Boost Customer Retention with This Loyalty Program Guide

A loyalty program can deliver substantial benefits to your company. Just look at how much Domino’s Pizza has grown since heavily promoting its Piece of the Pie Rewards campaign in the early 2010s.

Back then, the company was losing market share to its competitors. Now, it has rebounded to become one of the world’s leading pizza sellers. The loyalty program wasn’t the only reason for Domino’s turnaround, but it helped build a loyal pool of repeat customers at a time when the company desperately needed them.

So, it’s worth asking the question: what could a loyalty and rewards program do for your business? People are motivated by rewards, progress, and recognition. Starting a program that rewards customers for shopping with you could improve retention, increase lifetime spending values, and grow at a lower cost than other strategies.

With this guide’s step-by-step instructions for creating consumer loyalty programs, real-world examples, and expert tips to move your brand forward, you can connect with your customers and scale your business.

Types of Loyalty Programs

First, you should know that there are several main types of loyalty programs to choose from. These include:

• Rewards and point-based: Customers earn points for purchases and actions, which they can redeem for rewards.
• Tiered: Customers move through levels like silver, gold, and platinum, with increasing benefits at higher levels.
• Paid: Customers pay a small fee for instant reward value, like free shipping or exclusive perks.
• Referral-based: Customers earn rewards by inviting others, which amplifies your word-of-mouth marketing.
• Community and mission-based: Tie rewards to values that your business shares with its customers to improve loyalty.

Each type of loyalty program can be effective, so it’s about finding what works best for your business.

How To Create a Loyalty Rewards Program That Boosts Customer Retention

If you’re ready to design a new program from scratch, start by working through these five steps.

Step 1: Identify Key Customer Behaviors To Reward

The first question to answer is what behaviors will earn customers rewards. In general, you want to focus on actions that align with your business goals, which may include:

• Making purchases
• Sending referrals
• Posting reviews, social shares, and user-generated content
• Celebrating birthdays and milestones
• Attending events or engaging with your community

Marketing experts also emphasize that you reward customers for actions they’re already taking. Valentina Chiriacescu, Chief Commercial Officer of eCommerce Today, says, “a strong program is based on how your customers actually shop, not how you wish they shopped.” Always consider the broader customer lifecycle and design strategic rewards based on real customer behaviors tied to a strategic outcome.

Similarly, Dan Cassidy, Founder of Brandhopper Digital, says, “If your loyalty perks don’t reflect what your best customers care about, don’t be surprised if they ignore them.” So, look for actions and behaviors to reward that align with your business goals, but make sure they’re already popular with your customers, too.

Step 2: Choose Your Program Model

The next step is choosing a program model that aligns with the behaviors you identified in step one. There may be more than one good option, so consider a few.

For example, Steve Pogson, Founder and Digital Strategy Lead at Helm Digital, says, “We usually steer e-commerce brands toward a points-based loyalty model with tiers. It’s straightforward, easy to manage (especially with Shopify), and customers immediately get the concept.”

But Chiriacescu usually recommends a tiered model. She says, “It gives people a reason to come back and a sense of progress without needing constant discounts. It also gives you a better handle on margins.”

The takeaway? Points-based models are easy, flexible, and familiar to customers, whereas tiered programs can motivate long-term engagement with VIP-style incentives. Both benefits are valuable, so it’s about choosing which is the most valuable to your company.

These are just a few of your options, though. You may also want to consider:

• A paid loyalty program like Amazon Prime that offers instant value (video streaming and free two-day shipping) in exchange for a subscription.
• A referral option, which you can supplement with other kinds of rewards.
• A mission-based program that can build emotional loyalty through donations or impact.

Step 3: Select Your Loyalty Platform or Tool

Now, you’re ready to build the technical foundations of your new loyalty program. There are many ways to do this. For example, you can use:

• Plug-and-play tools like LoyaltyLion, Smile.io, Yotpo, and Shopify
• Custom-built API solutions and integrations
• CRM-connected systems, which sync with your existing marketing and sales tools

Whatever route you take, make sure to set up a system that aligns well with your full e-commerce stack and allows for future scaling.

Step 4: Pilot the Program

After building your program, you can start testing it with a small group of loyal customers or email subscribers. Ask them for their perspectives on how useful they think it will be and whether they’ll continue using it. As a bonus, customers who you select for the pilot program are often more likely to stay loyal.

You can also track data to review how customers use the program in practice. This may reveal unique insights that users don’t share with you explicitly. For example, you might discover that a feature you included as an afterthought deserves a larger role after watching customers spend a lot of time with it.

