What Are POS Loyalty Programs? A Complete Guide for Retailers

Imagine not having to stress about paid ads or worry about slow sales because customers keep coming back to your store. Sounds like a dream? Well, it’s possible with an effective POS loyalty program.

This loyalty program does more than simply give discounts to repeat buyers. Your business can benefit from it in so many ways, which directly influence how well your business runs day-to-day (and how much money you actually make).

Today, we’ll show you the five types of POS loyalty programs that work and how to pick the right software for your store. We’ve helped over 10,000 brands improve their customer retention through loyalty programs, so we know what actually works in real stores.

But before that, let’s get to know POS loyalty programs first and why every retailer needs one.

Understanding POS Loyalty Programs

What Is a POS Loyalty Program?

A POS loyalty program is a rewards system that connects directly to a physical store’s point-of-sale system. If you have a brick-and-mortar store, this program monitors every purchase and applies rewards for your customers in real-time. 

Let’s say a repeat customer named Lily walked into your clothing store and bought a $50 summer dress. She joined your loyalty program, so your staff asked for her phone number. Your POS system automatically pulled up her account and added 50 points to her balance.

That’s how POS loyalty programs work.

“But is it the same with ecommerce loyalty programs?” Good question!

While they do work for the same reasons (rewarding buyers for customer retention), there are some differences you need to know. Here’s a simple table showing POS vs. ecommerce loyalty programs:

POS Loyalty Programs	Ecommerce Loyalty Programs
Work at the physical checkout	Online account-based
Your staff can enroll customers instantly	Customers self-register
Immediate reward redemption	Email/app notifications
Face-to-face interaction	Digital touchpoints only

Why Every Retailer Needs a POS Loyalty Program

If you have a POS loyalty program, you can enjoy some great benefits. That includes higher average sales, better insights into your customer behavior, and a long-term relationship with your customers.

Let me explain them better:

1. Your Average Sale Goes Up

When your customers are close to earning a reward or an exclusive item, they tend to add extra items to achieve that faster (we see this happen every time). The instant gratification of seeing their loyalty points grow right at checkout creates a tiny rush that makes spending feel more… rewarding.

One report even mentioned that members who actually use their rewards spend 3.1x more than those who never redeem anything.

2. You’ll Know Your Customers Better

Here’s another benefit we love to highlight: Loyalty programs can help you learn about your customers’ shopping habits and purchase history. And you can use the real-time data synchronization to stock more of your best-selling products and work on a better rewards strategy, which will encourage more sales (benefit #1).

Let’s say you notice that most of your loyalty program members who buy winter coats also purchase scarves and gloves. With that info, you could bundle these items together or train your staff to suggest complete winter sets to all customers (especially with non-members).

3. You’ll Build Long-Term Relationships

Did you know that 43% of US consumers prefer shopping online these days? Some of the common reasons are convenience and more personalized shopping experiences. 

Don’t worry. This doesn’t mean physical retail is over, but you have to double down on creating those same personal connections that online stores are winning with.

One of our small business clients started sending birthday discounts to their loyalty members and offering bonus points. This special customer engagement brought them repeat buyers who keep their business running… even during slow months.

Okay. You now know what a POS loyalty program is and the benefits it offers. It’s time to learn about the types so you can pick which one to use for your business.

5 Common Types of POS Loyalty Programs

1. Points-Based POS Loyalty Program

A points-based POS loyalty program focuses on giving customers points for every dollar they spend. Your buyers can use their accrued points to claim rewards, like discounts or free items. We recommend it for retailers who want a straightforward (but effective) rewards program.

One great example is the North Face XPLR Pass. The brand offers one point for every dollar spent, and once their customers hit 100 points, they get a $10 reward to spend on gear.

Their loyalty program is simple (which most customers love), plus it works both online and in their physical stores.

Pros:

• The point-based system is easy to understand
• You can offer flexible reward options to encourage repeat business
• Motivates loyal customers (to spend more) by showing reward progress

Cons:

• Points can feel less valuable to your customers than immediate discounts
• Requires you to manage point balances and track expiration dates

2. Tiered POS Loyalty Program

Next up is another popular loyalty program: tiered. It creates different levels where your customers get better rewards and incentives as they spend (or interact) more with your business.

