Loyalty programs have become a staple strategy for customer retention in today’s competitive market. Keeping customers coming back is critical - studies show that boosting customer retention by just 5% can increase profits by 25% to 95%. Repeat customers also tend to drive a large portion of sales (one source notes almost 75% of business comes from retained customers). These stats make it clear why businesses big and small invest in loyalty programs to reward customers and encourage that next purchase.
When designing a loyalty program, one of the big questions is what kind of reward currency to offer. Should you give out points that customers can accumulate for perks? Or offer store credit (basically cash value) that they can spend on their next purchase? Both approaches have their merits and passionate supporters. In this article, we'll dive into the store credit vs. points debate, exploring how each works and when each might be the better choice for your business. Along the way, we’ll see how these methods tie into retention software strategies that maximize customer engagement.
What Are Points?
For many loyalty programs, points are the go-to reward mechanism. Customers earn points for their purchases or other actions, and later redeem those points for rewards like discounts, free products, or exclusive perks. It's a bit like a game: the more you shop, the more points you rack up - which encourages repeat visits and bigger baskets. Companies often spice it up by introducing tiers or status levels - think of programs like Sephora’s Beauty Insider or airline frequent flyer clubs where reaching a higher tier (e.g. Silver, Gold, Platinum) unlocks extra benefits. This tiered approach makes collecting points feel even more rewarding and can motivate customers to strive for VIP status. A great everyday example is Starbucks Rewards: you earn “Stars” with each coffee, and hitting certain milestones gets you free drinks or special treats. Points turn shopping into a fun progress journey rather than just a transaction.
Benefits of Points: Using points adds an element of fun and strategy to shopping. It taps into gamification - customers enjoy the sense of progress as their point balance grows and they inch closer to a reward. The tiered rewards structure builds engagement; earning enough points might let a customer enter a premium tier with exclusive perks (free upgrades, birthday gifts, early access sales, etc.), which in turn deepens their loyalty to the brand. This flexibility is a big plus: points can be redeemed in various ways (money off a purchase, free items, special experiences), giving customers options to choose rewards that excite them. From a business perspective, points programs allow for creativity (like offering bonus points for referrals, social media engagement, or writing reviews) and cost control. Because points are an abstract currency, you decide how and when they convert into rewards, which helps manage costs if you have slim margins. In other words, you’re not giving away a discount on every purchase; you have the flexibility to require a certain number of points for a reward, aligning the cost of the reward with your budget.
When are points the better choice? Points shine in scenarios where you want to build a deeper relationship with customers and not just give them a discount. If your brand differentiates on experience, community, or premium status, a points system reinforces that connection by offering unique perks that feel like part of your brand’s identity. Businesses with lower profit margins may also prefer points because you’re not giving away value on every single purchase - you reward customers when they hit certain point thresholds, which you control, thereby managing the expense. Points programs also tend to work well for online or app-driven businesses. In a digital environment, it’s easy for customers to track their points, receive personalized offers, and engage in those extra activities (reviews, referrals, etc.) that earn them more points. All these factors make points a great choice when your goal is to foster loyalty through engagement and a sense of achievement, rather than through immediate monetary savings.
What Is Store Credit?
Store credit is essentially a monetary value given back to the customer that they can use for future purchases at your store. Instead of accumulating an abstract currency (points), the customer might receive $5 or $10 credited to their account, which they can spend like real money on their next purchase. If you’ve ever returned an item and gotten a gift card or credit instead of a cash refund, you’ve seen store credit in action. It’s straightforward: a customer with store credit can simply apply it at checkout to reduce their bill. No complex conversions or point calculations are needed - $10 in credit is exactly $10 off, easy peasy. Retention software and loyalty platforms often let businesses issue store credits as rewards (sometimes calling it “cashback” or account balance rewards), making it a popular option for loyalty programs focused on simplicity.
Benefits of Store Credit: One big advantage of store credit is clarity and simplicity. Customers know exactly what they have - $10 in credit is $10 in value - which makes it easy to understand and more enticing to use. This straightforwardness can enhance the customer experience by eliminating the need to figure out point values or redemption ratios. Store credit also tends to have a higher redemption rate: people are more likely to use it since it’s perceived as “real money” with tangible value and faster repeat purchases - exactly what a retention program aims for. Points typically require accumulation over time; as noted earlier, if the road to a reward is too long, many customers may lose interest or forget about it. However, for those shoppers who love a good challenge or enjoy saving up, points can create a sense of achievement and anticipation - especially when there’s a big prize or VIP status waiting at the end. It really depends on the customer’s personality: instant gratification vs. delayed gratification. Store credit tends to appeal to the former, points to the latter.
