E-commerce tips
Customer loyalty programs: Definition, types and best examples 2025
Table of content
- 1. What is a customer loyalty program?
- 2. What are the common types of customer loyalty programs?
- 3. The 6 best customer loyalty program examples
- 4. How to create a loyalty program in 6 basic steps
- 5. Additional tips and best practices for building a successful customer loyalty program for eCommerce
- 6. Final thoughts and key takeaways
- FAQs
Introduction
Imagine this. For every $30 sale you make, you currently pay $10 to acquire a new customer. Now, instead of pouring another $10, what if it only takes you $5 to secure a loyal customer who comes back month after month? A smart customer loyalty program is the single best way to cut your acquisition cost (CAC) in half. Statistically, companies with strong loyalty programs grow revenue 2.5 times faster.
Despite all these impressive numbers, building a successful customer retention program is far from simple. Most businesses know what a loyalty program is, but only a handful know how to design one that truly works. Shockingly, over 70% of transaction-based programs fail in the long run.
Looking to build your own program but don’t know the right way to start? Don’t worry, we’ve got your back. In the following article, Koin will provide you with in-depth insights from the most foundational to the practical:
What a customer loyalty program is
The most common types and how they work
Best loyalty program examples from leading brands
Actionable tips to create a program that truly keeps customers coming back
1. What is a customer loyalty program?
1.1 How does a customer loyalty program work?
Customer loyalty programs, also commonly known as rewards programs or membership programs, refer to structured systems that incentivize repeat business. In this model, a brand rewards their customers with tangible benefits for their repeat purchases or continuous engagement. The bottom line is to attract and retain customers.
By offering incentives for customers’ loyalty and consistent support, the brand can build a loyal customer base, increase customer lifetime value (CLV), lower customer acquisition cost, and avoid losing them to competitors. Such programs give customers reasons to keep engaging and coming back. They also help boost revenue thanks to repeat purchases and larger basket sizes. In fact, existing customers are likely to spend 67% more than new ones.
So, how does a customer loyalty program typically work? Let’s look at it through the customer journey. A general process goes like this:
A new customer buys or shares their information with a brand.
The brand invites them to sign up for its loyalty program.
The customer joins and starts earning points or perks, which are redeemable for the later.
As engagement increases, the customer unlocks better benefits and offers
Image: Ahartsoe
The key components of a customer loyalty program include:
Reward system (points, tiers, cashback, store credit, etc.)
Enrollment and tracking mechanism
Redemption process
Communication and engagement touchpoints
1.2 The psychology behind the customer loyalty program
So, what drives customer loyalty programs to work so well? Why do people join and stay active in them? This is where most brands fail. We’ve seen many times how one brand follows another, setting up points and tiers and naively hoping customers will stay.
Unfortunately, loyalty just doesn’t happen by giving out rewards. It’s rooted in something deeper, which is psychological triggers behind the scenes that influence customer motivation and behavior. And the five main drivers include:
Positive reinforcement. Looking at the loyalty systems, you easily spot the principle. This principle is behind many effective behaviors, from learning to working. Have you ever done well at school and got praised or rewarded for it? That’s the same idea, where a reward encourages the behavior to continue. It’s similar in loyalty programs, with customers earning points or perks for each action.
Loss aversion. Simply put, it’s the fear of losing what you already have. This explains why customers don’t want to lose the points or progress they have earned.
Goal gradient effect. This phenomenon refers to the tendency for people to work harder as they get closer to a reward. In loyalty programs, it’s often built into tier structures or milestone rewards that push customers to keep going.
Endowed progress effect. Customer engagement becomes even stronger when they are given a head start. Research shows that offering bonus points at sign-up or a small welcome reward can increase the shoppers’ feeling that they are already partway toward the goal, which is key to fueling motivation. In psychological terms, it is called the endowed progress effect.
The need for exclusivity and recognition. Another psychological trigger is exclusivity and recognition. People value being part of a select group and receiving acknowledgment for their loyalty. And the higher the investment a customer makes in the program, the stronger the escalation of commitment keeps them loyal.
2. What are the common types of customer loyalty programs?
2.1 Points-based loyalty programs
The point systems are so straightforward that everyone can understand how to use it with ease, even when you combine them with other loyalty methods. The customers can also track the given points through an app or account. Yet, things can get boring for the customers if points accumulate too slowly.
Retail brands, eCommerce stores, cafes, and consumer goods companies commonly make use of the point-based programs. It particularly suits everyday or low-cost items that people often buy. A common example is Starbucks Rewards. The coffee shop franchise gives stars for every purchase and when enough stars are collected, their members can exchange them for free drinks or food.
2.2 Tiered loyalty programs
The most tangible advantage of tier-based programs is that they encourage ongoing engagement and higher spending. It leverages the goal gradient effect and escalation of commitment, pushing those members in the lower-tier to do more. However, if not designed carefully, it may frustrate the customers or fail to motivate progression.
This format is mostly seen in companies selling premium products or travel services offerings. A prominent example here is the tiered frequent flyer program of Delta Airlines. New customers usually start without a paid membership, but if they spend $6,000 in a year, they will reach the Silver tier, which includes priority check-in, complimentary baggage allowance, and access to some upgraded seating.