Imagine you owned a travel bag store. You had over 1,000 customers and decided to reward your biggest spenders differently. You could create three tiers like this:

• Bronze: Provide 5% off their next order
• Silver: Offer 10% off plus a free travel accessory
• Gold: Give 15% off, free travel accessories, and early access to new collections

This type of loyalty program works best if you are selling higher-priced or luxury items that people won’t buy daily. For example, furniture, electronics, or even clothes.

Pros:

• It can encourage customers to spend more to reach the next tier (and enjoy more exciting rewards)
• Makes your loyal customers feel more seen and valued
• Gives your customers a different sense of status and accomplishment

Cons:

• Tiered loyalty programs are more complicated than point-based ones
• It can be challenging to think of convincing tier benefits for your customers 

3. Cashback POS Loyalty Program

A cashback loyalty program is a system where your customers get a percentage of their purchase amount back, either as cash or bank credit.

Some customers like this better than trying to earn points or climb tiers because it’s instant and less demanding. Plus, they see it as “savings” rather than a reward.

Let’s say you had an electronics store and you implemented a 6% cashback program. One of your customers (Sheila) bought a $200 laptop case, so she automatically got $12 cashback. She could use that money to buy other products or simply keep it.

Pros:

• It’s a more instant reward method
• Appeals to customers who love saving money
• Simple to explain to your customers and staff

Cons:

• Lessens the revenue you get from each sale
• Not as good as the first two in building relationships with customers
• It’s not the best option if you want to provide personalized offers

4. Paid POS Loyalty Program

Paid POS loyalty program uses a membership model where customers pay an upfront fee to unlock exclusive benefits. This loyalty program turns the traditional “earn-as-you-spend” approach upside down by asking for commitment (which is money)… before giving perks and rewards.

It’s more common with gyms, clubs, and subscription-based services, but it can still work for retail stores. Best Buy Memberships is a good example of this.

Pros:

• You get funds for the benefits you’ll offer
• It increases the commitment level of your customers because they paid for the perks
• You don’t have to track points or complicated reward calculations

Cons:

• Many customers hesitate to pay upfront before seeing value
• The bar for customer satisfaction is higher 

5. Stamp or Punch Card POS Loyalty Program

Let’s end our list with a more traditional approach: stamp or punch card programs. You can go for this type if you want to give that physical or digital “punch” for each purchase, with a free reward after collecting a set number of stamps.

We recommend this system for small businesses with frequent but low-cost purchases. That includes food and beverages like coffee shops, bakeries, juice bars, or ice cream parlors.

For example, if you own a coffee shop, you could run a “buy 10 drinks, get the 11th one for free” or “get a free [item] after collecting 20 stickers.”

Pros:

• Simple concept that your customers will understand right away
• It keeps your customers engaged (and encourages them to visit more often until they get the reward)
• It doesn’t require too much setup or too many reward options

Cons:

• It’s less flexible than points and tiered-based systems
• Not the best program for personalized offers

Key Things to Consider When Choosing a POS Loyalty Software

Seamless integration, reward customization, and instant redemption are the three things you need to think of when choosing a POS loyalty software.

Seamless Integration with Your POS System

The software you choose must work well with your current POS system. Because poor integrations will make syncing points (or data) nearly impossible, and your team might waste so much time fixing these issues.

You can also receive complaints about the failed point tracking… and worse, your customers will stop using your loyalty program altogether.

One of our clients who used Shopify POS experienced a loyalty platform that wouldn’t sync points properly. When customers made purchases, their points would take hours or sometimes days to show up in their accounts. After switching to our app, their customers can now view points instantly (and without any issues).

Easy Customization of Rewards

73% of customers want personalized loyalty rewards. But did you know that less than half of stores (only 45%) actually offer that?

You have to pick loyalty software that lets you create “fitting” rewards for different customer groups. For example, if you notice that your loyal customers often request early access to new arrivals, you can set up VIP events for them. Then, for newer members, discounts may be better.

