Loyalty Program in Retail Industry. How to Offer a Better Customer Experience

The need for a distinctive and attractive loyalty program among retail companies has grown significantly over the past few years. This has been driven not only by the ever-increasing and intensifying competition in the retail market, but also by the recent economic crisis and the associated growing need for savings among consumers. Gartner reports that already more than 70% of retail brands are using loyalty programs to boost business performance. With personalized loyalty programs, retailers are providing regular customers with the best prices and excellent customer service. What should you go for when creating a best-in-class consumer loyalty program?

Loyalty in Retail Industry – Characteristics

The retail industry has a very high value in the market. It consists of a multitude of entities and millions of customers. Therefore, in this case, loyalty programs usually operate on a very large scale. It is becoming standard in the industry to simultaneously use several channels in which consumers are active. The distinguishing factor in the retail industry is primarily the frequency of customer contact with the brand.  In clothing stores, customers shop several times a month, in grocery stores – even several times a week, and online even more often. This translates into the ability to better and more accurately tailor content in a loyalty program. The more transactions, the more data from which the retailer can refine its strategy. What else characterizes retail loyalty programs?

Firstly, the high purchase frequency creates a unique opportunity for retailers to continuously interact with their customers, building long-lasting relationships that go beyond single transactions. Because customers engage with the brand so regularly, retailers can gather rich behavioral insights and adapt their loyalty offers dynamically to better fit evolving preferences and trends.

Secondly, operating across multiple channels – physical stores, e-commerce platforms, and mobile apps — requires seamless integration so that customers receive consistent and personalized experiences wherever they shop. This omnichannel approach not only improves convenience but also boosts customer satisfaction and loyalty through unified rewards and communications.

Moreover, the large scale of these programs means that retailers must invest significantly in technology infrastructure, data analytics, and customer service to handle vast amounts of information securely and efficiently. This focus on data-driven, personalized marketing allows them to identify high-value customers, predict purchasing behavior, and prevent churn by proactively offering relevant incentives.

Finally, the growing popularity of loyalty programs has raised customer expectations in terms of ease of use, transparency, and value. Consumers no longer accept generic rewards but seek meaningful benefits that resonate with their lifestyle and values, such as eco-friendly incentives or exclusive member experiences. This pushes retailers to innovate continuously and differentiate their programs in a competitive marketplace.

Consumers are eager for loyalty programs – research shows that the average shopper now has more than 16 loyalty programs on their mobile device. Retailers are doing a tremendous amount of work every day to enhance the in-store shopping experience and provide loyalty offerings that meet consumer demand. What should you keep in mind when creating a loyalty program?

Key Elements of Customer Loyalty Programs in Retail Industry

Building customer loyalty is a complex process that requires continuous optimization. A loyalty program should be created with the conditions, challenges and requirements specific to a particular industry, in this case retail. An effective loyalty system goes beyond a purely transactional relationship and ensures that the customer includes a particular company in their purchasing decision funnel because of the value it offers. Customers expect flexibility – free shipping, no cancellation fees, extended return periods. These are factors that make shopping with a particular brand or retailer much more convenient. Here are some considerations to take into account when creating a loyalty program:

Personalization

To provide targeted recommendations and personalized promotions, marketers should focus on understanding demographics, purchase history and individual preferences. Tailoring offers to individual needs makes customers feel valued and understood, which strengthens the bond with the brand. Personalization should work seamlessly across all customer service channels, providing a unified experience whether the customer is using an online store, an app or a stationary point of sale. The program must be continuously analyzed for the effectiveness of personalization to make improvements and respond to changing customer expectations and market trends. But don’t forget that customers are increasingly aware of the value that their personal data represents to companies. As a result, they expect companies to protect and use their data responsibly. Retailers must show appreciation to customers for the information they provide and offer them additional value in return.

Point of Sale Integration for Omnichannel Capabilities

Loyalty programs must operate without interruption and with the same rules in every sales space and allow points, vouchers or benefits to be accumulated and used in an omnichannel manner. Nowadays loyalty program is synonymous with automation and omnichannelism. As a result, it is necessary to integrate it with point-of-sale and cash register systems so that it can identify the customer everywhere. The integration allows data to be transferred on an ongoing basis between the POS system and the loyalty program. This ensures that any changes to the loyalty program, such as new offers or changes in terms and conditions, are immediately available in the checkout system. The integration also makes it possible to automatically track customer transactions without having to combine different data from several channels.

