Customer loyalty programs: Tips, examples, and how to start

Customer loyalty programs: Tips, examples, and how to start

Thinking about starting a loyalty program for your business? You might want to jump on that idea sooner rather than later. With 64% of consumers likely to recommend a brand with a strong loyalty program and 71% saying these programs make them more likely to stick with a brand, implementing one could be a game changer for customer retention and satisfaction.

After all, when it comes to time-tested customer retention techniques, loyalty programs lead the pack. With origins that trace back to 1793, customer loyalty programs predate nearly every tactic in the modern marketing playbook, from email newsletters to SMS text messages and social media.

Though customer loyalty programs aren't new, they're increasingly relevant to today’s consumers. Recent surveys reveal that 52% of consumers are likely to increase their participation in loyalty programs over the coming year. Among Millennial customers, that share is even higher: nearly seven out of 10 intend to increase involvement in loyalty programs. 

The only question is, how do you start a loyalty program in the first place? 

In today’s guide to customer loyalty programs, discover the impact (and return on investment) of loyalty rewards on customer retention. Explore the top loyalty program examples that are setting the bar for today’s businesses, with step-by-step instructions for starting your own customer loyalty programs. 

What is a loyalty program?

A loyalty program is a customer retention and growth strategy designed to encourage continuous engagement and spending with a particular brand. These programs, often referred to as loyalty rewards programs, typically award points, exclusive promotions, and other perks to customers who meet certain criteria, such as making frequent purchases or reaching a total purchase amount. 

The return on investment (ROI) of customer loyalty programs

Customer loyalty programs have a considerable ROI, largely due to the benefits that accompany increased customer retention. While most programs require an initial investment to develop and deploy, any recurring expenses—like people, technology, and marketing costs—are offset by the program’s monetary gains.

For instance, 57% of consumers are willing to modify their spending to maximize their loyalty benefits, allocating more of their wallet share to preferred loyalty programs. Plus, another 79% of consumers say they purchase from brands more frequently when they participate in a loyalty program, boosting overall customer lifetime value (CLV).

As program engagement—and spending—grows, so does the customer retention rate (CRR), or the percentage of consumers who remain with the program over a given period. But that’s not all: loyalty programs also work wonders for customer acquisition. 

A recent Visa loyalty report found that 64% of consumers are more likely to recommend a brand that has a strong loyalty program, which serves as fantastic word-of-mouth marketing that reduces customer acquisition costs (CAC). As CAC decreases and CLV and CRR continue to rise, the ROI of customer loyalty programs remains significant.

Types of customer loyalty programs

There are various types of loyalty programs. It’s important to choose the right one for your business. Let’s go over a few of the common ones.

Point-based loyalty programs

Members earn a set number of points for specific transactions, such as 10 points per $1 spent or 20 points per new member sign-up. Points can be redeemed for rewards, discounts, or exclusive promotions. 

• Pros: Utilizes a simple "earn and burn" concept for members to quickly earn and redeem points, driving ongoing engagement and spending

• Cons: Creates potential challenges for tracking points if there are numerous ways to earn (i.e., purchases, referrals, promotional activities) 

Tiered loyalty programs

Members are grouped into rewards tiers based on certain criteria, such as monthly spending or customer lifetime value. Available rewards increase in value as members advance into higher membership tiers. 

• Pros: Allows for advanced loyalty marketing segmentation between tiers for more personalized, higher relevancy campaigns 

• Cons: Creates a sense of delayed gratification, particularly if the threshold for reaching a new membership tier is too high

Cashback loyalty programs

Members receive a percentage of their total purchase amount in cash or credit that can be used toward future purchases. Cash rewards can also be donated to a charitable cause to align with member preferences. 

• Pros: Incentivizes continuous spending with a single provider by promising to return a portion of the transaction as a reward 

• Cons: Eats into profit margins if the cashback percentage awarded is too high or is given too frequently (i.e., gifted on weekly spending)

Discount loyalty programs

Members are offered exclusive promotional pricing on products or services. Some programs set time-bound discount offers, particularly during sale seasons like the winter holidays or stock clearance periods.

• Pros: Prioritizes immediate monetary value to promote faster transactions and encourage continuous spending

• Cons: Creates an over-reliance on lower prices, which can position a business as lower value or cause backlash if prices increase

Referral loyalty programs

Members earn rewards for referring friends and family to successfully sign up for the loyalty program. Members may also earn rewards for sharing the loyalty program on social media.

