Why are rewards points so important for businesses?

Rewards points are a great way for businesses to incentivize their customers to stay loyal to their brand. Rewards points are often part of a broader rewards program, a type of customer relationship management (CRM) strategy implemented to help increase customer acquisition, retain existing customers, and drive sales.

There are a variety of ways that businesses can implement rewards points. Earning points for purchases is probably the most popular method. After points are accumulated, customers can trade them in for products or receive discounts or other special offers.

Another approach is to offer points for certain behaviors, such as referring friends or writing product reviews. You can even earn points for sending cash or paying your bills. There are many benefits to both consumers and businesses when it comes to rewards points, though there are also a few pitfalls—especially to customers.

First, let’s look at where points come from.

A brief history of rewards

Rewards programs are not a new idea. In fact, we can trace prototypes back thousands of years.

Ancient Egyptian workers were sometimes paid with “commodity tokens”—wooden tokens painted and shaped like a beer jug or bread loaf tradable for…beer or bread. Closer to our time, a copper token program launched in New Hampshire in 1793 similarly mimicked what would become rewards programs.

B.T. Babbitt kicked off the modern loyalty program into high gear in the 1850s, when he began printing “trade marks” on his yeast, baking powder, and soap powder. These marks were tradable for items such as harmonicas, crayons, pocket knives, and other goodies. The more you spent, the bigger the reward, which created a sort of hierarchy within such programs—a program that soon became international thanks to Babbitt’s retail reach and networking abilities.

Inspired by Babbitt’s success, tea trading companies started offering “checks” and “tickets” in the 1860s; Shuster’s Department store kicked off the catalog phenomenon with loyalty stamps in 1891; Betty Crocker rewarded customers right on packaging with “box tops,” which became tradable for Wheaties and Gold Medal Flour in 1929. All of these programs worked as intended, keeping customers loyal to the issuing brands in an early gamification of retail sales.

But the harbinger of modern credit card rewards programs can be claimed by Air Miles, introduced by American Airlines in 1981. This is when “rewards points” were first introduced and soon replicated by Delta, TWA, and United.

Credit cards soon jumped into rewards programs, securing partnerships with a wide variety of businesses while replicating the airline rewards model. American Express, arguably the most popular points program today, launched a fee-based loyalty program in 1984, which included valued benefits like 24-hour concierge service and travel insurance. By the mid-eighties, credit cards were partnering with large businesses as everyone tried to secure consumer loyalty.

AmEx helped to define how to save and spend rewards points, as well as create a vast network of business relationships in which to use those points. Yet the company also created a host of business-friendly incentives that exclude consumers from truly profiting from rewards points, such as the sudden devaluations that occur in a closed system.

For example, AmEx Schwab Platinum cardholders suddenly saw their point value decrease by 12 percent in 2021. Delta, Emirates, IHG, Southwest, United, and Virgin Atlantic all followed suit, devaluing their points or rewards benefits the same year. So while rewards programs remain highly lucrative to the issuing businesses, understanding the terms and conditions is of special importance for consumers.

The benefits of rewards points

One of the key benefits of rewards points for businesses is that they drive repeat purchases. When customers know that they can earn points for every purchase they make, they’re more likely to continue shopping at this business. Increased customer retention and overall sales make this a very appealing prospect for any business.

Another benefit of rewards points is that they help increase customer engagement. When customers are actively earning and redeeming points, they’re more likely to be engaged with the brand and more likely to refer friends and family to the company. Word of mouth is a low-cost way for businesses to increase brand awareness.

Intuitive points systems are critical for success in the modern landscape of rewards programs. It’s essential for businesses to make the program easy to understand and use. Customers should be able to easily track their points and understand how to redeem them. Businesses should also be transparent about the terms of the rewards program and make it easy for customers to opt-out and even take your points with you.

Sadly, this is rarely the case today. Still, rewards points incentivize customers to make repeat purchases, increase the likelihood of loyalty to the issuing brand, and drive both acquisition and retention. For these reasons, rewards points will continue to be a popular offering by companies for the foreseeable future.