What are loyalty points?

Loyalty points, also known as reward points, member points, or program credits, are a unit of value earned by customers for completing predefined actions within a loyalty program. Points function as a soft currency inside a brand ecosystem: members accumulate them through purchases or engagement activities and later redeem them for discounts, rewards, experiences, or status benefits.

The way and rate at which customers earn points is defined by earning rules and points multipliers which can differ between loyalty tiers.

In modern loyalty systems, points are more than simple numerical balances. They are the core mechanic that connects customer behavior, emotional engagement, and brand economics.

How loyalty points work?

When a customer completes an action (e.g., making a purchase, completing a profile, referring a friend, joining a segment), the loyalty engine evaluates the relevant earning rules and adds points to the customer’s wallet. This wallet acts as a real-time balance ledger that tracks:

• Earn events.
• Redemption events.
• Expired points.
• Adjusted or reversed points.
• tTer qualification points.

Points can be awarded as:

• Fixed amounts (e.g., 100 points per order).
• Proportional amounts (e.g., 10 points per $1 spent).
• Event-driven bonuses (e.g., birthday points, app install).
• Tier multipliers (e.g., Gold members earn 1.5× points).
• Context-aware rewards (e.g., double points in app).

Types of loyalty points

Different point types help brands shape customer behavior with precision. Here are some of the most common:

• ‍Base points: Standard points earned on purchases.‍
• Bonus points: Extra points earned for special events or campaigns.‍
• Tier points: Points used to determine member status, which may differ from spendable points.‍
• Locked points: Points pending until a condition is met (e.g., order delivery).‍
• Promotional points: Time-limited or campaign-specific points with separate expiry.

Earning rules versus burning rules

Loyalty systems operate on two foundational logic sets:

• ‍Earning rules: Define how members collect points (events, spend, actions, segments).‍
• Burning rules: Define how members redeem points (discounts, catalog rewards, experiences).

Voucherify allows brands to customize both with validation rules, metadata, and segment logic.

Why brands use loyalty points?

Loyalty points work because they tap into strong behavioral biases:

• Endowment effect: Customers value what they already “own.”
• Goal gradient effect: Customers accelerate behavior as they approach a reward.
• Progress illusion: Visible progression increases engagement.
• Loss aversion: Expiring points drive reactivation and reduce churn.

Technical considerations for point-based loyalty

Behind the scenes, loyalty points behave like a virtual ledger. A robust loyalty system must support:

• Real-time balance updates.
• Concurrency control (no double-crediting).
• Multi-channel syncing (web, app, POS).
• Expiration logic.
• Rollbacks (when orders are canceled/refunded).
• Audit logs and event history.
• Fraud detection (preventing repeated event-triggering or fake accounts).

Liability & accounting considerations for loyalty points

Unredeemed points may represent accounting liabilities. Brands often manage liability by:

• Shortening expiration windows.
• Rewarding high-intent actions.
• Encouraging burning through catalogs.
• Assigning different values to different point buckets.
• Using breakage projections to shape program cost.

What is a point-based loyalty program?

Point loyalty program is the most frequently used type of reward program. In this type of program, members collect points for performing specific actions – these points can be later on exchanged for a variety of rewards. Buying products is not the only way to earn points. Thanks to more innovative loyalty systems, members can also collect points via performing desirable actions, such as following the brand on social media, sharing reviews, and celebrating birthdays.

What are the must-have features of a loyalty points system?

Loyalty points system is a type of software that allows brands to run loyalty points programs and perform key functions related to handling points, such as calculation, deletion, addition, analytics, and expiration. To create an effective loyalty point system, there are a few features that you should focus on:

1. Transactional and behavioral earning rules

Loyalty is more than just purchases, so make sure there are multiple ways to earn points. Set up and manage a loyalty program that rewards customers not only for purchases but also for other desirable behaviors, such as social media engagement, referrals, or product reviews.

2. Fixed and proportional points assignment

You should have the ability to set up both fixed and proportional points for specific activities based on order and customer attributes. This means that you can create custom loyalty programs that reward customers for specific behaviors or purchases, and tailor the rewards based on their value to your business. For example, customers from a specific tier would receive more points for a specific action than regular members.

3. Loyalty points expiration

You should be able to manage points expiration rules for your loyalty program, taking control over how long points are valid and encouraging customers to redeem their rewards sooner rather than later. This makes it easier to manage points liability and control the loyalty breakage.

4. Multiple loyalty points redemption touchpoints

Members should be able to manage and spend points in a variety of ways. This includes online and offline touch-points, such as mobile apps, websites, in-store terminals, or third-party platforms, ensuring that customers can redeem their rewards wherever and whenever they want. Another key feature is a digital wallet which allows customers to store points and manage their membership.

‍5. Manual addition and removal of points

You should have the option to manually add or remove points from a customer's loyalty account and adjust the balance based on special circumstances or customer service needs. This feature allows you to maintain a high level of control and flexibility over the loyalty programs and ensure that customers are treated fairly.

6. Analytics and customer profile with loyalty balance and history of earning and spending points

To ensure program success, you should have critical insights into detailed customer profile, helping you understand your customers better and create personalized and targeted loyalty campaigns.

7. Transfer of points

When customers share their loyalty points with others who are not customers yet, it can create word-of-mouth marketing and potentially attract new loyal customers for your brand. Voucherify provides the option to transfer points between loyalty cards, whether they belong to the same person but different brands, or different members within the same brand.

8. Pay-with-points

You should allow members to spend their loyalty points in many different ways – whether it’s exchanging them for rewards or using them as payment method.