Mobile App

The mobile app is now the company’s main channel of contact with customers. It makes it possible to send push notifications about new promotions, sales or special offers, and thus reach the club member beyond the transactions, at essentially no cost. For customers to want to use the available solution on a regular basis, the app must first and foremost provide value to users. In this way, they will feel the need not only to install it to show the virtual card while shopping, but also to use it regularly. The application should include not only basic functionalities such as the aforementioned virtual card or transaction history, but also additional facilities to facilitate participation in the program and improve the customer experience, such as click & collect shopping, mobile payments, an up-to-date promotional newspaper or a price scanner, among others. More about Mobile Loyalty you can read in the article How to Create a Loyalty Program in a Mobile App.

Addressing Customer Expectations for Rewards

It is hard to imagine a loyalty program without rewards. A reward does not always have to mean a material object. Modern loyalty programs adapt to customer expectations and increasingly offer rewards in the form of cashback or discounts on subsequent purchases. In this way, the customer feels that he or she is getting the most out of the reward. The more valuable the rewards, the more difficult they are to earn, which can sometimes translate negatively into engagement. There is no one-size-fits-all reward. The most important thing in selecting a rewards catalog is to tailor it to the specifics of a particular industry and to put customers and their individual needs at the center.

Clear Value Proposition

Last but not least, a key element of a successful loyalty program is a clear and compelling value proposition that customers easily understand and appreciate. The program’s benefits must be straightforward, transparent, and immediately recognizable to motivate participation. Customers should quickly see what they gain by joining and continuing to engage with the program—whether that’s exclusive discounts, early access to sales, personalized offers, or unique experiences. Without a clear value proposition, even the best functionalities risk going unnoticed or underutilized. Therefore, retailers need to communicate the program’s value clearly across all channels and ensure that customers feel the benefits are worth their time and loyalty. You can read more in the article How to Craft a Unique Value Proposition (UVP) for a Loyalty Program to Make It Stand Out From the Crowd.

Challenges in Retail Loyalty Programs and How to Handle Them

Low Engagement and "Point Hoarding"

Many customers collect loyalty points but don’t use them regularly. This means they might have a lot of points saved but don’t stay active in the program. To keep customers engaged, retailers can add fun and motivating elements like gamification (games and challenges), special bonuses for frequent purchases, or time-limited rewards that encourage using points more often.

How to overcome?

To boost engagement, retailers can implement gamification strategies. This could involve awarding badges for achievements, such as after a certain number of purchases. Another effective approach is to introduce tiered membership levels like bronze, silver, and gold, with increasing benefits, motivating customers to advance. Additionally, short-term challenges—for instance, "Buy X products for Y amount this week and earn double points!"—can effectively encourage quick and increased purchases.

To reward customer loyalty and regularity, retailers can offer bonuses for frequent purchases. This involves granting extra points after a customer completes a certain number of transactions within a month. This not only acknowledges returning customers but also incentivizes more frequent visits and purchases.

Changing Customer Expectations

Today’s shoppers, especially younger generations like Generation Z and millennials, want more than simple discounts. They expect personalized offers that fit their interests, easy-to-use mobile apps, and meaningful shopping experiences that connect emotionally. Retailers need to update their loyalty programs to be more personal, convenient, and engaging—so customers feel the brand really understands and values them.

How to overcome?

Introducing time-limited or rotating rewards is an effective way to encourage quick utilization of accumulated points. Offers that are available for only a brief period or change cyclically create a sense of urgency, prompting customers to make faster decisions about redeeming their points for attractive benefits.

Encourage and reward customers for creating and sharing content related to the brand, such as product reviews, photos on social media, or testimonials. This not only provides valuable social proof but also fosters a sense of community and deeper connection with the brand.

Many beauty brands, like Fenty Beauty, heavily rely on rewarding customers (e.g., with points, exclusive access, or features on brand channels) for sharing unboxing videos, makeup looks, or honest product reviews on platforms like Instagram or TikTok. Similarly, online retailers often offer bonus points for submitting reviews with photos or videos, turning customers into brand advocates.

Technology and Omnichannel Integration

Shoppers interact with brands through many channels—online stores, mobile apps, and physical shops. One big challenge is making sure the loyalty program works smoothly everywhere, with systems like point-of-sale (POS) and customer databases connected in real time. Using artificial intelligence can help personalize offers and speed up processes, but all parts must work together seamlessly.

How to overcome?

Brands can start by investing in a centralized loyalty platform that acts as the single source for all customer interactions. For example, a retailer might integrate their loyalty system with both their e-commerce backend and in-store POS systems via API, ensuring that points earned online appear instantly at the register. Cloud-based CRM tools can also unify customer data from multiple channels, enabling consistent personalization.

Additionally, adopting modular and scalable systems – such as microservices architecture – allows brands to upgrade or connect new channels more easily without disrupting the entire loyalty infrastructure. Regular testing and cross-channel audits ensure that the loyalty experience remains consistent and glitch-free across the customer journey.