• Pros: Reduces customer acquisition costs because members actively recruit new customers, providing their own word-of-mouth marketing

• Cons: Limits the number of opportunities to earn rewards, which can restrict how often members engage with the loyalty program

Subscription-based loyalty programs

Members pay a monthly or annual fee to access exclusive rewards, promotional offers, or premier access to new products. These programs operate similarly to a membership club with special privileges. 

• Pros: Funnels recurring subscription fees into the business, creating a consistent ancillary revenue stream that can benefit cash flow

• Cons: Requires members to pay upfront, which can be a challenge for smaller brands that haven’t developed a rapport with their target audience

Examples of successful customer loyalty programs

The average consumer belongs to 16.6 loyalty programs but actively uses less than half. So what makes a loyalty program attractive enough for members to actually participate? By and large, the answer boils down to the customer experience and the value a program offers for the money. 

Here are three loyalty program examples that demonstrate how the right features and benefits attract customers and retain them (and their spending dollars) for the long term. 

Starbucks Rewards

Starbucks is the leading coffee shop chain in the United States by far, so it’s no surprise that the company’s customer loyalty program, Starbucks Rewards, is also a massive success. Starbucks Rewards allows members to earn one star per $1 spent on pay-as-you-go purchases and two stars per $1 spent on purchases made with preloaded digital Starbucks Cards via the mobile app.

Once earned, stars can be redeemed for rewards like free beverage customizations, complimentary food and drinks, and even branded merchandise like coffee mugs. Rewards are organized in 25, 100, 200, 300, and 400-star redemption level tiers, with each purchase incurring additional stars.

As per a recent earnings report, the number of active members in the US Starbucks Rewards program totaled 33.8 million, up 7% year-over-year. Growth is largely attributed to the program’s central loyalty app, which has increased mobile order and pay revenue by 10% year-over-year.

The Starbucks Rewards app has also become a leading source of customer data for personalizing available promotions. Starbucks combines app data with machine learning to send hyper-personalized promotional messages with over 400,000 variants, improving offer redemption three-fold.

Marriott Bonvoy

Starbucks isn’t the only corporation leveraging mobile technology to connect with rewards customers. Marriott Bonvoy, the rewards program created by Marriott International, allows members to earn points for stays at hotels and resorts, as well as for everyday purchases made through one of 31 co-branded credit cards, and then monitor progress on the Marriott mobile app. 

Members can redeem points for discounts on future stays, access to exclusive Marriott Bonvoy Moments, such as concerts or music festivals, and special perks like complimentary Wi-Fi. 

The Marriott Bonvoy loyalty program currently has 200 million members worldwide. Marriott reports that their top 1% of loyalty members represent 35% of gross fee revenue. These consumers are highly engaged, with 90% using the mobile app and 64% having a co-branded credit card. The mobile app has driven double-digit revenue growth and a 75% increase in mobile check-ins since its 2017 launch. 

Delta SkyMiles

Delta SkyMiles is another travel loyalty program that’s recently unlocked unprecedented growth. The Delta-developed program allows members to earn miles for flying Main Cabin or above and on everyday purchases, then enables these miles to be used toward travel on any Delta flight, a Delta Vacations package, or perks like free upgrades and premium drinks at Delta Sky Clubs. 

In 2024, engagement with the SkyMiles program reached an all-time high, with record membership growth, co-brand spend, and revenue from travel-adjacent services. The reason for this spike may be in part due to the Delta SkyMiles Medallion, a tier-based program that rewards members based on the Medallion Qualification Dollars (MQDs) each user spent during the previous year.

With the lowest tier (Silver Medallion) requiring members to spend at least $5,000 MQDs, customers are driven to dedicate more of their travel spending toward Delta to earn more exclusive rewards. Each tier progression offers increasing benefits, like travel vouchers and priority service.

8 steps to starting a customer loyalty program 

Now that you have a better understanding of how successful loyalty programs perform, your business can begin to launch an effective loyalty program of its own. Here are eight steps for creating a customer loyalty program that drives engagement, retention, and long-term satisfaction.

