What Is a Loyalty Program? Definition, Types and Examples

Updated

A loyalty program is a way for a business to reward customers for coming back. Customers collect points, stamps or status each time they buy or visit, and exchange them for rewards such as free items, discounts or perks. For a local business, it turns occasional customers into regulars and gives you a way to reach them again.

How a loyalty program works

  1. Customers join by scanning a QR code, giving a phone number at the till or downloading an app.
  2. They earn a stamp, points or a visit each time they buy.
  3. They redeem what they’ve collected for a reward: a free coffee, money off or a perk.
  4. You stay in touch with offers and reminders, so customers who drift away have a reason to come back.

The card customers carry used to be paper. Today it is usually an app, a phone number at the register or a pass in Apple Wallet or Google Wallet. See how to add a loyalty card to Apple Wallet.

Types of loyalty programs

  • Points: customers earn points per dollar or per visit and spend them on rewards. Works when basket sizes vary.
  • Stamp cards (punch cards): one stamp per visit or item, and a reward when the card is full. The easiest to understand.
  • Tiered or VIP: customers move up levels as they spend, and higher levels earn faster or unlock perks.
  • Cashback: a percentage of each purchase comes back as credit for the next one.
  • Paid membership: customers pay a fee for ongoing perks, such as a monthly coffee subscription or a car wash club.
  • Referral: customers are rewarded for bringing in new customers. See what a referral program is.

Ten worked examples for cafés, restaurants, salons and shops are in our loyalty program examples.

Why businesses run a loyalty program

  • More return visits: a reward that is a few visits away gives regulars a reason to choose you over the place next door.
  • A way to reach customers: once someone has joined, you can tell them about offers, new items or quiet-hour deals.
  • Knowing your regulars: you see who comes back, how often and what they buy.
  • Word of mouth: referral rewards turn happy customers into new ones.

How to start a loyalty program

  1. Pick one reward model your customers will understand at a glance. A stamp card is the safest start.
  2. Choose a first reward customers can reach in 3–5 visits.
  3. Make joining take seconds: a QR code at the counter beats an app download.
  4. Train staff to mention it at every checkout for the first few weeks.
  5. Check after three months whether members come back more often than everyone else.

Loyalty program software

Software runs the program for you: it holds the cards, adds stamps or points and sends the reminders. Prices run from free to a few hundred dollars a month; see how much a loyalty program costs. Our ranking is in the best loyalty program software, withRevio as our top pick for local businesses.

Frequently asked questions

What is a loyalty program in simple terms?

A reward for coming back. Customers collect points or stamps each time they buy, and swap them for something free or discounted.

What are the main types of loyalty programs?

Points, stamp cards (punch cards), tiered or VIP programs, cashback, paid memberships and referral programs. Many businesses combine two, such as a stamp card with a referral reward.

What is the difference between a loyalty card and a loyalty program?

The program is the set of rules: what customers earn and what they get. The card is how they carry it, on paper, in an app or as a pass in Apple Wallet or Google Wallet.

Do customers need an app for a loyalty program?

No. Many programs now use an Apple Wallet or Google Wallet pass that customers add from a QR code, so there is nothing to download.