2.3 Paid loyalty programs (VIP/membership subscription)
With paid programs, customers pay a fee upfront and receive the perks right away. For example, Amazon Prime charges an annual fee. Upon subscribing, the users can enjoy free shipping, Prime Video access, free e-books, exclusive discounts, and other special deals.
Now, this is where it gets confusing. How is it different from tiered programs, you may ask? It all comes down to how rewards are earned and structured. While the benefits of a tiered system are decided based on spending or engagement thresholds, a paid program provides perks immediately. There is also no ranking to unlock.
2.4 Referral loyalty programs
Image: Antavo
By applying referral programs, brands benefit from word-of-mouth marketing, higher customer acquisition rates, and strengthened loyalty from both the referrer and the referee. All the same, it’s important to be careful of low-quality referrals and potential reward exploitation.
Referral loyalty is particularly common among eCommerce platforms, subscription services, mobile apps, and SaaS companies, especially those that rely heavily on network effects or user growth. For instance, Dropbox gives users additional cloud storage for successful referrals, while Uber and Airbnb reward both the referrer and the new user with ride or travel credits, respectively.
2.5 Value-based loyalty programs
2.6 Hybrid loyalty programs
Image: Antavo
Common hybrid loyalty models include:
Points and tier system: Customers earn points while progressing through membership levels for added motivation.
Referral and discount system: Members receive discounts or credits for successful referrals.
Paid and value-based program: Subscribers pay for premium access while the brand contributes a portion of profits to social causes.
Large-scale businesses typically opt for hybrid loyalty programs as they expand their customer base. At this stage, customer profiles become more diverse and expectations grow. Relying on a single loyalty structure then becomes less effective.
3. The 6 best customer loyalty program examples
3.1. Starbucks
When it comes to customer loyalty program examples, it’s a must to include Starbucks’. Launched in 2009, the Starbucks Rewards is among the pioneers in incorporating a points-based system in the coffee shop/café segment. The program centers around a “stars” points system. Customers earn stars for every dollar spent and these accumulated stars can later be exchanged for free food and drinks.
The positioning? Starbucks focuses on simplicity and convenience, with features like order-ahead, saved favorites, and pre-loaded payment. There are also extra perks for members who want to engage more, including free refills and member-only games.
Here’s what it offers:
Earn 1 star per dollar spent
Free birthday drink
Free in-store refills on brewed coffee and tea
Mobile ordering and payment via the Starbucks app
Exclusive member offers and promotions
3.2. Sephora
Beauty Insider is a successful customer loyalty program example of hybrid loyalty. Sephora launched it in 2009 and the system is a mix of a points-based system with tiered membership levels. The perks include:
Earn 1 point per $1 spent.
Redeem 500 points for $10 off purchase.
Free standard shipping.
Birthday gifts.
Exclusive access to sales and events.
Charity donation options.
Additional tiered benefits: Insider, VIB (spend $350/year), and Rouge (spend $1,000/year).
3.3. Amazon
Another successful example of a loyalty rewards program to learn from is Amazon Prime. It follows a paid subscription model. Accordingly, Amazon users pay $14.99/month to get benefits across shopping, streaming, and more in one package. There are also discounts or perks for young adults or students.
The perks look like:
Free two-day shipping on eligible items
Access to Prime Video for streaming movies and TV shows
Prime Music for music streaming
Early access to Lightning Deals and exclusive promotions
Unlimited photo storage with Amazon Photos
Free release-date delivery on select pre-order items
3.4. IKEA
The Swedish furniture company is famous for its points-based membership program IKEA Family. As its name entails, anyone can apply for free to become part of the “family.” Every time members shop at IKEA, they receive monthly discounts on furniture, food, and home accessories. In addition to that are exclusive offers, event invitations, and free in-store drinks.
Here’s what customers can get from signing up for IKEA Family:
Exclusive product discounts
Free coffee or tea during store visits
90-day price protection
Invitations to workshops and events
Buy Back & Resell service (store credit for used IKEA items)
Special member offers and promotions
Savings on select delivery options
3.5. H&M
Moving to the fashion retail industry, we have a successful customer loyalty program example of H&M’s loyalty program. Its structure is simple. The customers move through two tiers, with points and perks. New members start with Core, where they earn points from purchases. If their earned points surpass 500, they are upgraded to Plus.
Standard H&M loyalty program benefits:
10% off welcome offer
15% off for members
1 point per $1 spent; every 200 points = $5 reward
Free shipping on orders over $40
Exclusive member prices & offers
Partner promotions & early access to sales
Birthday rewards (varies by region)
The perks included in Plus:
Free shipping & returns on all orders
20% off for Plus members
Early access to drops & sales
Exclusive experiences, events & giveaways
Special Plus-only discounts and offers
3.6 Nike
Nike Membership is another staple example of a modern loyalty program. How it works is simple. Customers register for free, and as they engage, they earn exclusive benefits, including early access, free shipping, and personalized offers. Those perks apply across both digital channels and physical stores.
