The Ultimate Guide to understanding loyalty programs

We’ve all been there – the moment a checkout operator asks ‘are you a member with us?’ Or the digital equivalent of hovering over a field on the payment screen that’s prompting you for a membership number.

Most customers fall into two categories. There are the ones that have diligently joined the store’s loyalty program, either as a repeat or first-time customer. These are the ones that eagerly rummage through their wallet for a membership card, open a mobile app to present a barcode, or recite their email address so the operator can retrieve their membership details.

And then there are the other customers that haven’t joined the store’s rewards program. What’s so good about it, anyway?

If you’re new to loyalty programs or just wondering how they work, we’ve covered everything you need to know in our ultimate guide so you can decide if joining a rewards program is right for you.

What is a loyalty program?

Businesses use loyalty programs to attract and retain customers and encourage repeat purchases. Rewards programs are so common that they’re present in almost every industry – from coffee shops to pharmacies and even casinos.

There’s no prerequisite for businesses when it comes to offering a rewards program. A business of any size that targets any demographic can have a membership program tailored to the needs of its customers. Ultimately, a loyalty program should entice you – the customer – to continue purchasing or using a service.

How do loyalty programs work?

Loyalty programs have obvious benefits for businesses. These include an ongoing customer base, the potential for higher sales, and valuable data on consumer behaviour. But for customers, knowing how a rewards program works – and how to get the most out of it – ensures a win-win situation for both parties.

Loyalty programs reward, well, loyalty. This means that the more you shop from a business or use a service, the more rewards you’ll receive. There are a few different ways to earn rewards, which we’ve outlined in the types of programs below. But ultimately, rewards programs work by awarding regular customers with exclusive, member-only perks. The benefits are often enough to keep you coming back. And in some cases, you’ll receive even more benefits as you progress to higher tiers of the program.

That’s not to say that occasional customers can’t receive rewards either. While the perks may be considerably less, in many cases you’ll start earning rewards or even receive benefits as soon as you join a loyalty program. Think 10% off, a free coffee, or even a stack of bonus points to kick-start your membership journey.

Rewards programs track your purchase history or the number of times you’ve used a service. This can be done digitally via a mobile app or by scanning a barcode, or manually with methods like a stamp card to track your visits. Some programs are complex enough to tailor incentives and bonuses based on your purchase history, while others simply track your number of visits or how much you’ve spent in-store.

Once you achieve a particular goal or tier in the program, you’ll receive a reward. The goal may be as simple as making nine purchases to get your tenth free, reaching a minimum spend, or visiting the store a set number of times within a certain period.

Benefits of signing up for a loyalty program

Even if you’re not a regular customer, signing up for a rewards program can earn you benefits almost instantly. These may include:

• Discounts on purchases
• Free items or birthday gifts
• Early access to sales
• Exclusive promotions
• Free shipping
• Complimentary upgrades
• Member-only events

Types of loyalty programs

Not all loyalty programs are the same. Each business takes a different approach to rewarding customers, but there are some common structures across programs. We take a look at some of the most popular types of rewards programs.

Points-based

This is the most common type of rewards program. Points are awarded to customers based on their spending, which are then converted into rewards. You may be familiar with concepts like ‘$1 = 1 point’, where you can redeem your points for freebies, discounts or other offers after you’ve amassed a certain amount.

Frequent flyer programs, hotel loyalty programs and supermarket loyalty programs like Everyday Rewards and Flybuys are points-based. But you’ll also find that some coffee shops, beauty stores and even cruise liners offer similar programs.

Tiered

Tiered loyalty programs are another common type, and they can be standalone or intertwined within a points-based program. These types of programs work by setting a goal or incentive for the customer to reach before they unlock the benefits of a higher tier. Often as you progress through the tiers, you’ll earn greater rewards, and sometimes the ability to earn rewards becomes easier, too.

Cruise loyalty programs often have a tiered system where you’ll receive more benefits the more you cruise with a particular brand. Airline loyalty programs like Qantas Frequent Flyer and Velocity Frequent Flyer also offer various tiers of membership in addition to the ability to earn points. Casino loyalty programs also have membership tiers, and some even have an exclusive, invite-only tier for their most dedicated customers.

You’ll need to play the long game if you’re hoping to move up in a tiered rewards program, though. Many have a structure that encourages customers to return over a longer period, which can be several months or years. It’s very different to say a points-based coffee loyalty program, where you can easily rack up ten visits over a fortnight. Often the most elite members of a tiered program receive the best rewards, so it may be worth sticking around to find out.

Partnership

You may be able to earn reciprocal benefits from partners when you sign up for a loyalty program. Examples include the Qantas and Accor partnership, where members can earn rewards on flights and hotel bookings. The Flybuys and Velocity partnership is another great example, where members can easily convert rewards from one program to another. While partnership rewards programs are almost exclusive to larger businesses, it’s worth keeping your eyes peeled for other opportunities to earn or redeem rewards.

Should I participate in a loyalty program?

In short: absolutely. Most rewards programs are free to join, and becoming a member is often as quick as providing your email address or downloading a mobile app and creating an account.

If you’re already making regular purchases from a business like a coffee shop or restaurant, then signing up for their loyalty program is a no-brainer. The benefits, no matter how big or small, can certainly add up – and you may even be able to save a few extra dollars.

But your individual circumstances are as different as the loyalty programs themselves. Many programs are free and may have little risk attached if you’re an active customer, or planning to make a purchase. It’s important not to get carried away with reaching a particular tier just for the sake of rewards – you may end up spending a lot more than you anticipate.

It’s certainly worth exploring all the different ways you can earn rewards from purchases you’re already making. You may be surprised at just how many industries are willing to reward customer loyalty. If there are businesses or services you use regularly, have a read of all of our loyalty program guides to discover some of the best ones to join in Australia.

Summing up

Joining a rewards program can be your ticket to exclusive discounts, freebies and a host of other benefits.

So the next time you’re prompted to enter a membership number, take a stamp card or create an account, consider the perks of the loyalty program. You could be on your way to earning rewards instantly.

Featured image: Patrick Tomasso, Unsplash

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