What are the main types of loyalty programs?
A loyalty program type is the model behind a program: what members get and how they earn it. This guide covers ten models. Each example comes from the company's own published pages or filings, checked on 1 October 2026.
Three questions separate the models. What does the member get? When does the business pay for it? And what does the business owe members until then? The first table answers the first question for each model, with a real example.
| Model | Real example | How members earn | Fits when |
|---|---|---|---|
| Points | Wendy's Rewards | 10 points per $1 on food; points expire after 365 days | Purchases are frequent and small |
| Tiered | Delta SkyMiles Medallion | $5,000 to $28,000 in qualifying dollars a year sets the level | A few customers are worth far more than the rest |
| Paid or subscription | Costco membership | $65 a year; Executive adds $65 and a 2% reward | Members buy often enough to earn back the fee |
| Cashback | myWalgreens | 1% back storewide, 5% on Walgreens brand | Members want value they can read at a glance |
| Punch card | B&N Rewards | 1 stamp per $10; 10 stamps make a $5 reward | One category, bought often |
| Ecosystem | Nectar | Points at Sainsbury's, Argos, Esso and other partners | Partners share customers and can share a currency |
| Value-based | Patagonia Worn Wear | Credit up to $180 for trading in used gear | Customers share a cause the brand acts on |
| Gamified | Chipotle Rewards Extras | Challenges that pay extra points and badges | The brand wants one specific behavior |
| Referral | Dropbox | 500 MB per referral, up to 16 GB, on Basic | Happy customers can bring in new ones |
| Hybrid | Starbucks Rewards | Stars per $1, with Green, Gold and Reserve levels | One program serves casual and frequent customers |
The second table covers the money. It shows when each model costs the business cash, and what it owes members in the meantime.
| Model | When the business pays | What it owes members meanwhile | Main cost lever |
|---|---|---|---|
| Points | When members redeem | Unspent points, less expected breakage | Earn rate, reward prices and expiry |
| Tiered | As members use their benefits | Points plus the benefits of each level | Thresholds and the benefit mix |
| Paid | Over the term; the fee comes in first | Benefits for the rest of the term | Fee level against benefit cost |
| Cashback | When members spend the balance | Cash balances | Rate and expiry rules |
| Punch card | When a card fills | Partly filled cards | Stamps needed per reward |
| Ecosystem | At redemption, after partners pay to issue | Points across all partners | Price partners pay per point |
| Value-based | When credit is spent | Credit balances | Credit per item |
| Gamified | When a challenge pays out | Bonus points issued | Which challenges run, and how often |
| Referral | When the new customer converts | Little or nothing until then | Reward per new customer |
| Hybrid | A mix of the above | A mix of the above | Balance between the models |
How do points programs work?
A points program pays members a currency for spending, which they trade for rewards. Wendy's Rewards is a plain case. Members earn 10 points for every $1 they spend on food. A Baconator costs 900 points, or $90 of spend.
Expiry is the main lever on cost. At Wendy's, points expire 365 days after they are earned. Chipotle Rewards uses an activity rule. One qualifying purchase a year keeps all points alive. A fixed clock lets points lapse even for active members, so for the same members it produces more breakage. An activity rule protects active members and clears out dormant balances.
Points suit shops where people buy small things often, so members see progress every week. The balance between earn and burn decides if the program feels generous.
How do tiered loyalty programs work?
A tiered program sorts members into levels by what they did over a set period. Each level gives more than the one below. At Delta, the SkyMiles Medallion level for 2027 is set by the Medallion Qualification Dollars, or MQDs, a member earns in 2026.
The thresholds are $5,000 MQDs for Silver, $10,000 for Gold, $15,000 for Platinum and $28,000 for Diamond. MQDs reset each calendar year. Members earn $1 MQD per $1 of ticket price on Delta-marketed flights. Holders of the Delta SkyMiles Platinum American Express card also earn $1 MQD for each $20 of card purchases. That rule lets everyday card spend count toward airline status.
A threshold gives members a target, and a level they hold gives them something to lose. Some tier perks use spare capacity, such as an empty seat in a better cabin. Their cash cost can sit far below their value to the member. The tier strategy guide covers thresholds and benefits.