Protecting Customer Data and Following Regulations

Retailers collect lots of personal information to personalize offers, but this also means they must take strong steps to protect that data. Customers want to trust that their information is safe and used responsibly. Meeting legal requirements and being transparent about data use is essential to keep that trust.

How to overcome?

First and foremost, brands should collect only the data that is necessary and justifiable for delivering value to the customer. Instead of gathering information "just in case," retailers should clearly define the purpose behind each data point. For example, collecting a customer's birthday makes sense if the loyalty program offers birthday rewards — but storing detailed browsing history without a clear benefit may be excessive and risky.

Transparency is key. Retailers must clearly communicate what data is being collected, why, and how it will be used. This includes easy-to-understand privacy policies and giving customers control over their data through consent management tools and preference centers.

To further build trust, brands should adopt privacy-by-design principles, ensuring that data protection is integrated into every part of the system from the start. Using anonymization or pseudonymization techniques, storing sensitive data in secure, encrypted environments, and conducting regular security audits are also critical steps.

Churn and Customer Attrition

One of the most costly issues for retailers is customer churn, or the loss of customers. Clients might disengage for various reasons, including dissatisfaction with service, more attractive competitor offers, or simply a lack of perceived value from the brand. If not properly managed, a loyalty program might not be sufficient to retain a customer, or even identify those who are on the verge of leaving.

How to overcome?  

To effectively counteract customer churn, retailers should leverage data from loyalty programs to proactively identify at-risk customers. Predictive models, based on purchase history, program activity, or brand interactions, can pinpoint these individuals. The key then is to react immediately with personalized retention offers, such as exclusive discounts, access to unique products or services, or special bonuses for returning. It's also crucial to maintain continuous dialogue with customers and gather feedback, allowing for real-time responses to their needs and improvements to their experience before they decide to depart.

Advantages of Retail Loyalty Program

The benefits of loyalty programs go far beyond supporting sales processes. They help increase average purchase value and shopping frequency, providing retailers with valuable data to better understand and personalize customer interactions. Additionally, well-designed programs aid in attracting new customers through referral schemes and strengthen brand loyalty by creating emotional connections. Importantly, loyalty strategies enable proactive identification of customers at risk of leaving, allowing timely and personalized retention actions.

To explore these advantages in more detail, see our article: “Loyalty Program from the Retailer’s Point of View: 5 Benefits for the Company”.

However, it is worth adding that loyalty programs are an effective instrument for supporting sales processes. Thanks to it, the company gains a competitive advantage. It has access to valuable data on its customers. In this way, it can reach out to the recipient, respond in real time to his needs and – with the right mechanics – encourage the desired behavior.

The right loyalty strategy not only ensures an influx of new customers, but allows it to retain those once acquired. In addition, analysis of available data makes it possible to identify typical behaviors of customers at risk of leaving. The use of direct communication models helps find the optimal timing, channel and content of the anti-churn message. The model can also identify a good enough offer for a given customer. In this way, the brand acts proactively and can take antichurn action in a timely manner.

Retail Loyalty Program – Best Practices‍ from Decathlon Case Study

The Decathlon loyalty program perfectly exemplifies how to leverage a loyalty program to boost both marketing efforts and in-store staff effectiveness. Decathlon analyzed loyalty program data – including gender, postal code, age, purchase history, website activity, and even the influence of weather, commute time, and seasonality – to create customer segmentation and a scoring model. This analysis generated recommendations for store employees, highlighting specific products to focus on when communicating with selected customers during particular periods.

Analyzing this data allowed for the creation of tools that help employees better understand their customers and tailor offers to their needs. For example, individuals who regularly buy running gear might receive information about new running shoe models available in a specific store, while families with children would be informed about promotions on bikes or recreational equipment. This personalized approach not only increases customer satisfaction but also positively impacts sales performance. By effectively utilizing data, Decathlon built a system that enables in-store employees to operate more efficiently, while simultaneously fostering customer loyalty through relevant and tailored recommendations achievable at a given sales point. You can read more about Decathlon's loyalty program case studies on our website.

Why Do Retailers Build Customer Loyalty?

Recently, loyalty programs have become a necessary part of marketing efforts. They are an expected aspect of the customer experience and serve to secure a given company’s market share. A retailer is an intermediary connecting manufacturers with customers. This special position forces him to constantly juggle between the manufacturers’ offerings and customer expectations. With a loyalty program, he can respond to the challenges of suppliers while at the same time aligning himself with the needs of consumers with his offerings. You can read more about the reasons to invest in loyalty in one of our articles.

If you need support in validating your loyalty program ideas or are looking for a partner to create a loyalty program, go ahead and contact the Loyalty Point team.