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The classic store loyalty program looks something like this: You earn a stamp on a punch card for every purchase, and on the 10th one you get something for free. Or you sign up for a free membership at a store, like the kind that drugstore chains like CVS and Walgreens are famous for, which opens up low prices on a whole panoply of goods.
Historically, loyalty perks didn’t include things like private balls cordoned off just for members who’ve spent thousands of dollars at their stores.
Loyalty rewards are centuries old and as common as dirt. According to Accenture, as of 2016, 90 percent of companies had some kind of program luring customers to buy more in exchange for perks. But what allegiance to a brand can do for consumers looks different today from the simple punch card.
Now, more companies are using tiered rewards not just to offer a lower price here and there, but to unfurl the red carpet for a highly personalized, VIP shopping experience — think exclusive products and services, or early access to sales where you can peruse viral skincare products without worrying they’ll be sold out. Luxury department store Nordstrom provides top-level loyalty members with an in-home stylist, while Sephora gives its highest-tier members the first look at new products coming to the site. Even the Empire State Building launched an “ambassador program” this year; those who spend over $1,700 during their lifetime visiting the observatories get invites to special (sometimes star-studded) events, as well as entry to its annual run up the building, a highly coveted race that ordinarily requires getting picked in a lottery.
Basically, the pitch from companies is this: Come join the clubhouse and get stuff normal people can’t get their hands on.
It’s a compelling premise. Loyalty program membership reached a new high last year, according to Sky Canaves, a senior analyst at the market research firm Emarketer. “The average American consumer is enrolled in about 18 loyalty programs,” she says, noting that they’re only actively utilizing about half of those. “Everybody wants to be part of the upper 50 percent that the consumers are participating in.” The loyalty game, in other words, is becoming more competitive. The stakes are high.
Companies are differentiating between “customers who are requiring regular good services — and customers who require exceptional service,” says Raghuram Iyengar, a marketing professor at Wharton.
Loyalty programs are helping people feel like their cash can stretch a little further
The popularity of VIP loyalty programs is partly a reaction to subscription fatigue. People are defecting from streaming platforms, paring down the list to maybe one or two of their most useful services. You might subscribe to a membership and forget about it for a few months, while loyalty programs are a dangling carrot. The loyalty program has a low barrier of entry, but it revs up the fans who were already willing to spend considerable money. Most importantly, they turn shopping into a comfortable, fun — even cost-saving, you might rationalize to yourself — habit. Now, with everyone’s money seemingly unable to buy what it used to, loyalty programs are helping people feel like their cash can stretch a little further. That’s as valuable as devotion.
What loyalty looks like now
We’ve entered an era of loyalty program debuts and refreshes, with countless retailers revamping their old loyalty programs to look shinier — and to keep up with their rivals.
Over the last few years, the minority of retailers that didn’t have a loyalty program have been rushing to launch them. PlayStation announced one in 2022, and several beauty brands, including Lisa Eldridge, Cocokind, and Supergoop have unveiled theirs in the past five years. Home audio brand Sonos is planning to start one this year, according to Modern Retail.
Some of the biggest recent movement has come from the restaurant business — eye-catching new entrants last year include the Cheesecake Factory (including free birthday cheesecake), Panda Express (monthly gifts, and also a birthday gift), and Cracker Barrel (birthday and anniversary rewards, plus a spin-the-wheel game), joining the long line of fast-food and fast-casual chains with rewards programs. Stephen Zagor, a Columbia business professor and restaurant industry consultant, says it’s basically a must for them to have loyalty programs these days. “If you’re fighting a business that has a loyalty program, and you don’t, you may lose out,” he says.
Even more upscale restaurants have been dipping their toes into the loyalty waters. Late last year a new app called Blackbird launched in a few cities; users can eat at participating restaurants and rack up loyalty points. Rewards so far include free cocktails, desserts, and even the ability to directly text the restaurant about tables. (There’s no word on whether priority reservations could be a perk down the road.) Post-pandemic, it’s even harder to run a restaurant than before — there’s more competition from delivery, meal kits, or just cooking food at home, considering how pricey it is to dine out.
Then there are the slew of stores that are putting fresh coats of paint on their old programs. JCPenney, which filed for bankruptcy in 2020, has a new rewards program that doubles how quickly members can earn points and includes a birthday gift, appearing to mirror Kohl’s Cash. Target, which has faced a sales slump the past year, recently updated its free loyalty program so deals are automatically applied, and added a new paid membership with free shipping, similar to the subscription programs Amazon Prime and Walmart+ offer. (While these subscription services aren’t quite the same as free loyalty programs, they do in fact encourage customer loyalty in a big way.) Ulta recently put some polish on its already-beloved loyalty program that now lets members pick out their own birthday gift, and new perks for the two higher tiers — possibly a bid to attract more converts from Sephora, which offers the mega-popular Beauty Insider program and is a much bigger company by revenue. Ulta is also reportedly testing out an addition featuring minigames and “quests” where loyalty members can win personalized gifts.
Retailers are upping their offerings too. Sure, most proffer a birthday gift, but there are more valuable perks too, like the hefty 20 percent discount Sephora’s Rouge level members get during its annual sales. Or, take nicotine pouch maker Zyn’s bafflingly tempting rewards store: Each can of Zyn nets you 15 points, and it’s currently selling a Dyson Airwrap for 13,590 points, Apple Airpods Max for 11,790 points, and a Kitchenaid stand mixer for 10,206 points.