How do paid and subscription loyalty programs work?
A paid program charges a fee to join and gives richer benefits from the first day. A subscription program is a paid program billed monthly or yearly that stays active while the member pays. Costco shows how far the model can go.
A Costco Gold Star membership costs $65 a year in the U.S. Executive members pay another $65 and earn a 2% reward on qualified purchases, generally up to $1,250 a year. At the end of fiscal 2025, members renewed at 92.3% in the U.S. and Canada.
In fiscal 2026, Costco took in $5,907 million in membership fees. Its operating income for the year was $11,685 million. The fees came to about half of it.
The cash runs the other way from points. The fee arrives first, and the benefits are paid out over the term. The fee also sorts members by intent, since a member has to buy often to earn it back. The paid loyalty guide covers how to price the fee.
How do cashback loyalty programs work?
A cashback program returns a share of spend as money or store credit. myWalgreens pays 1% Walgreens Cash rewards storewide and 5% on Walgreens branded products. Members read the value at a glance, with no exchange rate to learn.
The balance owed is in dollars, so finance can value it without a points model. Breakage comes from the rules. Walgreens Cash rewards expire 12 months after they are earned. If a member goes six calendar months in a row without using them, the account is deemed inactive and the balance is forfeited.
The 5% rate on Walgreens branded products points members toward the store's own lines. Cashback suits members who value a clear rate over a catalog of rewards. The cashback program entry covers the model in brief.
How do punch card loyalty programs work?
A punch card pays a fixed reward after a set number of qualifying purchases. B&N Rewards at Barnes & Noble is a digital stamp card. Members earn 1 stamp for every $10 spent on eligible items in a single transaction. Every 10 stamps turn into a $5 reward.
The math is easy to run and easy to explain. At best, a member gets $5 back on $100 of spend, or 5%. Stamps count whole $10 steps in each transaction, so a $19 purchase earns one stamp. That rounding pulls the real rate below the headline. What the store owes is the value of cards that are partly filled.
Barnes & Noble also sells Premium Membership at $39.99 a year, with a 10% discount on eligible purchases. Premium includes the stamp card too. Punch cards fit single-category shops with frequent visits. More in the punch card entry.
How do ecosystem loyalty programs with partners work?
In an ecosystem program, many brands share one currency. Members earn with one partner and spend with another. An operator runs the shared rules and the money between partners. Nectar in the UK works this way.
Members use their Nectar card or app at Sainsbury's stores, Argos and Esso, among other partners. At Sainsbury's, points are spent in steps of £2.50. Nectar Hotels says 2,000 points are worth £10. That is half a penny a point.
In this model, partners pay the operator for the points they issue. The operator pays a partner when members redeem with it. That flow of money is the hard part, and the partner settlement guide covers it. Ecosystems fit when brands share customers but sell different things. Read the ecosystem loyalty guide for the full economics.
How do value-based loyalty programs work?
A value-based program rewards behavior tied to a cause members care about, such as reuse or giving. Patagonia's Worn Wear is a clear case. Customers who send in quality used Patagonia gear get a Worn Wear merchandise credit up to $180. They can spend it in Patagonia stores or online.
Patagonia gives its reason on the same page. It says the planet gains when people keep stuff in use longer. Worn Wear began in 2012 and now includes Patagonia's own online resale shop for used gear.
The credit is a balance owed, like cash back. The reward also pulls the member back to a Patagonia store or site to spend it. The model fits brands whose customers share a cause the brand acts on in its own operations.
How do gamified loyalty programs work?
A gamified program adds game mechanics, such as challenges, streaks and badges, on top of earning. Chipotle Rewards calls its version Extras. Members take on challenges and earn extra points, with exclusive badges along the way.
The base program pays 10 points per $1, and an entrée costs 1,625 points. A challenge is a targeted bonus with a goal attached. It pays only when the member does the thing the brand chose. Every bonus point adds to what the business owes, so challenges need a budget like any offer.
