Why are loyalty programs important?

What is a loyalty program?

A loyalty program is a customer retention strategy that recognizes and rewards customers who do business with a company repeatedly. Organizations should personalize their programs for customers and provide a human touch through regular outreach using phone calls, email or SMS.

Although marketing teams must generate leads and sell products to new prospects, loyalty programs also play a role in their marketing strategies. To improve the adoption and retention of loyalty program members, marketing teams must use the creativity and knowledge of their customer bases to promote the programs effectively.

Marketers also must revise, improve and -- in many cases -- simplify their loyalty programs. When successful, the program itself becomes a reason prospects become customers. For example, if word gets out through marketing or customer referrals on social media that a retailer provides a 20% discount to loyalty program members, that alone could entice prospects to become repeat customers.

The best loyalty programs compel customers to buy from organizations over their competitors, even when the competitors offer cheaper products and services. For example, passengers often get seat upgrades and early boarding privileges in airline loyalty programs. That might be enough for customers to pay an extra $30 for a flight. Also, the loyalty miles add up to free flights and higher levels within the program, offering even more benefits, such as first-class upgrades or entry to airport clubs.

10 benefits of loyalty programs

Loyalty programs benefit marketers as much as they benefit customers. Organizations can expect the following benefits from their loyalty programs.

1. Gather more customer data

Once customers join a loyalty program, marketing teams can track their preferences, buying habits and interests, as customers are more willing to trade personal information if they receive perks in return. Organizations can use this data to personalize outreach and customize monthly offers to different customer personas.

2. Use the customer's voice

Rather than develop many new campaigns, marketers can rely on rewards program members to drive more business. Organizations can ask customers to review the company or program on third-party sites. Successful loyalty programs often delight customers so much that they feel compelled to share their experiences on social media, which can bring in new business and loyalty members.

3. Build a community

Many people want to feel like they're a part of something larger than themselves, and loyalty programs can offer that. Virtual events, live events and online forums can foster communities and discussions from which marketing teams can receive firsthand customer feedback.

4. Improve customer retention and referrals

Loyalty programs reward repeat customers with exclusive offers and personalized treatment, such as coupons and birthday gift cards, which drive customer retention. Loyal customers often tell their friends and family about the program's special offers, which brings in new referrals.

5. Save money

Although organizations must spend money on the loyalty program's benefits, management and marketing, it costs less than acquiring new customers to replace those who went to a competitor -- with a loyalty program.

6. Improve customer lifetime value

Improved customer retention and satisfaction add to the benefits of loyalty programs. These perks keep customers around longer and encourage more frequent spending with exclusive offers, thus increasing customer lifetime value.

7. Gain a competitive advantage

Loyalty programs reduce customers' focus on price comparisons and strengthen their trust in the brand. As customers feel more valued and engaged, they are more likely to remain loyal. In turn, loyal customers become brand advocates who give positive reviews -- often through word of mouth -- that attract new customers and reinforce the brand's reputation.

8. Enable upselling and cross-selling

Upselling and cross-selling are major benefits of loyalty programs, especially with the use of AI for hyperpersonalization and predictive analytics. Organizations know exactly what products or services to offer based on customers' buying habits and can proactively engage with them and anticipate their needs.

9. Get better customer insights

The data collected from loyalty programs brings valuable insights into customers' purchasing behaviors. Organizations can analyze this behavior to understand buying patterns better and enable predictive analytics for future purchases and targeted marketing initiatives.

10. Uncover pain points

AI in loyalty programs can uncover common customer pain points. When teams fix these issues, they can increase customer usage and engagement, reduce frustration and build trusting relationships with them.

For example, a coffee shop's owner might notice many customers don't use a reward for a free baked good. They can then adjust their loyalty program to let customers select the baked good, a discount on their next order or an extra shot of espresso. Customers are happier with the option to choose a more valuable reward and order more to achieve their next one.

Almost all organizations can benefit from loyalty programs. However, CX leaders should always seek customer feedback to ensure the program resonates with them. Also, organizations should always use analytics tools to map successful program offerings to higher sales and vice versa. A loyalty program should never be static; it should change based on customer feedback and success metric analysis.

Editor's note: This article was originally published in 2022 and updated in 2025 to reflect changes in best practices for loyalty programs.

Robin Gareiss is CEO and principal analyst at Metrigy, which conducts research and advises enterprises and technology providers. She leads coverage into AI, customer experience and contact center operations.