In today’s consumer landscape, loyalty retail programs are seamlessly woven into both traditional brick-and-mortar stores and the digital realm of eCommerce. They serve as powerful tools to enhance customer retention, and to truly understand their significance and growth, we break down the history of loyalty retail programs below. 

18th to 20th Century Loyalty Programs 

The creation of loyalty programs in the late 18th century was considered the “premium marketing” of its time. American retailers initiated a novel strategy that consisted of issuing copper tokens with purchases that were then redeemable for future products. This approach laid the groundwork for future loyalty initiatives, marking the start of customer retention tactics.  

As retailers sought cost-effective alternatives, the late 19th century ushered in the era of stamps replacing coins in loyalty programs. Notably, Green Shield stamps emerged as pioneers, rewarding purchases with stamps redeemable for catalog products. This transition sparked the evolution towards more sophisticated loyalty strategies.  

Modernized methods of stamp collection programs dominated early 20th-century loyalty initiatives, gradually evolving into brand-specific endeavors. The introduction of “box tops” by brands like Betty Crocker in 1929 exemplified this shift, offering coupons directly on product packaging for future rewards. However, it was the late 20th century that witnessed the emergence of landmark programs like American Airlines’ Frequent Flyer, revolutionizing customer loyalty with its widespread adoption and enduring legacy. 

The latter decades of the 20th century witnessed the rapid growth of “loyalty aggregators” and card-based retail programs. Loyalty aggregators, epitomized by programs like Air Miles and Aeroplan, rewarded customers with points across multiple retailers while leveraging a single view of all their various loyalty programs, offers, and collected rewards in real time. This led to enhanced customer engagement and brand loyalty. Simultaneously, card-based retail programs gained traction, providing a streamlined alternative to stamp collections and branded currency. Card-based programs were designed to reward loyal customers for their continued support and patronage with specific brands. By participating in these programs, customers gained access to exclusive benefits, discounts, and special offers tailored to their shopping preferences. These initiatives operated through a convenient card-based system, ensuring seamless participation and effortless rewards redemption. 

The creation of eCommerce and digital payment infrastructure shifted the standard of loyalty retail programs. No longer confined to physical cards, loyalty initiatives seamlessly integrated with online platforms. Starbucks’ mobile-optimized rewards program is a great example of this evolution, as they began leveraging mobile apps for rewards and payment, in turn incorporating convenience and accessibility.  

Modern Day Loyalty Retail Programs 

Contemporary loyalty programs go beyond basic transactional incentives, embracing a variety of customer actions. From social media shares to customer referrals, loyalty initiatives serve as potent tools to elevate brand engagement and revenue growth. In essence, they guide customers along their customer journey, nurturing long-term relationships and brand advocacy by providing customers with goods, services, and perks for their loyalty. 

As we navigate the digital frontier, the narrative of loyalty retail programs continues to evolve. eCommerce has standardized program adoption, rendering them accessible to businesses of all sizes. However, this is simply a chapter in the ongoing saga of customer loyalty. While technology continues to advance and consumer behavior evolves, loyalty retail programs will adapt and thrive, sustaining their role as indispensable assets in the marketer’s arsenal.  

Below are four of the most common types of reward programs for retail brands. 

Point-Based Programs 

Point-based programs are loyalty or rewards programs where customers accumulate points based on their purchases or engagement with a brand. These points can then be redeemed for rewards such as discounts, free products, or exclusive experiences. The concept is simple: the more you engage with the brand, the more points you earn, incentivizing customer loyalty and repeat purchases. Point-based programs are popular across various industries, from retail and hospitality to airlines and credit cards.  

One example of a point-based program would be Sephora, whose Beauty Insider program awards points for each dollar spent. This specific reward program also ties in tiered rewards by offering additional perks based on spending levels. 

Tiered Programs 

Structured reward programs that offer customers different levels of benefits based on their level of engagement or spending with a brand, such as airlines and hotels, typically have multiple tiers, each offering increasingly valuable rewards or perks as customers progress through the tiers. Customers start at a basic level and can unlock higher tiers by meeting specific criteria, like by making more purchases or reaching certain spending thresholds for instance. The rewards can include exclusive discounts, personalized offers, priority customer service, and even access to VIP events.  

Macy’s Star Rewards is a great example of a tiered reward program. Customers will fall between four tiers ranging from bronze, silver, gold, and platinum depending on dollars spent annually and level of customer loyalty. These tiers allow shoppers to earn more points per dollar on higher tiers and get more frequent discount offers. 

Cashback Programs 

Cashback programs are rewards programs where customers receive a percentage of their purchases back in the form of cash or credits. Unlike traditional loyalty programs that offer points or discounts, cashback programs provide tangible monetary benefits directly to the customer. When making a purchase through a participating retailer or using a designated credit card, a portion of the total amount spent is returned to the customer, either as a statement credit, a deposit into their account, or as a gift card. Cashback programs appeal to consumers because they offer real, immediate savings on their purchases without the need to accumulate points or meet a specific threshold. They also provide flexibility, allowing customers to use the cashback rewards as they see fit, whether it’s for future purchases, savings, or other financial goals.  

The Kohl’s Cash rewards program is a great example of this. Customers shopping at Kohl’s can earn a certain percentage of Kohl’s Cash back for each purchase.  

Paid Programs 

Paid programs are membership-based programs where customers pay a fee to access exclusive benefits and rewards. Unlike traditional loyalty programs that are free to join, paid loyalty programs typically offer more premium perks and privileges in exchange for a recurring or one-time fee. These perks may include enhanced discounts, early access to sales or new products, dedicated customer service, free shipping, or access to exclusive events. By charging a fee for membership, businesses can generate additional revenue while incentivizing customers to invest in their loyalty program.  

Amazon Prime is a well-known and highly favored example of this. Customers can choose to pay the annual fee monthly or yearly. With this type of membership, customers can receive faster shipping, access to countless shows, movies, and music, and early access to special promotions and sales events. 

What Does This Mean for Retailers? 

The evolution of loyalty programs in retail highlights their significant impact on consumer engagement and brand loyalty. Beginning with simple copper tokens and progressing to the digital sophistication of mobile-optimized rewards apps, loyalty initiatives have consistently adjusted to meet the changing needs of businesses and consumers. Loyalty programs have proven to be essential assets, providing businesses with a strategic edge in nurturing long-term relationships and boosting revenue. Their history underscores their ongoing relevance and potential for innovation, shaping the future of customer engagement.  

As technology progresses and consumer habits change, our team of retail experts at Clarkston is ready to assist our clients in strengthening the adaptability of their loyalty programs, establishing them as essential components in marketers’ strategies for future generations. Contact us today to learn how we can help.