How do Rewards Programs Work? A Complete Guide (With Examples)

How do Rewards Programs Work? A Complete Guide (With Examples)

Did you know that you can earn cash rewards and gifts from retailers?

Not only that, but many brands offer special discounts and promotions to reward members.  If you are not a member of your favorite store’s rewards program, you’re losing money.

Don’t worry!

In this post, I’ll explain everything you need to know about how rewards programs work and how you can get perks and free gifts from your favorite stores.

  • How do rewards programs work?
  • Benefits of joining a rewards program.
  • Which brands offer rewards programs?
  • How to sign up for rewards programs.
  • Other ways to earn rewards from retailers.
  • Why do brands offer rewards programs?

How do rewards programs work?

Rewards programs are a membership given to customers for their loyalty to a brand.

In short, they are used by brands to encourage customers to buy from their stores.

These programs are frequently used at establishments that want to encourage customers to make recurring purchases.

While discounts are subject to terms and conditions, there are less known ways to save even more without infringing promotions’ terms and conditions.

This is how:

You can combine store rewards with other types of discounts.  In addition to taking advantage of rewards and perks, customers can also earn cashback on top of coupons, promo codes, and special promotions –more about this later.

To join a store’s rewards program, you must first sign up to become a member of the store.  Many stores also have an app that you can keep track of points and find discounts and promotions.

It’s very easy to sign up.

To become a member, most stores ask for the customer’s information such as their name, phone number, address, and email.

Rewards programs terms and conditions vary, but they are usually accumulated using a point system and are redeemable for gifts with purchase and in-store cash rewards.

Other benefits include free shipping, access to private events and workshops,  special return and exchange policies, exclusive sales and promotions, and exclusive customer service lines.

But what kind of rewards programs do store offer?

Types of rewards programs

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  • Frequency programs – This type of loyalty program offers rewards customers for repeat purchases.  Coffee shops, for example, might give a free drink after the customer makes frequent purchases.  Sign up for Dunkin’ Donuts to get a free beverage after 200 points!

Many stores have different tiers of membership.  The more you buy, the more rewards you will get.

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  • Tier system – Many stores offer a membership for their rewards program based on how frequently they make purchases.  In this case, customers have to reach an amount to get to the next level and receive more benefits. At Sephora, for example, customers enjoy benefits when they sign up for their rewards program.  After spending $350 on a calendar year customers will get even more benefits. The highest tier at Sephora is for ROUGE members, customers that spend at least $1000 per year. ROUGE members get a private landline and invitation to exclusive events, in addition to benefits of INSIDER and VIB members.

Our favorite tier rewards program:

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Best Buy’s reward members get a variety of benefits based on how much they spend per calendar year.  While the first tier is free to join, elite and elite plus members must spend $1500 and $3500 in purchases per calendar year respectively.

Elite Plus members are eligible to receive free shipping, an extended period for returns and exchanges, access to special sales and offers, a point banking option, and a 24/7 customer service line.

The third type of rewards program is a paid membership:

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  • Paid membership – In some cases customers need to pay to be a part of a membership service.  This is the case for Amazon Prime, for example. Amazon Prime costs an annual fee for benefits such as free shipping.  As a prime member, customers can also stream movies and download music.


  • Point system – Many rewards programs are based on a point system.  After accumulating a certain amount of points, members are able to redeem their earnings for a discount, gift, or reward.

At most stores, points are redeemable for gifts with purchase and in-store cash rewards.

Some rewards require a minimum amount before taxes to get the reward.

Points may expire, so keep track of each store’s rewards program policy to learn about expiration dates and exclusions.

One of the most popular types of points is frequent flyer miles.  Frequent flyer members collect miles or travel points to reach an amount redeemable for a ticket.

In addition to points being redeemable for gifts with purchase and in-store cash rewards, most membership programs offer other benefits such as free shipping, access to private events and workshops, special return and exchange policies, exclusive sales and promotions, and exclusive customer service lines.

