Loyalty Register glossary
Points program
A loyalty program where members earn points for purchases or actions and later redeem them for rewards, discounts or other value.
A points program, or points-based loyalty program, is a loyalty program in which members earn points for purchases or other qualifying actions and later redeem them for rewards, discounts or other value. It is a common loyalty model, often called earn and burn. Sephora Beauty Insider, for instance, is a free program in which members earn points on merchandise purchases and redeem them for rewards.
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How does a points program work?
Two sets of rules define it. The earn side says how many points a member receives for each dollar or action. The burn side says what those points buy. Between the two sits the value of a point, which is what a member actually gets back. Sephora members can redeem 500 points for $10 off a purchase of $10 or more, and Tesco turns 150 Clubcard points into £1.50 of vouchers. Both state the conversion plainly, so members can work out what their balance is worth.
How do you calculate what a point is worth?
Divide the value of a reward by the points it takes. At Sephora’s published rate, $10 for 500 points works out to 2 cents a point. Then multiply by the earn rate to get the reward rate per dollar spent, which is the number that really costs you money.
Why does the earn rate alone not tell you the value?
Because the program sets both sides. A hypothetical program that gives 2 points per dollar and values each point at half a cent returns 1 cent per dollar, or 1%. A rival that gives 3 points per dollar at a quarter of a cent per point returns 0.75%. The larger headline number is the smaller reward. Members compare programs on what they see first, so the value per point should be as easy to find as the earn rate.
What does a points program cost the business?
Every point issued is a promise of a future reward, so the program carries the expected cost as a liability until members redeem. Some points are never used, which is known as breakage, and the program estimates that share when it forecasts cost. The cost of a reward also depends on what is redeemed: a discount costs its face value, while a product reward costs what the business pays for the item.
Points programs also give a business flexible tools. Bonus events, category multipliers and partner earning can all be added without changing the base rules, though each one adds to the liability.
When is a points program the wrong choice?
Points suit repeat purchases with enough spend for a balance to build. A low-frequency business may leave members stuck far from any reward, and a simple shop may do better with a punch card, where progress is obvious. If the goal is to reward top customers rather than all customers, tiers may fit better.
What should members be able to see?
The earn rate for every channel, the value of a point, the minimum balance needed to redeem and the expiry rule should all sit in one place. A clear balance and a reward that feels reachable help keep members earning. Low redemption from disengaged members is a warning sign rather than a saving.