The perks include:
Free shipping on orders over $50
60-day wear test (try before you commit)
Receipt-less returns via app or in-store
Member-only product drops and early access to launches
Exclusive events, training sessions, and community experiences
Birthday rewards and surprise gifts
4. How to create a loyalty program in 6 basic steps
That’s the basics of loyalty programs. At this point, we are confident that you understand the definition and the different loyalty types. We also looked at some successful examples from leading brands. It's high time that you create a loyalty program of your own.
The following is a 6-step process that brands often rely on when building one.
4.1 Define your goals and your success metrics
Just like any other marketing initiative, it’s important to start with a clear goal. Determine what you want to achieve and how you will measure success. Common goals include:
Increasing customer retention and repeat purchase rate
Driving a higher average order value
Expanding the customer base through referrals
Strengthening brand engagement and advocacy
Collecting first-party data for better personalization
The success metrics should align with these goals and can include retention rate, customer lifetime value (CLV), or redemption rate.
4.2 Understand your customer segments
Statistically speaking, 77% of loyalty programs fail within their first two years. And the most common reason is that they don’t deliver enough perceived value or personalization to keep members engaged.
This is such a pity because the issue can easily be avoided by identifying what your customers want and how your program can meet those needs. In other words, you have to focus on building genuine relationships, not just transactions.
You can understand your customer segments better by:
Analyzing purchase history and behavioral data
Conducting customer surveys or interviews
Creating personas to represent different audience types
Tracking feedback and engagement patterns across channels
4.3 Choose the perfect loyalty program type for your brand
4.4 Design your reward structure
The next step on how to create a customer loyalty program is to design a reward structure. It involves:
Defining the earning mechanism (e.g., 1 point per $1 spent)
Setting redemption options (discounts, free products, experiences, etc.)
Determining reward frequency and expiration terms
Balancing attainable rewards with premium incentives
Pro tip: Store credits have become an increasingly popular form of reward thanks to their clarity and high perceived value. Unlike points, they feel more tangible and are easier for customers to understand and redeem. For instance, saying “You’ve earned $5 in store credit” sounds much clearer.
4.5 Choose a customer loyalty program app/platform to implement
Thus far, your loyalty program is ready for implementation. Physical stores can easily run a simple punch-card or manual tracking system at the counter. In the case of online businesses, you will need software that integrates with your eCommerce platform and automatically tracks points, rewards, and redemptions.
Below are a few options:
Custom development: Brands can build their own loyalty system tailored to their exact business rules and integration needs. Yet, it requires significant development resources, time, and ongoing maintenance.
Agency development: This option involves hiring a professional agency to implement your loyalty program according to your specifications. You can request custom integration, feature design, and faster deployment.
Loyalty and rewards apps: You can also use pre-built apps that automate points, tiers, and referral tracking. This is the fastest and most cost-effective method. These apps often offer plug-and-play integration with platforms like Shopify, WooCommerce, and BigCommerce.
If you are on Shopify, there are many apps available. You can choose an app individually for points, tiers, or referrals, or pick an app that supports multiple types depending on your reward structure. Some popular Shopify loyalty plugins include Smile.io, Yotpo, and Rise.ai. For store credit as loyalty rewards, Koin Cashback & Store Credit is a leading option in the category.
4.6 Monitor and optimize for stronger customer loyalty
Once you launch your loyalty program, you can start tracking key metrics and engagement. Adjust and refine rewards and messaging based on data or customer feedback.
Don’t hesitate to test different reward structures, promotional campaigns, or communication strategies. It’s the best way to find out what works best and optimize your program.
5. Additional tips and best practices for building a successful customer loyalty program for eCommerce
Still not sure how to get started? Try these tips:
Make earning and redemption simple and easy with clear, straightforward rewards. 50% of consumers primarily join a loyalty program to earn rewards on everyday purchases.
Personalize the experience based on customer behavior and preferences. For example, send birthday discounts or recommend products based on past purchases.
Build omnichannel consistency. Ensure customers get the same loyalty benefits online, in-store, and via mobile. 75% of consumers would engage more with a mobile-friendly loyalty program.
Communicate clearly and consistently. Make program rules, benefits, and policies easy to understand to avoid confusion or frustration.
Leverage gamification and trends. Encourage engagement with VIP tiers, challenges, or bonus rewards. 37% of customers agree that they would pay for a higher-tier loyalty program.
6. Final thoughts and key takeaways
That concludes our article on the customer loyalty program. In the end, you have learned everything about how loyalty progras work, common reward systems, and how to create a program for your eCommerce brand.
Loyalty programs are indeed a robust tool for customer retention. But they don’t always guarantee success on their own. To maximize results, it’s important that they are simple, clear, and engaging. Also, never underestimate the power of personalization or consistent communication.
Ready to boost your sales? Start building your loyalty program today!
FAQs
-About Author
Emma C.
As the Chief Marketing Officer at KOIN app, I’m here to build a robust ecosystem by collaping with Shopify apps. Together, we can create seamless integrations that add more value to our shared customers.
KOIN helps merchants retain customers, increase repeat purchases, and drive loyalty by offering cashback and store credit rewards.
📩 Let’s connect! emma@getkoin.io