Game mechanics suit a program that wants to steer one habit at a time. The gamification software guide covers the mechanics and how to test them.
How do referral loyalty programs work?
A referral program pays existing customers for bringing in new ones. At Dropbox, when someone uses a member's link to create and validate a new account, both get extra storage.
Dropbox Basic users earn 500 MB of storage per referral, up to 16 GB. Plus users earn 1 GB per referral, up to 32 GB. The reward is spare capacity, and it is paid only when the referral converts. So the cost arrives with the new customer.
Inside a loyalty program, referral works as one more earn rule that pays points for a new member. The referral programs guide covers reward design and setup.
What is a hybrid loyalty program?
A hybrid program combines two or more models. Starbucks Rewards mixes points and tiers. Members earn Stars and move between Green, Gold and Reserve levels based on Stars earned over 12 months. Gold needs 500 Stars in 12 months. Reserve needs 2,500 new Stars in the 12 months after reaching Gold.
The level sets the earn rate. Green members earn 1 Star per $1, Gold members 1.2 and Reserve members 1.7. Rewards start at 25 Stars for $1 off an add-on, such as an extra espresso shot. At 200 Stars, members get a handcrafted drink or hot breakfast item worth up to $10.
Worked example: how much does a Starbucks dollar return at each level?
For illustration, assume a member saves every Star for the 200-Star reward and uses it at the $10 cap. That values a Star at 5 cents. The terms above then give these returns on spend:
- Green, at 1 Star per $1: up to 5 cents per dollar, or 5%.
- Gold, at 1.2 Stars per $1: up to 6 cents per dollar, or 6%.
- Reserve, at 1.7 Stars per $1: up to 8.5 cents per dollar, or 8.5%.
The top level returns 1.7 times the base rate for the same spend. That extra cost goes to the members who spend the most, which is the point of adding tiers to points.
How do you choose the right type of loyalty program?
Start from the customer and the margin. Five questions narrow the choice.
- How often do customers buy? Weekly buyers see progress in points or stamps. Yearly buyers need status or partner earning to stay engaged.
- How uneven is customer value? If a small group drives most revenue, tiers pay that group for it.
- Where is the margin? Rewards paid in high-margin goods cost less than cash. Thin margins point to rewards paid in the store's own goods.
- Who else sells to the same customer? Brands that share customers can share a currency.
- Can members see the value? Cashback and stamps read at a glance. Points and tiers need a clear reward chart.
Large programs often end up hybrid. Starbucks pairs points with tiers. Barnes & Noble pairs a stamp card with a paid membership.
How GRAVTY runs loyalty program models
GRAVTY is the loyalty platform from Loyalty Juggernaut. Program rules are built in Visual Rules, its patented no-code rules engine. GRAVTY AI-Scan reads shopper receipts to give instant rewards for purchases made offline.
On GRAVTY, Global Hotel Alliance settles Discovery Dollars across 60+ hotel brands. That is an ecosystem run in one engine. Deutsche Telekom runs one program across 9 countries on it. In all, GRAVTY runs 500M+ members in production with a 99.99% uptime SLA.
Frequently asked questions
Can a business run more than one type of loyalty program?
Yes, and a program that mixes models is called a hybrid. Barnes & Noble runs a free stamp card and a paid membership side by side. Premium members get both.
What is the difference between paid and subscription loyalty programs?
A subscription program is a paid program billed on a repeating schedule, such as monthly or yearly. A paid program can also charge a single fee. Both ask members to pay before they get the benefits.
Which types of loyalty programs create a liability?
Any model that issues value members spend later creates one. Points, cash back balances, stamps and trade-in credit all count until they are used or expire. A referral reward paid in a form like storage creates little or none.
Are tiered programs better than points programs?
Neither is better in general, because each fits a different customer base. Tiers pay off when a few customers are worth far more than the rest. Points pay off when purchases are frequent and value is spread evenly. Starbucks Rewards uses both.
How do ecosystem loyalty programs make money?
An ecosystem operator sells points to partners and pays partners when members redeem with them. The operator keeps the gap between the price partners pay and the cost of the rewards members claim. Breakage adds to that gap.