Step 5: Gather Feedback and Iterate

Finally, gather feedback, learn from it, and iterate your design until you’re ready for public release. Cassidy recommends using data and customer phone calls to “learn how your loyalty program is actually resonating with your best customers.” This step is crucial — hearing what’s working and what’s not directly from your customers is some of the most valuable data you have about your loyalty program.

You can also look at indicators like reward redemption rates, drop-off points, and customer satisfaction ratings. Just make sure the changes you make are based on actual customer behavior instead of assumptions.

Continue refining over time, and you’ll have a market-ready rewards program soon enough.

How Loyalty Programs Help Scale Your Business

A loyalty program can be a valuable tool for scaling your business. Some benefits you can unlock by running a loyalty program include:

• Increased customer retention: Loyalty programs help you retain more of the customers you already have, which is significantly cheaper than finding new leads. Studies show that acquiring a new customer can cost up to 25 times more than keeping an existing one.
• Increased average customer lifetime value: Loyal customers tend to spend more, increasing your customer average lifetime value, which can be a key metric for fundraising.
• Generation of rich first-party data: Use the data from your loyalty program to segment and target your audience more effectively.

These benefits cut down on the amount you need to spend to reach your growth goals, but don’t let these business benefits distract you from the importance of prioritizing customer value in the program you design. As Pogson says: “[Loyalty] programs succeed by being real, memorable, and relevant — not just chasing transactions, but genuinely enhancing their customers’ experiences.” At every stage of scaling, make sure that customer experience and specific business outcomes are at the heart of your decision-making.

5 Proven Examples of Successful Loyalty and Rewards Programs

As you bring your program to life, reviewing other companies’ strategies can be helpful. These five examples are a good place to start to spark inspiration and see what works.

1. Starbucks Rewards — Gamification Done Right

In Starbucks’ rewards program, customers earn stars that represent points for every dollar spent. They can redeem these for free drinks, food, add-ons, and other special rewards. Pogson calls it “easy, addictive, and integrated effortlessly into everyday routines. You barely think about it, yet it keeps you hooked and coming back.”

The program is an excellent example of how to use gamification to improve engagement. Starbucks gives extra rewards to customers who place mobile orders, participate in limited-time promotions, and complete points challenges.

These limited-time opportunities encourage ongoing engagement with the program. But customers only keep coming back because they get real value from it in the form of free food and drinks.

2. Sephora Beauty Insider — Tiered and Personalized

Sephora has a tiered rewards program that offers free products, access to exclusive events, early access to new releases, and birthday gifts. Members can join for free and earn more points per purchase as their annual spending climbs.

Of the program, Pogson says, “They nail meaningful tiers, offer genuinely desirable perks, and [make] customers feel seen, not just sold to.” This combination of tiered personalization may work for your business, too.

3. REI Co-Op Membership

REI charges a one-time $30 fee for a lifetime membership to its loyalty program. In exchange, customers get 10% back on everything they purchase throughout the year, plus exclusive access to gear, members-only sales, free classes, discounts on rentals, and even community events.

Members also get to vote on company decisions. Pogson says the program is “simple, valuable, and laser-focused on their community and brand mission. No fluff, just tangible benefits and authentic connection.”

REI’s approach is less about ongoing rewards and gamification. Instead, the company focuses on building like-minded communities and achieving value alignment with customers. This is an alternative way to approach loyalty programs that may make sense for your company, too.

4. Nike

Nike’s program is free to join and unlocks exclusive access to products, early drops, and even personalized fitness coaching. The app isn’t just a loyalty program; it’s an all-in-one exercise hub that many customers use daily as part of their fitness routines.

This creates a kind of community that marketing expert Chiriacescu finds important: “It’s not just about points. It’s about identity, access, and belonging. That’s where loyalty gets really interesting, when it taps into emotion, not just savings.”

Nike is a good example of prioritizing customer value when creating a loyalty app. This is a genuinely useful lifestyle product, not something that Nike uses just for rewarding purchases. When done well, this can make customers feel truly connected to your brand.

5. Magic Mind

Finally, Magic Mind has built a loyalty program into its subscription model. Users get discounts for subscribing and bonus rewards over time for consistent use, referrals, and social shares.

Cassidy says, “Magic Mind does an excellent job of incentivizing retention through rewards and bonuses. They make it easy to redeem rewards. And they also make it easy to skip or delay orders. Seamless subscriptions lead to more loyal customers. And loyal customers lead to increased word of mouth and better businesses.”