-
Emotional Connection: Interestingly, points systems can foster a stronger emotional bond with the brand. Earning points and hitting a VIP tier can feel like being part of an exclusive club. Loyalty programs like airline miles or hotel points have mastered this psychology - customers feel a sense of pride and belonging that goes beyond the monetary value of the points. Store credit, on the other hand, is more transactional; it basically equates to a discount on the next purchase. One retail guide pointed out that cash-back rewards (i.e. store credit) can feel less “special” or exciting, lacking the exclusive perk vibe that a points-based program can create. If your goal is to build a community or lifestyle around your brand, a points program might provide that extra emotional hook through gamification and status levels. Store credit is appreciated, but it won’t typically make someone feel like a VIP - it’s more about “thanks for your purchase, here’s some cash back,” whereas points say “you’re part of our club, keep engaging to earn more.”
-
Cost and Liability: From a business perspective, points and store credit also differ in how they impact your finances and accounting. Store credit given out is like a future discount you owe the customer; it’s a clear monetary value and is often tracked as a liability on your books (similar to a gift card). You have to plan for customers redeeming that credit. Points, until they’re redeemed, are more of a promise than an actual expense - you control what they can be exchanged for and when. This means points programs can be easier on immediate cash flow since you’re not handing out value on every transaction. However, you must strike a balance: if your points never get redeemed, you saved money but your loyalty program isn’t actually driving engagement (and customers might feel let down). On the other hand, if they do redeem en masse, you need to be prepared to fulfill those rewards. In short, store credit is a straightforward cost per reward issued, whereas points are a flexible cost that materializes upon redemption. Businesses should consider their margins and ability to handle these costs when choosing between the two.
In summary, points offer flexibility and a chance to get creative (with tiers, badges, and special rewards), whereas store credit is all about clarity and instant gratification. The choice often comes down to what you want your customer experience to feel like: a fun journey with goals to achieve, or an immediate payback for each purchase. There’s no universally “right” answer - it depends on your customers, your product, and your brand style.
The Hybrid Approach: Best of Both Worlds?
For many businesses, it’s not necessarily an either-or decision. Some successful loyalty strategies blend points and store credit to capture the benefits of both. For instance, a retailer might reward every purchase with a small percentage back as store credit (giving that instant “thanks for shopping” value), while also running a points system for broader engagement and bigger long-term rewards. This hybrid approach can motivate both short-term and long-term customer engagement: the store credit entices customers to come back soon to use their credit, and the points scheme keeps them interested over time by having them work toward larger rewards or VIP status. For example, a customer who makes a $200 purchase might earn $10 in store credit immediately, and also receive some points for that purchase which bring them closer to the next loyalty tier or a special bonus. They get the satisfaction of a quick reward and still have an incentive to remain loyal for future perks - truly the best of both worlds!
Another way to blend systems is to let customers choose their reward or to use different reward types for different actions. A brand with healthy profit margins might allow members to convert points into store credit at certain intervals, or offer a mix of rewards so people can enjoy immediate discounts and still collect points for something bigger down the line. In fact, some modern loyalty software platforms support this flexibility, enabling a more personalized experience. One guide suggests that for high-margin products you can even run a hybrid program where customers get the option of cash-back or points, or you give particularly valuable rewards at major point milestones (essentially combining the appeal of both). The key to a hybrid model is keeping it intuitive - you don’t want to confuse customers with overly complicated rules or too many currencies. When done right, combining points and store credit can cater to different customer motivations at once: it rewards the deal-hunters with immediate value and the reward-collectors with a fun journey.
Final Thoughts
In the end, both points and store credit can be effective tools in your customer retention toolkit. They just take different paths to the same goal - getting customers to stick around and keep coming back. Points are about building a journey and engaging customers with a sense of progress and exclusivity, while store credit is about giving value upfront and driving that next purchase directly. When deciding which route to take, think about your customers and your brand. Do your shoppers love a good deal right now, or do they enjoy collecting rewards over time? Are your profit margins able to support generous cash-back offers, or would a controlled points system work better for you? There’s no one-size-fits-all answer here, and in fact, some businesses find that a combination of both approaches provides a well-rounded program to suit different customer preferences.
What matters most is that your loyalty program feels rewarding and easy to use. A confusing or unrewarding program won’t achieve much, no matter which method you choose. So, whether you go with the simplicity of store credit, the engagement of points, or a mix of the two, tailor it to your audience. Use the data and features from your retention software to see what makes your customers tick - you might discover they respond strongly to a certain type of reward. By aligning your loyalty program with your business goals and your customers’ behavior, you’ll maximize engagement and keep them coming back for more. After all, loyalty is a two-way street: when you show customers some love through great rewards, they’ll return the favor by choosing your store again and again. Happy retaining!