How To Set Up A Loyalty Rewards Programme In 7 Steps

Sarah runs a tiny coffee shop tucked between a vegan bakery and a tattoo studio in Brighton. She’s got the latte art skills of a renaissance painter, but her customer footfall? Let’s just say it was flatter than a decaf espresso.

She tried everything: Instagram reels with latte foam hearts, chalkboard puns (“espresso yourself!”), even a “buy one, get one half-price” offer that confused customers into thinking she was selling one-and-a-half coffees.

Then, one rainy Monday, she rolled out a loyalty scheme: “Buy 8 coffees, get the 9th free.”

Within three months:

Repeat visits were up 34%
Customers were spending 18% more per visit
Dave – the bloke who used to come in only on Thursdays – was now basically part of the furniture, holding court over a cappuccino like it was his local pub

This, my friends, is the power of a loyalty rewards scheme. And the best bit? You don’t need Starbucks’ budget or Amazon’s tech team to pull it off.

So let’s find out how to set up a loyalty rewards programme successfully.

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What Is A Customer Loyalty Rewards Programme (And Why Your Nan Probably Has One)?

A loyalty rewards scheme is basically your way of saying:

“Thanks for coming back. Here’s a little something for sticking with us instead of going to that new place down the road with the neon sign.”

It’s a structured system where customers earn points, stamps, perks, or discounts in exchange for repeat business. These can be physical punch cards, slick mobile apps, or even email-based systems that track purchases.

And they’re not new – your nan might still have Green Shield stamps hidden in a biscuit tin somewhere. But the format has evolved from “collect paper vouchers” to sleek, data-driven platforms that integrate with your point-of-sale and marketing tools.

Stat check: According to Merkle’s 2024 Loyalty Barometer Report:

In short: if you don’t have one, you’re missing out on repeat sales and a golden chance to build customer relationships.

Why Customer Loyalty Rewards Work

There’s a bit of psychology behind it. Humans are wired to respond to reward triggers. That little dopamine hit when you get closer to your freebie? That’s what keeps us coming back.

It’s the “coffee cup effect”: a small, attainable reward feels personal. Unlike giant sales events or seasonal discounts, a loyalty perk says:

Hey, you matter. And we appreciate you.

And it’s not just feel-good fluff. Data backs it up:

For Sarah, it was the tipping point between “occasional foot traffic” and “recognising customers by their dairly-free-milk preferences.”

The Different Types Of Customer Loyalty Programmes

You’re not stuck with the old “buy 9, get 1 free” model (though it works for Sarah). Here are the main types, including partnered loyalty schemes, sign-up incentives and point-and-reward systems:

1. Points-Based

Customers earn points for every purchase, redeemable for rewards.

Example: Boots Advantage Card, where points can be used like cash.

2. Tier-Based Programmes

Loyalty tiers: the more you spend, the better the perks.

Example: Sephora’s Beauty Insider – the higher the customer milestones, the more exclusive the products and events.

3. Spend-Based

Reward programme based purely on how much money a customer spends.

Example: Airlines giving frequent flyer miles per pound spent.

4. Subscription-Based

Customers pay a monthly fee for ongoing perks.

Example: Pret’s coffee subscription in the USA ($50 a month for up to five drinks a day).

5. Referral Schemes

Reward customers for bringing in friends.

Sarah’s referral scheme brought her 12 new customers in one month – all via Dave, who clearly knows everyone in Brighton.

6. Mission-Driven

Tie rewards to social or environmental causes.

Example: Brands planting a tree for every purchase.

Read our full guide about the different loyalty programmes out there for more detailed information.

Step-By-Step: How To Set Up A Loyalty Rewards Programme

Setting up a customer loyalty scheme sounds simple – you reward customers for coming back, they keep coming back, and you live happily ever after in your little customer redemption paradise.

But get it wrong and you end up with dusty customer loyalty cards, unused points, and customers vaguely wondering if they’ve accidentally joined a pyramid scheme.

Here’s how to do it properly – step by step, and without the weird robes.

Step 1: Work Out What You Actually Want From It

Before you start promising free coffees or exclusive discounts, decide on your actual goal. Is it to increase customer visits by 20%? Is it to improve redemption thresholds? To sell more high-margin products? To stop people drifting to your competitors?

Michael, who runs a small independent bookshop in Bath, started his programme after noticing too many “one-and-done” customers. His aim wasn’t just more sales – it was repeat visits. Once he knew that, he designed everything around encouraging people to come back within 30 days.

Tip: Make your goal specific and measurable – your own form of customer loyalty analytics. “Sell more stuff” is vague. “Increase repeat customer visits from 15% to 25% in six months” is something you can actually track.

Step 2: Know Your Customers Like You Know Your Netflix Password

The best loyalty schemes feel personal. That means understanding who your customers are, how they buy, and what actually motivates them.

