Understanding a brands stage/mode to offer the right loyalty program

What impact/return a brand expects to make, depends on its stage/mode.

Brands tend to operate similar kinds of loyalty programs across different sizes. The point of difference is how much they’re able to do within those programs.

Most of the loyalty programs we see at big companies (Starbucks, Amazon Prime, Sephora) have been turned into off-the-shelf components/apps that smaller brands using cart platforms (like Shopify) can use.

The one thing most of these apps haven’t taken and run with is limited-time game experiences like McDonald’s Monopoly or Soapy Joe’s scavenger hunt; these have too much of an in-person component to them for a simple “app”, it’s also not clear that something like it could be translated into a digital interaction in a way that’s still fun and engaging. A VIP loyalty program is kind of a game - “earn points, level up” - but it’s not a communal, limited-time experience.

If we break the customer base for loyalty apps down into the following very broad groups:

  • 0-1: small new company, focus on growth
  • 1-2: small-medium company, focus on customer LTV + CAC
  • 2-n: large company, focus on marginal revenue
0-1 - Small & New

Needs to get their name out there, and fast, to get some money coming in.

1-2 - Small-Medium

Has some customers, but needs to improve that customer base’s LTV to grow revenue and reduce CAC.

2-n - Large

Has a successful business and their marketing operation is likely doing just fine; they probably want to pick up low-hanging fruit and get previous customers to 1) make additional purchases they otherwise wouldn’t or 2) make higher-value purchases than they otherwise would.

Most Shopify stores fall into groups 0-1 or 1-2. They don’t have the resources to build a loyalty program, or the staff to maintain one. They want something low-cost with an immediate benefit.

Because 2-n companies have resources to spare, they can do two special things: spend money to build their own bespoke loyalty platform and spend time maintaining a personalized, high-touch, experiential rewards program for their best customers.


As a 2-n company, McDonald’s annual Monopoly promotion is about increasing the number of times people come into the store and getting them to order more while they’re in there. In 2019, 3 of McDonald’s 4 busiest weeks in the UK were during the Monopoly promotion.

More expensive menu items lead to more prizes (up-selling) and having customers try new food items might get them to buy those again in future (cross-selling). It’s all about increasing marginal revenue per customer. In 2010, McDonald’s increased sales by 6.5% with this promotion.

When a 2-n company launches a promotion like this, it’s not transformational. The goal is a small bump in spending across many customers, usually on low-priced impulse purchases like fast food and sweets, and they’re rarely onboarding those customers into something more permanent.

When Soapy Joe’s (a 1-2 company?) ran its scavenger hunt, they were onboarding all participants into a new customer list on which they can build new sales and marketing initiatives; they were able to do it without a huge spend on a novel platform to do it. And while other companies can certainly use Taco’s services to do their own scavenger hunt, Soapy Joe’s was leveraging unique assets (or “cornered resources”) like their specific locations, their specific relationships with other businesses, and their specific customer base habits.

Based on the mode/size: What kinds of behaviours do these brands most want to encourage?


  • Refer a friend
  • Share our affiliate link
  • Post about us on social media
  • Engage with our social media pages
  • Leave us a review
  • Sign up for our marketing emails


  • Buy from us again
  • Buy more high-value products
  • Redeem the points you’ve earned
  • Refer a friend
  • Share our affiliate link
  • Sign up for our marketing emails


  • Buy something you haven’t bought before
  • Climb the ranks and become a VIP, enjoy great experiential perks
  • Pay for this year’s service upfront, enjoy XYZ benefits
  • Pay for our program, enjoy experiential perks + benefits
  • Buy from us again
  • Buy more high-value products
  • Redeem the points you’ve earned

Examples of what brands doing

So how are these brands trying to incentivize these behaviours? What’s working?

0-1 & 1-2, using Apps
  • By reminding members to redeem their unused points at checkout, using LoyaltyLion, Dr. Axe increased reward redemption by 300%, AOV by 36%, and purchase frequency by 100% compared to non-members
  • Evy’s Tree used Smile.io’s points rewards program to increase their number of repeat customers by 58%, and reduce ad spend by $,1032 per month. This was mostly aimed at non-transactional behavior. The program also saw an 83x ROI.
  • 100% Pure uses LoyaltyLion’s VIP tiers feature, finding that 92% of members in that program go on to purchase five more times after their they’ve formed a habit in their fourth purchase

2-n, Custom Programs

Sephora’s Beauty Insider program is a combination of Earn & Burn points and VIP tiers based on spending.

  • This avoids the wiping out of switching costs associated with Earn & Burn.
  • Points can be redeemed for discounts or exclusive products, in-store events.
  • With 25 million members, this drives as much as 80% of Sephora’s annual sales.
  • Shopify rep: “Research has found that almost 75% of what drives customer engagement and loyalty are emotional perks. Now more than ever customers, especially the younger generations, decide to engage with brands based on emotional loyalty drivers … we believe these emotional rewards are the new currency of luxury”.
  • Three tiers: Beauty Insider (Standard), Very Important Beauty Insider (>$350/y spend), Rouge ($1,000/y spend).
  • They don’t disclose how many members per tier, but a “significant amount” of sales and growth comes from the Rouge members.
  • Breakdown of rewards and tiers here

Amazon runs their paid membership program, Amazon Prime.

  • Prime members spend 4x more than other Amazon customers. Prime Video etc. are nice perks, but since Amazon mostly sells commodities these customers are just looking for value + free shipping. They’d rather buy XYZ product on Amazon than on XYZ’s own site because Prime gets them better value.
  • This fits with data from HBR that in commodity sectors, loyalty growth comes from having your customers buy more SKUs from you rather than your competitors.


  • REI is a co-op owned by workers and customers, so it’s a special case here. (This and Brewdog’s “Equity for Punks” might be applicable to web3-native loyalty? Sharing in rewards, governance, etc.)
  • One-time payment of $20 gets you discount on purchases, discounts on gear rentals, free standard shipping forever
  • Also gets you a share of co-op annual profits as a member, vote in board elections, attend local events
  • REI grew sales 36% in 2021,  but that might have been in part due to increase in outdoor/nature activities during the pandemic years. The number of members grew by 1.4 million that same year, to a total of 21 million.

Rothy’s (DTC shoes)

  • Referrals program: $20 discount when you refer a friend, your friend gets $20 off too
  • Marketing VP says word-of-mouth referrals drive the brand’s success, biggest channel for new discoveries by far.

Company has grown a loyal Facebook community group “Rothy’s Addicts”, to over 24k members