How To Set Goals and Measure Your Loyalty Program’s Success

Once your loyalty program is established and running, be sure to measure your program’s performance and adapt as the data rolls in. Here are some tips.

Define Clear Objectives

First, set clear objectives from the outset. You might want to build a strong brand community, get more referrals and social engagement, increase your average customer lifetime value, or something else. Whatever goals you have, it’s important to define them early and track whether you’re making progress toward them.

Track the Right Metrics

Once you have goals, figure out which metrics you’ll need to track to see how much progress you’re making. Chiriacescu says, “Don’t stop at how many people signed up.” That might be the first metric you track, but it shouldn’t be the only one. Instead, look deeper with metrics like:

• Customer-lifetime value (CLV): This metric estimates how much total revenue a business can expect from a single customer over the entire duration of their relationship with the brand. Tracking this metric helps you see whether increases in loyalty are having a corresponding impact on CLV.
• Average order value (AOV): This is the average amount a customer spends per purchase. It often goes up after a company implements a successful new loyalty program.
• Repeat purchase rate: Chiriacescu says, “One of my [favorite metrics]: how fast they make their second purchase after joining. If that timeline isn’t improving, your program isn’t doing its job.”
• Churn rate: This measures how many customers you lose over time. Pogson says, “Loyalty done right reduces the number of customers drifting away.” If the churn rate goes up, you may need to rethink part of your program.
• Engagement rate: This can help you understand if your program is impacting how customers connect with your brand. Pogson values it highly, sharing that “engagement is loyalty’s pulse.” The most successful loyalty programs boost engagement.

You may also want to measure your Net Promoter Score (NPS) as part of this process. It’s a good catch-all metric for evaluating levels of customer satisfaction and your odds of receiving future referrals. To calculate your NPS, ask a group of representative customers to tell you how likely they are to recommend your business to a friend or colleague on a scale of 0 to 10. Those who say 9 or 10 are promoters, while people who give you a score of 6 or less are detractors. Subtract your percentage of detractors from your percentage of promoters to get your NPS.

Evaluate Program Performance

The final step is interpreting the data you collect. One easy way to do that is by comparing the same metrics before and after your loyalty program. For example, did your engagement rates increase? You can compare individual customer behavior before and after a new program to see how it’s shifting habits on a more personalized level.

Most companies also set internal benchmarks and compare their performance to industry standards. If yours aren’t where you want them, you can improve over time with feedback loops, A/B testing, and direct feedback from customers.

When To Hire an E-commerce Marketing Agency for Your Loyalty Program

You can build a loyalty program yourself or hire an e-commerce marketing agency that specializes in the process to do it for you. This can be a smart move when you have limited time or no in-house expertise. Many teams also hire agencies to get their programs up to speed quickly and help with strategy.

Our experts share their top tips for choosing an agency:

• “Make sure they don’t just get loyalty — they need to really understand your brand, your voice, and your customers,” says Pogson.
• “Loyalty isn’t a plug-and-play feature — it’s a growth engine. You need a partner who gets both the tech and the human side of it, and can optimize along the way,” says Cassidy.
• “Make sure the agency shows you actual retention scenarios, not just features. If they’re focused more on badges and gamification than real customer behavior, that’s a red flag,” says Chiriacescu.
• “If they’re not Shopify-savvy, that’s a red flag,” says Pogson.

Your decision should also depend on what kind of support you want. For example, any e-commerce marketing agency specializing in customer rewards can help you design and launch a loyalty program. However, some integrate more easily with external platforms, while others focus on specific channels, like social media. It’s important to choose a partner who has expertise where you need it most.

Final Thoughts: Build Loyalty with Intention

So, what are the key takeaways on customer loyalty programs? Pogson summarizes his thoughts: “The magic comes down to authentic alignment with your brand and customer values. The best reward programs feel like a natural extension of your brand personality, not just some boring points-and-discounts game.”

Ultimately, building a customer loyalty program is a growth strategy. But to be effective, you’ll need to have a keen understanding of your target audience and what moves the needle for them. You’ll also need to design an intuitive, fun interface for your new program.

You may be able to do most of this internally, but partnering with an agency can still be smart. If you want to save time with expert advice and a streamlined design process, hire an agency and start benefiting from a new loyalty program sooner.

About the Author

Jeanette Godreau Senior Content Marketing Specialist at Clutch

Jeanette Godreau crafts in-depth content on web design, graphic design, and branding to help B2B buyers make confident decisions on Clutch.  

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