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Benefits of joining a rewards program

Benefits of rewards programs vary, but many offer the following benefits:

1) Gift with purchase – Gifts with purchase are given by many stores such as Macy’s, Clinique, Estée Lauder, and other stores.

Many beauty brands give gifts with purchase to customers when they buy a certain amount from the brand.

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Birthday gifts are also popular rewards given by brands.  Express and Sephora are examples of stores that offer birthday gifts to loyal customers.

2) Cash rewards – Most stores that offer rewards give a cash reward valid for any purchase at their store.  This works like a discount on your next purchase. CVS’ ExtraCare card, for example, can be used to purchase most items at their store.  Gap’s cash reward is called GapCash and is valid in-stores and online.

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3) Other perks – Rewards programs also offer other types of benefits such as free shipping, access to exclusive events, birthday gifts, special promotions, early access to sales, private customer service line, invitation to classes and workshops.

Which brands offer rewards?

Rewards programs are used by several types of businesses such as airline companies, hotels, retailers, restaurants, coffee shops, gas stations, and credit cards.

Popular stores with rewards programs include Dunkin’ Donuts, Best Buy, Sephora, Omaha Steaks, Walgreens, CVS, Gap, Banana Republic, Athleta, JC Penney, Ace Hardware, Kohl’s, Saks Fifth Avenue, Moosejaw, Express, Godiva, Target, Century 21, Bloomingdale’s, Macy’s, Staples, Office Depot, Petco, Rite Aid, Wyndham Hotel Group, Best Western, Choice, Hilton Hotels, La Quinta Hotels, Petco, Auto Zone, Shopko, Big Lots!, GameStop, and more.

Take advantage of the 61 Best Rewards Programs: Store Customer Loyalty Cards You Must Get!


Other types of rewards  

Companies also offer other types of rewards such as coupons, discounts, and promo codes.  Other types of rewards include credit cards and cashback.

  • Credit cards – Credit cards offer various rewards for using their product.  Some credit cards rewards their customers with miles, cash, or products and services.


  • Cashback – Cashback sites return a portion of the amount spent at a store when you make a purchase.  Hence the term “cash-back”. It works like a referral program. Shopping through a cashback site isn’t different than making a purchase like you normally would.  The difference is that by clicking on the retailer (i.e. Walmart) through a cashback site (i.e., the retailer shares a commission to the cashback site. The cashback site then shares a part of that commission with the customer.  Cashback sites also feature coupons and other rewards. Each cashback site offers different rewards, so it’s important to find the program that best fits your needs. One of the most important factors when choosing a cashback site is to find the one with the best rates. Lemoney, for example, is a cashback site that is unique because it has some of the highest cashback rates.  In addition, it’s the only site that gives a cash bonus to its members for inviting friends. It also rewards members with cash every time they shop.

Why do brands offer rewards programs?

Customer acquisition is expensive.  Many studies have identified that the most profitable customers are the ones who are already shopping at a company.

Considering it costs five to twenty-five times to acquire a new customer than to keep an existing one, rewards programs are an important strategy for many companies and businesses.

Rewards programs exist to create another incentive for a customer to become loyal to a brand.

Loyalty programs are used by many brands to encourage customers to buy from their stores by rewarding them for repeat visits.

Since many stores offer rewards programs to their customers, the ones who don’t become less competitive.

While there are other ways for brands to market their product or service, rewards programs are very effective and turn customers into loyal ambassadors.

For customers rewards programs are beneficial given the perks offered to members.  It is worth signing up to become a member of your favorite stores!

Final thoughts on rewards programs

Take advantage of rewards programs.  Most stores offer a rewards program, so you are missing out on benefits if you don’t sign up to become a member.

Each rewards program is different.  When deciding which type of rewards program to to sign up for, think about which stores you shop at the most.

Since it is better to accumulate points at a specific store, we recommend focusing on two or three stores in each segment to get the most benefits.

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