4. Compare Programs

With an understanding of your customers and goals, you are ready to select your program. Every brand is unique and should choose the best model for their business. Landing on a program isn’t as simple as picking one and running with it. 

You might find you prefer to incorporate parts of multiple program types. You should compare your options and programs to ensure you find the one that suits your business best.

5. Pick Your Rewards

When developing a loyalty program for your business, you must choose incentives your customers will care about. The following are examples of rewards:

  • Exclusive deals
  • Free shipping
  • Freebies
  • Product minis 
  • Early access 
  • Cash back

Choose your rewards based on your customers’ preferences and what they are likely to sign up for. 

5. Spread the Word 

Once you’ve landed on your loyalty program, it is time to spread the word through multiple channels. The following are effective promotional strategies:

  • Post the details on your website and social media profiles.
  • Put a prominent display at the front of your store.
  • Ask cashiers to tell customers as they are checking out.

When Is the Best Time to Start a Loyalty Program?

If your business is considering starting a new loyalty program, you may be wondering when it’s an ideal time to launch. The answer is now! Brands can begin offering a loyalty program as soon as they are open for business. When people shop at your store or on your website, they have chosen your business over another. By giving them a small incentive to keep picking you, you can build a loyal customer base over time. 

3 Tips for Launching a New Loyalty Program

If you’ve never offered a loyalty program before, here are some tips to ensure more success.

1. Start Small

For businesses looking to launch a new loyalty program, it is best to start small. An elaborate program can be too complicated and turn participants away before signing up. Consider taking baby steps and perfecting your logistics before embarking on more involved aspects. This approach allows you to iron out any kinks in your processes and grow your program strategically. 

2. Be Flexible

When launching a new program, it is fair to anticipate areas of improvement. Nothing is perfect at first. Between consumer feedback and monitoring, you will see what works and what doesn’t. You might need to nix or alter different aspects to make it more effective. 

Be patient and use trial and error to refine your program to suit your customers and business. 

3. Incorporate Technology 

Consumers care about convenience. By digitizing your loyalty program, your shoppers can access rewards on their time, whether they are shopping in person or online. 

Look for a platform dedicated to helping your business control, monitor, and implement your online rewards program.

Automate Your Loyalty Program With Hydrogen

Loyalty and rewards programs are mutually beneficial for the brands that use them and the shoppers who participate in them. Rewarding your customer base is an excellent way to thank them for their business. Plus, they’ll be more likely to return for future purchases. 

Hydrogen allows your business to become a financial service provider and manage your rewards on one platform. You can issue physical or virtual debit cards to your customers and enjoy automated controls. With Hydrogen cards, you can give back to your shoppers and offer exclusive rewards that are easy to monitor.

Are you interested in learning more about implementing debit cards as part of your loyalty program? Sign up for Hydrogen today!


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