On the whole, though, newer loyalty programs serve up a lot of gate-kept experiences and services. Luxury fashion houses have long spoiled their VIP customers, not just with a glass of champagne as they enter the store, but with invitations to private events and trips, ritzy gifts, and personal styling services. There’s no points system; the level at which someone becomes a VIP isn’t laid out on their website or carefully explained by a sales associate. Nevertheless, their top clientele expects a certain level of special access for the fortune they spend, including unique experiences that 99 percent of shoppers don’t get entry to.
Now, a wider range of brands are mimicking the playbook of velvet rope treatment, while being a little less hush-hush. Exclusive items and private sales are basically a given. Streetwear brand Kith, with its devoted following of international hypebeasts, announced a three-tiered loyalty program early this year, in which reaching the highest level requires spending at least $5,000 on Kith brand items in the past 12 years. In return, customers get exclusive products, early access, invites to its sought-after events, and — crucial for anyone who has been to its flagship Soho store for new product drops — the go-ahead to skip the line. (Members can also earn extra points by “checking in” to certain Kith stores or pop-ups.) Adidas’s top loyalty tier rewards include the chance to win free box seat tickets to sports games, concerts, and even meet and greets with athletes. Loyalty programs at Sephora, Macy’s, Nordstrom, Bloomingdale’s, Neiman Marcus (where the top tier has a minimum spend of $600,000), as well as at high-end online retailers like SSENSE and Farfetch, all advertise exclusive items and VIP-only events. Several of these also offer personal stylists and concierge services where professionals shop for you. Like credit card and airline perks — where we describe accruing miles as earning “status” — these retailers are altering their loyalty bonuses so you don’t just save money, but feel like their Most Special Spender.
Loyalty is expensive for retailers, but the rewards are priceless
Rewarding loyalty isn’t cheap. Shipping in particular is a heavy cost for retailers, which is why we’ve seen a sharp decline in companies offering free shipping and returns. Even Amazon has been dragged down by its fulfillment costs, which it mitigated by spending $100 billion to build out its own shipping infrastructure, cutting out the middlemen. For others who don’t have a spare $100 billion lying around, this means carefully chiseling out a loyalty program so they’re not offering too many expensive perks to too many customers. It explains why there’s more emphasis on exclusive products, events, and early access sales these days — these can be cheaper to implement than free shipping on every loyal shopper’s purchase.
Despite the cost, retailers are eager to unveil splashy loyalty programs for their highest spenders because they work. Many customers, once they’re involved in a loyalty program, do tend to spend more. Prime subscribers, for example, spend almost twice as much as non-subscribers, according to Consumer Intelligence Research Partners.
The overwhelming majority of retail companies now have loyalty programs that they’re constantly refreshing — the next step is to try and get as many members as possible who actively spend, spend, spend. A growing number of stores are offering a paid subscription alongside their free-to-join tiered loyalty programs, as Target recently did. The hope is that consumers might be so enamored with buying more to unlock better service that they decide to pay out of pocket for extras like free shipping, which is perhaps the ultimate sign of a customer’s commitment to a retailer. Younger consumers especially, Canaves notes, appear primed to be dedicated loyalty program members. “There’s a significant share of Gen Z consumers who will consider themselves loyal to brands that they don’t even purchase from,” says Canaves. “They’re just engaged in brand fandom.”
It offers retailers something possibly even more precious than an extra transaction: customer data
But the value of a good loyalty program isn’t just higher sales. It offers retailers something possibly even more precious than an extra transaction: customer data. “Ulta has talked about how 95 percent of its sales come from loyalty program members,” says Canaves. “That’s really wild. Think about how much data they can get from their members — they’re learning from their members, they can actively get information from their members.”
Loyalty memberships help brands figure out exactly which customers are willing to pay more — sometimes a lot more — for which services or products, and they’re getting this info straight from consumers. This wealth of data can be used to improve their own business, or even sold to other advertisers to make a pretty penny. “A lot of retailers establish retail media networks, and they want to be able to show that they have very fine-tuned data that can be used for targeting for their advertisers,” says Canaves, citing examples like Amazon and Walmart. Walmart recently bought the TV manufacturer Vizio for $2.3 billion, a move that experts say is about gaining even more information on customers to sell more targeted ads.
For shoppers, the fact that everything is much more expensive now means that they’re more drawn to opportunities to be loyal. “Consumers are citing that loyalty programs are becoming more important to them,” says Canaves. “People are trying to stretch their budgets more, and they’re looking to save.” The rewards give the sense that your money is worth way more at the store that treats you like royalty, compared to the inflation-riddled battlefield that is the rest of the consumer marketplace.
The loyalty program Gilded Age just underscores a fact many of us have long known: People love getting congratulated for spending money. Shopping can be a hedonistic pleasure; loyalty rewards add a tinge of virtue to it, because you’re getting added value (in theory). It’s not just the value of the discounts and perks — the exclusive nature of the rewards can itself motivate people to consume more. As if the dopamine hit of clicking “purchase” isn’t reward enough, you can feel better than others who aren’t in the Platinum tier. It’s a win-win for consumerism.