Michael’s research was delightfully low-tech – he just asked people at the till what would make them visit more often. Some wanted discounts, others wanted sneak peeks at new releases. Almost nobody wanted a tote bag (sorry, tote bag enthusiasts).

If you’re not up for on-the-spot surveys, try:

Reviewing past sales data – What products or services keep selling to the same people?
Checking your social media engagement – Which posts get the most attention?
Running a quick online poll – A simple “Would you prefer X or Y?” can save you from wasting money on the wrong rewards.

Step 3: Pick Your Programme Type

There’s no one-size-fits-all. The main flavours are what we discussed above:

Digital rewards scheme: Customers earn points per purchase and trade them in for rewards. Great for cafes, retail shops, or anywhere with frequent, small transactions.
Tier-based programmes: Spend more, climb higher, get better rewards. Good for businesses with a mix of casual and loyal big spenders.
Spend-based: Rewards are tied directly to the amount spent. Works well for higher-ticket items.
Referral schemes: Give customers perks for bringing in their friends.
Subscription/VIP memberships: Customers pay for exclusive benefits, like Amazon Prime but on a smaller scale.

Michael chose a hybrid rewards system: points for each purchase plus a referral bonus. “I wanted my customers to feel like insiders,” he said. “And to do some of the email marketing for me.”

Step 4: Make Your Rewards Worth It (And Actually Attainable)

The fastest way to kill a loyalty programme? Make the rewards and point system so stingy that no one ever reaches them.

If it takes 1,000 rewards points to get a free coffee, and you only give 1 point per purchase, your customers will do the maths and roll their eyes.

Michael’s rule was “a freebie within three visits.” Buy two books, get £5 off your next one. He could afford it because books have decent margins – and the discount was always used to buy something else, often more expensive.

Your rewards should:

Be achievable without 18 months of spending
Actually excite your customers (a free branded pen probably won’t)
Tie back to your business (a florist offering free cake feels a bit random unless it’s a cake-shaped bouquet)

Step 5: Choose Your Customer Loyalty Management Platform

Yes, you can run your points-and-rewards system with a stamp card and a pen. But in 2025, there’s a good chance your customers will want something they can access on their phone.

There are now excellent customer loyalty apps that offer: cashback loyalty scheme, live chat tools, social listening platforms, customer retention software which all help you manage your customer loyalty discounts online.

Options include:

LoyaltyLion – Great for e-commerce stores
Square Loyalty – Perfect if you already use Square as your POS system
Shopify’s built-in loyalty apps – For Shopify-based online stores
Yotpo – Ideal for combining a loyalty scheme with reviews and referrals

Sarah went with Square Loyalty. “I thought my older customers might struggle with the product adoption of the tech, but most were fine. And those who weren’t? I still keep a paper version under the counter.”

Step 6: Promote It Like Your Business Depends On It (Because It Kind Of Does)

If you build it and tell no one, no one will come. Your customer loyalty discounts needs marketing:

Put it on your social media, website, and email newsletters
Train staff to explain it in 10 seconds flat at checkout
Add it to your receipts, packaging, or delivery notes

Michael made it a rule: every single customer heard about the brand loyalty scheme. The result? 70% of his transactions now come from loyalty members. That’s some retention marketing right there.

Step 7: Track, Tweak, Repeat

Don’t just launch and forget. Review your numbers and analytics dashboard regularly:

Are people signing up?
Are they redeeming rewards?
Are they coming back more often?

If something’s not working, change it. Sarah noticed her referral bonus wasn’t moving the needle, so she doubled it for a month – and referrals shot up.

Common Pitfalls To Avoid

Overcomplicating the rules
“Spend £17.53 between 3–4pm on alternate Tuesdays to qualify” – no thanks.
Being stingy
If it takes 50 purchases to get a freebie, customers will just give up.
Forgetting your staff
Your team are your best promoters – make sure they’re trained to explain it.
Never promoting it
Your loyalty programme is a product – sell it like one.

Sarah’sResults

Six months in:

Her loyalty members spent 26% more on average
Coffee wastage dropped because she could forecast demand better
She started using customer data for targeted offers (vegan customers got almond-milk brownie promos)

Most importantly?

Her regulars became ambassadors. People brought friends “to show them my coffee place,” which was basically free marketing.

The Bigger Picture

In a world where cookies are crumbling and ad costs are rising, customer loyalty schemes give you first-party customer data and a direct line to your audience.

They’re not just about freebies – they’re about making people feel like insiders. When customers feel valued, they stay, they spend, and they bring others with them.

Appropriately, we’ll leave the final word to Sarah:

Before this, I thought customer loyalty programmes were just for big brands. Now? It’s the best decision I’ve made since learning how to make a flat white without spilling the milk.

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