Here’s how customizable rewards help you achieve your business goals:

• Drive traffic during slow periods: You can offer double points or create special in-store events when your store feels empty and you need more customers walking through the door.
• Clear out inventory faster: You can create targeted rewards that encourage your customers to buy specific (like low-selling or seasonal) items.
• Extra room for experiments: If your customers aren’t claiming anything from your current reward system, you can quickly test new options… until you find what actually works.

Instant Gratification and Redemption

Imagine you had a customer named Jack. He joined your loyalty program and earned enough points for a 20% discount on his next visit.

When he tried to use it at checkout, your cashier told him the discount wouldn’t activate until the next day because of your system’s processing rules. Jack felt cheated and never returned to your store (uh-oh).

You see… when your redemption process has delays or is too complicated, your customers lose interest. For example, if they need to download separate apps or remember a 10-digit code for a 5% discount, they’ll think it’s not worth it.

As a seller, you have to make it instant and simple that there’s no room for “forget it, I’ll just shop somewhere else.”

Plus, an instant redemption system allows you to give positive shopping experiences, encourages customers to earn more rewards faster, and reduces the workload on your staff. 

Implementing and Optimizing Your Program

Besides the key factors we talked about above, here are some other important steps to create and optimize an effective in-store loyalty program.

Choosing the Right Loyalty Software

Here’s what to check before you subscribe to any loyalty software:

• Current Budget: How much could you spend monthly on loyalty software? We suggest getting a platform that only costs 1-3% of your monthly sales (you can increase or scale later).
• Core Features: Make sure that the app can create the common loyalty program types (points-based, tiered, etc.) and a customer portal where people can check their progress.
• Support: Look for platforms that offer 24/7 customer support, especially during busy shopping seasons when technical problems can cost you real sales.

Loyalty platforms like our app, Channelwill Loloyal, handle multiple program types in one system.

Our app also works well with Shopify POS and supports multiple languages, which makes it ideal for stores serving international customers. Plus, there’s a free plan that you can sign up for to test the features.

Best Practices for Launch and Onboarding

How you launch your loyalty program determines whether customers actually join and use it, so you need a solid plan from day one. A quiet launch with no promotion will get you maybe a 10% sign-up rate.

Start with email announcements offering double points for the first week. Put up in-store signage explaining the benefits in simple terms. Train your staff to mention the program during checkout and offer immediate sign-up bonuses like 10% off their current purchase.

Your team needs to understand how to sign people up, check point balances, and handle redemptions. Give them a cheat sheet with common scenarios and practice during slow periods.

PRO-TIP: Make joining feel immediate by giving new members points they can use right away. 

Measuring the ROI of Your Loyalty Program

Here’s a simple way to calculate your ROI:

(Revenue from loyalty program – Program costs) ÷ Program costs × 100 = ROI %

That gives you the percentage of return. Now, what does this look like in practice? To make it easier, we pulled benchmark data from LoyaltyLion that shows how average programs grow over three years. 

Please note that these are industry averages that let you see what the “average annual sales” (in %) looks like if you are running a loyalty program.

Industry	ROI Range (Year 1 → Year 3)
Apparel & Fashion	~6% → ~33%
Beauty & Cosmetics	~9% → ~27%
Food & Beverage	~7% → ~28%
Home & Garden	~7% → ~13%
Pets	~20% → ~55%
Nutrition	~13% → ~36%
Adult	~29% → ~49%
Arts & Crafts	~16% → ~29%
Fitness	~5% → ~18%
Games & Electronics	~1% → ~6%
Jewelry	~4% → ~14%
Kids	~17% → n/a*

What we observed from the data above is that most programs begin small in Year 1, with a 5% –10% ROI. But they begin to grow between 15% and 55% by Year 3 (depending on the industry). 

These show that your total annual sales can increase if you do it right and keep improving your program. 

Pro Tip: Use data on customers’ shopping habits to optimize continuously. Look at which rewards drive the most repeat visits, and adjust your offers from there.

Final Thoughts on POS Loyalty Programs

You now know the five main program types, how to choose software, and launch strategies that work. But before ending this article, we want to remind you how important a POS loyalty program is for your business success.

These programs boost your sales, help you understand your customers better, and build genuine relationships that keep people choosing your store over online shopping.

Ready to join stores seeing 25% higher repeat purchase rates? Book a demo with our team and let us help you launch your POS loyalty program soon.