Different models of loyalty programs, and which one could fit your brand best?

Loyalty program series, part 2

Loyalty programs come in many forms, and choosing the right one is essential for maximizing engagement, retention, and revenue. Here’s a breakdown of the most common loyalty models and an overview of their main advantages and limitations.

1. Points-based loyalty programs

With points-based loyalty programs customers earn points for purchases, referrals, or engagement (e.g., reviews, social media shares). Points are redeemable for discounts, free products, or exclusive rewards.

Why it works: 70% of consumers prefer earning rewards like points (Source: Bond Loyalty Report). And customers who redeem points spend 27% more (Source: McKinsey & Co.).

Limitations:

Points-based loyalty programs can feel transactional rather than emotional, since customers may engage just to redeem points rather than build a deeper connection with the brand
Managing point expiration, redemption policies, and inflation (devaluing points) can frustrate customers
Points-based loyalty programs are highly competitive: many brands use this model, making it harder to stand out

2. Tiered loyalty programs

Customers in tiered loyalty programs unlock higher reward levels based on their spending. More engagement means better perks.

Why it works: 76% of customers say tiers motivate them to spend more. (Source: Yotpo) Also, exclusive perks tend to increase emotional brand attachment.

Limitations:

Lower-tier customers may feel excluded, leading to disengagement
Tiered loyalty programs’ high spend thresholds can make rewards feel unattainable for casual customers
Tiered loyalty programs are complex: customers need to track their status, and brands need a system to manage tiers fairly

3. Paid membership or subscription programs

Customers in paid membership or subscription programs pay upfront for ongoing benefits, such as free shipping, discounts, or VIP access.

Why it works: Paid members are 60% more likely to be repeat buyers. (Source: McKinsey)

Limitations:

The upfront cost in paid membership or subscription programs may deter new customers who are unsure about long-term benefits
High expectations: customers expect strong value for money, requiring continuous investment from the brand
Not suitable for all industries: paid membership or subscription programs work best where frequent purchases or ongoing services are offered

4. Cashback loyalty programs

With cashback loyalty programs, customers receive cash rewards or store credit based on purchases, encouraging repeat spending.

Why it works: 82% of consumers prefer cash rewards. (Source: Forrester Research)

Limitations:

Cashback loyalty programs lack emotional engagement: cashback feels more like a discount than a true loyalty incentive
Margins can be really tight: offering high cashback percentages can cut into profitability
Cashback loyalty programs don’t create strong differentiation, since many competitors may offer similar cashback deals

5. Value-based or cause-driven loyalty programs

In this case, instead of discounts, customers’ purchases support social or environmental causes.

Why it works: 66% of global consumers prefer sustainable brands. (Source: Nielsen)

Limitations:

Value-based or cause-driven loyalty programs are typically not as financially tangible: customers don’t get direct rewards, which may reduce appeal for some demographics
Such programs require strong alignment: if the cause doesn’t feel authentic, it can backfire and be seen as a marketing ploy
Impact is harder to measure, especially compared to transactional programs, brands may struggle to quantify direct ROI

6. Experience-based loyalty programs

Experience-based loyalty programs reward customers with unique travel experiences, exclusive getaways, or adventure-based perks when they engage with a brand. Instead of discounts or points, customers gain access to unforgettable trips, VIP experiences, or curated travel rewards aligned with the brand’s identity.

Why it works: 69% of consumers prefer experiences over material rewards (Source: Eventbrite). Travel rewards create deep emotional connections, making customers more loyal and engaged. These programs differentiate brands by offering something more memorable than standard discounts or products.

Limitations:

Traditional travel programs can be expensive to develop and manage, requiring a robust booking system. However, Your Brand Travel’s SaaS solution offers a fast and cost-effective way for brands to launch experience-based loyalty programs.
Travel rewards may not be instantly redeemable like discounts, requiring clear communication on availability and booking

Which loyalty program is best for your business? Well, it depends. If your goal is repeat purchases, points-based or cashback programs may be the way to go. Looking to engage high-value customers? Tiered or subscription models could work best. Want to align customers with your brand’s values? A cause-driven approach might be the right fit.

But what if you’re looking for something more? Something that creates lasting emotional connections, turns customers into brand advocates, and stands out from traditional loyalty models? Experience-based loyalty programs offer a next-level approach to customer engagement, one that goes beyond transactions to deliver real, memorable experiences, and make your brand stick out from competition.

In the final part of our loyalty series, we’ll explore why travel and experience-based loyalty programs are transforming brand engagement, how they drive deep emotional connections, and how Your Brand Travel makes it easy for brands to launch their own experience rewards. Stay tuned!