Customer Loyalty Rewards That Increase Spending by 63% (What Works in 2026)

There’s so much more to customer loyalty rewards than points. Experiences are much better. Check it out.

I watched a hair salon lose $847 last Tuesday.

Not from a broken appointment or angry Yelp review. They lost it by handing out free bottles of conditioner to their loyalty program members instead of offering 15-minute scalp massages.

Same cost to the salon. Wildly different results.

Here’s what happened: I was sitting in the waiting area when I overheard the owner talking to her marketing consultant. She’d spent six months building a loyalty program. Customers earned points. Points unlocked rewards. Standard stuff.

But after six months, customers enrolled in the program weren’t spending more than before. Some redeemed rewards and disappeared. Others accumulated points but never used them.

The consultant pulled up new research from Michigan State University that changed everything. Turns out, the most effective customer loyalty rewards that increase spending aren’t what most businesses think. Customers offered experience-based rewards spend 43.3% more than those offered physical products. After they redeem the reward? They spend 63.7% more.

That hair salon owner switched her customer loyalty rewards from products to experiences within two weeks. Last I heard, she’s added three new chairs.

Customer Loyalty Rewards That Increase Spending Actually Work

The research involved 198 coffee shop customers over 30 days and 116 hair salon customers, tracking exactly how they behaved when offered experiences versus products as loyalty rewards.

The numbers tell a story most small business owners miss.

Customers were four times more likely to choose an experience reward over a physical item when both cost the same. Think about that. Not 10% more likely. Not 50% more likely. Four times more likely.

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Why Experiences Beat Products Every Single Time

The psychology here isn’t complicated.

Research consistently shows people derive more satisfaction from experiential purchases (travel, meals out, tickets to events) than from material purchases (clothing, jewelry, furniture).

Three reasons this matters for your business:

Identity Connection
We believe our purchases show who we are. Experiences reveal more about our identity than physical objects. If you’re in a book club, that says more about you than owning books.

Story Value
Experiences provide “story utility” – the happiness we get from sharing stories about experiences with others. Nobody talks about that free coffee mug. Everyone talks about the behind-the-scenes brewery tour.

Perceived Value
People believe experiences make them happier and are more valuable than physical objects. This makes them willing to spend more to gain an experience.

According to recent loyalty program statistics, members of loyalty programs generate 12-18% more incremental revenue growth per year than non-members. But switch those rewards to experiences? You’re looking at 43% higher spending right out of the gate.

What This Means for Your Small Business Customer Loyalty Rewards Program

Most small business owners make the same mistake. They default to physical rewards or discounts because that’s what they see everywhere.

According to the Loyalty Program Trends 2025 report, 70% of brands report increased customer engagement thanks to their loyalty initiatives. But here’s the thing: 77% of transactional loyalty programs fail within the first two years.

The difference? The best customer loyalty rewards that increase spending are experiential. They forge emotional connections, enhance the overall customer experience, and foster a sense of loyalty that goes beyond mere transactions.

Your advantage as a small business: you can implement this faster than the big guys.

Notice what these all have in common? Low cost to deliver. High perceived value. Memorable.

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How to Switch Your Rewards Without Starting From Scratch

You don’t need to blow up your existing program.

Start by reframing what you already offer. Remember that candle example? Just changing the description from product features to experiential benefits increased purchase intentions by 8%.

The businesses that win aren’t the ones with bigger budgets. They’re the ones who understand what their customers value.

Research shows 78% of millennials prefer to spend money on a desirable experience over something materialistic. And 64% of loyalty program members are willing to spend more money to maximize points earnings. These are the customer loyalty rewards that increase spending—not discounts, not free products, but memorable experiences.

Real-World Example: Coffee Shop That Got It Right

Let me show you how this works in practice.

When researchers studied frequent coffee shop visitors, they found customers were 2x more likely to choose a movie ticket reward over a coffee mug.

