Loyalty program


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.
  • *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".

Features

How customers provide their account numbers

Physical loyalty cards

A loyalty program typically involves the operator of a particular program setting up an account for a customer of a business associated with the scheme, and then issue to the customer a loyalty card 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, 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 bar code from the app at the physical point of sale. Some programs now offer digital cards only or only exceptionally, such as Marks and Spencer's "Sparks" program in the UK launched in 2020 which no longer issues physical cards except 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, 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 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 that customers are upgraded to when they spend enough with the merchant, 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 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".

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
  • 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. 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 may include:
  • Desktop, mobile, and/or responsive versions of the website for the program and/or of participating merchant
  • Mobile apps for the program or participating merchant
  • 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, 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, Loyalli, Perka, and Whisqr Loyalty, have offered similar programs. Passbook by Apple is the first attempt to standardize the format of mobile loyalty cards.

Offline with mobile device

With the introduction of host card emulation and near field communication technology for mobile applications, traditional contactless smart cards for prepaid and loyalty programs are emulated in a smartphone. Google Wallet adopted these technologies for mobile off-line payment applications.
The major advantage of off-line over the online system is that the user's smartphone does not have to be online, and the transaction is fast. In addition, multiple emulated cards can be stored in a smartphone to support multi-merchant loyalty programs. Consequently, the user does not need to carry many physical cards anymore.

Industries

Today, such loyalty programs cover most types of commerce, each having varying features and rewards schemes, and range from programs of a single-location business to large chains or membership in a coalition loyalty program. Industries include:
  • Retail: Supermarkets, department stores, clothing stores, beauty stores and other specialty shops
  • Travel and Hospitality: Airlines, passenger railways, hotels, car rental and carshare companies
  • Food and Beverage: Restaurants, coffee shops, fast-food chains
  • Financial Services: Banks, credit card companies
  • Telecommunications: Mobile service providers, internet service providers
  • Entertainment: Cinemas, streaming services, theme parks, casinos
  • E-commerce sites/apps and online marketplaces
  • Fitness and Wellness: Gyms, fitness studios, spas etc.
  • Automotive: Car dealerships and service centers
The market approach has shifted from product-centric to a customer-centric one due to a highly competitive market and a wide array of services offered to customers, therefore, it's important that marketing strategies prioritize growing a sustainable business and increasing customer satisfaction.

Casinos

Almost all major U.S. casino chains also have loyalty cards, which offer members tier credits, reward credits, comps, and other perks based on card members' "theo" from gambling, various demographic data, and spend patterns on various purchases at the casino, within the casino network, and with the casino's partners. Examples of such programs include Caesars Rewards and MGM Resorts International's Mlife.