Loyalty Program vs Discounts: Which Brings Customers Back

By Alva Chew · Updated 2026-11-04

In short On loyalty program vs discounts, a points program brings customers back more reliably because the reward is earned by spending and can only be used on a later visit. A discount is paid on every sale, including to people who would have come anyway, and research on grocery purchase panels links heavier promotion to customers who become more price sensitive. Use discounts only to win a first visit, and run points to win the next one.

What is the difference between a loyalty program and a discount?

A discount lowers the price of one purchase. A 10% off sign, a happy hour or a coupon all work this way. The customer pays less today and nothing obliges them to come back.

A loyalty program gives something back for spending over time. In a points program the customer earns points on each purchase and swaps a balance for a reward later. The reward is paid after the spend, so it needs a second visit to be used.

That timing is the whole difference for a shop owner. A discount rewards a visit that is already happening. A points reward gives a customer a reason to arrange the next one.

Which brings customers back, a loyalty program or discounts?

For repeat visits, a loyalty program. For a first visit, a discount can do the job. The research below explains why, and it comes with limits that you should read before relying on any of it.

Finding	Scope	What it suggests
Consumers became more price and promotion sensitive over time, linked to reduced advertising and increased promotions	8 and a quarter years of panel data on one frequently purchased packaged good	Heavy promotion can train customers to wait for the price cut
Customers who started as light or moderate buyers bought more and grew more loyal after joining a loyalty program. Heavy buyers claimed the most rewards but did not change their buying	Longitudinal data from one convenience store franchise	A program can lift occasional customers, not only regulars
171 of 9,880 street coupons redeemed, about 1.7%, within the one-month validity. Redemption at 10 metres was 5 times that at 800 metres	Subway coupons handed out in Berlin	A cold discount reaches few people, and mostly those already near you

Sources: Mela, Gupta and Lehmann, Journal of Marketing Research, 1997. Liu, Journal of Marketing, 2007. Spiekermann, Rothensee and Klafft, Street Marketing: How Proximity and Context drive Coupon Redemption (submitted draft, 2010), which also reports that overall coupon redemption rates remain below 1%.

None of these studies compares a points program with a discount in the same café. The first is about a packaged good bought in supermarkets. The second is one firm in one setting. The third measured coupons given to passers-by who had signed up for nothing. Together they point one way, and they are not a benchmark for your numbers.

What does a discount cost compared with points?

Work it through with one example. Say your average bill is US$10 and the cost of goods on it is US$3, a 70% gross margin. You earn US$7 on each sale.

Offer	Cost per US$10 sale	Gross profit per sale	Extra sales needed to keep the same total profit
No offer	US$0	US$7.00	None
10% off every sale	US$1.00	US$6.00	About 16.7% more sales
Points returning 5% of spend, all redeemed	US$0.50	US$6.50	About 7.7% more sales

Source: Gimify calculation, illustrative US$ figures. Replace the margin with your own.

Two details make the gap larger in practice. A discount applies to every customer who sees it, including the ones who would have paid full price. A points reward is only paid when a member has spent enough and chooses to redeem. The share who never redeem is called breakage, and in one retailer’s data 60% of members never redeemed over 43 months. Stourm, Bradlow and Fader reported that figure in the Journal of Marketing Research, 2015, and it comes from a thin 1% reward, so do not treat it as a forecast for your shop.

For a longer version of this arithmetic, see our guide to whether a loyalty program is worth it.

When do discounts make sense?

Discounts are good at one job, which is getting someone through the door who has never been. A first-visit offer costs you only when it is used, and it reaches a person who has no relationship with you.

They are weaker at three other jobs:

Building a habit. The offer ends when it is used, and the next visit starts from zero.
Protecting margin. Each discount comes straight out of the price, whether or not it changed the customer’s decision.
Keeping the price you set. Customers who learn that a lower price appears every few weeks start to wait for it. The 1997 panel study found this pattern of rising price sensitivity in grocery purchases.

The practical rule is to use a discount once, to start the relationship, and a points balance for every visit after that. Our comparison of vouchers vs points covers the voucher version of the same question.

How do points bring customers back?

A points balance is a running total that the customer can see growing. Each purchase adds to it, and the reward sits a few purchases away. The customer has a reason to come back that costs you nothing until they do.

Points also grow with the bill. A customer who spends US$40 earns four times what a US$10 customer earns, so your best spenders get the most back without a separate rule. A flat discount does not do this.

The reward can still look like a discount at the counter. Set 100 points to equal US$5 off at 1 point per US$1 spent, and the customer sees a plain price cut they have earned. Our guide on how to set your points earn rate walks through that arithmetic.

What goes wrong with loyalty programs?

Loyalty programs do not fix everything, and the research says so.

Heavy buyers claim most of the rewards. In the convenience store study, they did not buy more after the program began. Pay attention to whether your reward is mostly going to people who would have come anyway.
Many members never redeem. A reward that is far away or hard to value gets ignored, which is covered in why customers don’t redeem points.
Complicated rules lose people. Stamps, tiers and vouchers each add something the customer must learn, which is why the case for points only favours one simple balance.

What should you do?

Start with points as the main programme. Pick an earn rate you can afford, such as 5% back, and a first reward customers can reach within a few visits.

Keep discounts for a first-visit offer, and when you run one, ask the customer to join your points program at the same time. That turns a one-off price cut into a balance they have a reason to add to.

Check the result with your redemption rate and the share of members who return within a month. If few members reach their first reward, lower the threshold before you add any new offer.

Gimify is a points-only programme, so there are no discount codes or vouchers to manage. Members join by scanning a QR code, the card lives in Google Wallet, and staff add or redeem points on any phone. The Free plan covers one outlet with unlimited members.

Questions owners ask

Is a loyalty program better than discounts?

For repeat visits, usually yes. A discount rewards the purchase that is already happening. A points reward is earned now and spent on a later visit, which gives the customer a reason to return. Discounts still work for getting a first visit from someone who has never tried you.

Do discounts build customer loyalty?

The evidence says they do little for it. A study of 8 and a quarter years of purchase data on one packaged good found customers became more price and promotion sensitive over time as promotions rose and advertising fell. That is a different product from a cafe visit, so treat it as a warning and not a measurement of your shop.

How much does a discount cost compared with loyalty points?

A 10% discount costs 10% of every sale it touches. A points reward that returns 5% of spend costs 5% of the sales that earn it, and only when members redeem. Some members never redeem, so the cash cost is lower than the headline rate.

Can I run a loyalty program and discounts together?

Yes, as long as they have different jobs. Use a one-off offer to bring in a new customer, then enrol them in points. Avoid running frequent sitewide discounts beside a points program, because customers learn to wait for the cheaper price and skip the reward.

Do loyalty programs work for customers who visit rarely?

Research on a convenience store franchise found customers who started as light buyers bought more and grew more loyal over time after joining its program. Heavy buyers claimed the most rewards but did not change how much they bought.

Is a points program cheaper than a discount for a small shop?

Per sale, yes at equal headline rates, because unredeemed points cost nothing. The software can cost nothing too. Gimify has a Free plan for one outlet with unlimited members, so the cash outlay can be zero.