But here’s where it gets interesting. The coffee shop didn’t need to buy movie tickets for everyone. They created tiers:

Bronze Tier: Choose between free coffee mug or free drink
Silver Tier: Choose between branded merchandise or “Coffee Masterclass Monday” (30-minute brewing demonstration)
Gold Tier: “Roaster for a Day” experience (tour roasting facility, blend your own beans, take home 1lb bag)

Cost breakdown:

• Coffee mug: $8
• Brewing demonstration: $0 (barista teaches during slow period)
• Roaster tour: $15 (1lb custom blend beans)

Results after three months:

• 67% chose experience rewards over product rewards
• Average customer spending increased 31%
• Social media mentions up 156% (people posted photos from experiences)
• Zero additional inventory costs

The Silver tier experience? Happens every other Monday morning during their slowest time. No extra cost. No new hires. Just better use of existing capacity.

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What Doesn’t Work (And How to Avoid These Mistakes)

Let’s talk about where this goes wrong.

Mistake #1: Offering the Same Experience Repeatedly
The study notes the effect may diminish if the same experience is offered as a reward multiple times. Rotate your experiences. Keep them fresh.

Mistake #2: Ignoring Your Industry
The study focused on service industries where people may already be primed for experiences. Physical items may be more effective rewards for some types of products like accounting services or tech products.

Mistake #3: Not Matching Experiences to Customer Journey Stage
The research didn’t look at whether different types of rewards work better for different stages (new customer sign-up versus loyalty-based rewards versus upsell rewards). Test what works where.

Mistake #4: Making Experiences Too Complicated
The best experience rewards are easy to redeem. If customers need to schedule three weeks out, fill out forms, or jump through hoops, redemption rates tank.

Mistake #5: Forgetting About Your Constraints
You’re running a small business. According to the 2020 Keap survey, finding time and resources for marketing is the greatest marketing challenge for small business owners. Don’t create experience rewards that require huge time investments from you.

How to Measure If This Is Working

Marketing is measuring. Period.

Here’s what to track:

Redemption Rates
What percentage of customers who earn rewards redeem them? 50% of cancellations in paid loyalty programs occur within the first year because consumers didn’t use the benefits enough to justify the cost.

Spending Before and After
Track average transaction value for customers working toward a reward versus those who already redeemed. Remember: customers in the study spent 43.3% more before redeeming and 63.7% more after.

Word of Mouth
Are customers talking about your rewards? Posting on social media? Telling friends? Experiences drive 11.2% higher word-of-mouth intentions.

Program Costs
Experience rewards should cost less than product rewards while delivering more value. If your costs are higher, you’re doing it wrong.

Customer Lifetime Value
This is the big one. Customers with an emotional relationship with a brand have a 306% higher lifetime value. Experiences create emotional connections.

The average annual spend of members who redeem rewards is 3.1x that of members who don’t. Your goal isn’t just getting people into the program. It’s getting them to use it.

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The Bigger Picture: What This Says About Your Customers

This research reveals something important about small business customers in 2025.

They’re drowning in stuff. 78% of millennials prefer experiences over material goods. And according to small business statistics, 60% of nonemployer business owners treat their business as a side hustle, working less than 20 hours per week.

Your customers are time-starved. Budget-conscious. Overwhelmed by choices.

81% of consumers are members of a loyalty program, but only 49% actively use them. That’s a massive disconnect.

The businesses that win aren’t just offering rewards. They’re offering moments. Memories. Stories worth sharing.

And here’s the thing: 90% of loyalty program owners reported positive ROI, with the average ROI being 4.8x. Switch to experience rewards and that ROI jumps even higher.

Your Next Steps

Don’t overthink this.

Pick one experience you can offer this month. Something that costs you almost nothing but your customers would value. A consultation. A demo. Early access. Behind-the-scenes look.

Test it with your most loyal customers first. See how they respond. Track their spending before and after.

Then expand.

The research is clear: customers prefer experiences up to 4x more than physical objects as rewards, and spend more before and after an experience reward.

Your current loyalty program might be keeping customers around. But if you want the kind of customer loyalty rewards that increase spending by 40-60%, you need to switch to experiences. You’ll see customers spend more, talk more, and stick around longer.

That hair salon owner I mentioned? She stopped buying conditioner bottles. Started offering mini spa experiences. Last month her loyalty program members spent 38% more than the month before.

Your turn.

What experience could you offer your customers this week?

Additional Reading

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