1. Define your objectives and target audience

The first step in launching a customer loyalty program is to determine your program’s goal. Do you want to increase revenue, gain new referrals, or gather first-party data? 

Take inspiration from the above loyalty program examples, such as Starbucks Rewards, which uses member data to customize promotions, or Marriott Bonvoy, whose top members represent more than a third of revenue, to decide which objectives make the most sense for your business. 

Next, consider how the preferences, wants, and needs of your target audience align with your program goal. What are the demographics of your target audience? What's their spending power? Learn what encourages them to purchase (and what promotions help them to do so continuously).

2. Choose the right type of loyalty program

Once you’ve decided on a program goal, you can select an optimal type of loyalty program  for your organization. 

For example, customer rewards programs like Starbucks Rewards are point-based but also incorporate rewards tiers, encouraging members to quickly earn and redeem stars but placing rewards redemptions into tiers of 25, 100, 200, 300, and 400 stars. Programs like the Delta SkyMiles Medallion are purely tier-based. 

3. Create a compelling value proposition 

After deciding on a program structure, begin brainstorming what value you'll offer members. Research shows that “value for money” and “making members feel valued and important” are two factors that are increasingly important for loyalty program success, so it’s paramount to consider what your unique audience would find most rewarding in a loyalty rewards program.

Communicate your value proposition clearly, whether it’s instant cost savings or first-dibs access to in-demand products that sell fast. Be sure to differentiate your program from other existing programs. Hone in on your customer’s primary pain points to highlight your distinct benefits. 

4. Develop a marketing plan for promoting your program

Speaking of communicating your value proposition, it’s vital to develop a marketing plan for promoting your customer loyalty program. If the above loyalty program examples teach you anything, let it be to reach customers where they want to be reached, such as mobile platforms.

It’s wise to adopt a multichannel marketing strategy to ensure your messages are delivered on your customers' preferred platforms, like through SMS for newly available promotions or email marketing for rewards progress. A multichannel strategy will also minimize costs by avoiding communications that will be ignored on less popular platforms. 

5. Integrate the program into your operations

With an enticing value proposition and loyalty marketing plan in hand, begin to integrate the program into your daily operations. For example, programs like Starbucks Rewards, Marriott Bonvoy, and Delta SkyMiles all weave the potential to earn rewards into every transaction. Marriott Bonvoy even uses the loyalty program to drive new feature adoption, such as mobile check-ins.

6. Train your staff

Once the foundation of your customer loyalty program is set, it’s time to train your staff. While demonstrating how member rewards are earned and redeemed is essential, it’s arguably more important to train your staff on how to handle the customer data obtained through the program.

Twilio found that 98% of consumers want brands to do more to guarantee the privacy of their data, as well as be more transparent about how their data is used. So outline clear staff instructions for how member data is to be collected, accessed, and stored, considering relevant data privacy laws. Likewise, utilize loyalty marketing to share these details with customers and help gain their trust. 

7. Launch and gather feedback

You’re ready to launch! Now that your program is live, begin gathering member feedback. One option for feedback collection is to deliver satisfaction surveys via SMS text or email marketing. Another is to review voice transcriptions from customer service calls to identify common issues and troubleshoot solutions.

8. Monitor performance and make adjustments as necessary

After your first round of member feedback, continuously monitor loyalty program metrics like:

• Program enrollment and participation rates

• Customer lifetime value of program members 

• Reward preferences (i.e., cashback versus discounts)

• Reward redemption rate 

• Member churn rate 

• Program expenses

Above all else, remember that customer loyalty programs must be rewarding for members. If enrollment is high and participation is low or certain reward types experience little to no redemption, return to the drawing board to adjust for member preferences. 

Create effective customer loyalty programs with Twilio

If there’s one thing today’s trending customer loyalty programs have in common, it’s that they connect with members on their preferred channel. With Twilio’s communication APIs, software, and professional services, businesses can integrate email, SMS, MMS, WhatsApp or Voice into their existing MarTech stack, measure and optimize loyalty program performance, and be prepared to iterate and adopt future technologies such as AI.

Twilio empowers marketers to create personalized, data-driven, compliant campaigns that are differentiated for increased conversions and customer lifetime value. With 180+ countries within reach and 4,800+ global carrier connections, your loyalty program can reach your target audience more easily—and effectively—than ever before. Sign up for a free Twilio account today to get started.