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referral vs. loyalty programs


Let’s clear some things up. A loyalty program and a referral program are two different things. Yes, there are some similar aspects, for example, rewards. Both types of programs can easily be considered a reward program. There are however many differences between the two.

Referral programs and loyalty programs can go hand in hand. This may be why people often confuse the two for being the same thing. There are elements of each type of program that can easily be intertwined. Consider a customer that has made multiple referrals, they can easily be considered a loyal customer. Also, consider that some referral programs require customers to refer many people before receiving a reward. That’s pretty similar to a loyalty program, isn’t it?

There is a fine line between the two, however. In some cases, you may see a business run both types of programs simultaneously because both referral and rewards program software work. If a business can run both at the same time, then, obviously they are two separate things.

All right so you are probably wondering what makes them different. Here are some criteria to help you understand the differences between the two. As you can see the foundation of each program is a little different. Both types of programs, however, do lead to better customers and more sales. 

When to use a loyalty program

It’s probably easiest to use a loyalty rewards program for items that don’t necessarily cost a ton of money. This is because the customer is required to make more purchases before being rewarded. A simple way to track a loyalty program is to provide the program members with a frequent purchase card or set up a system that can track the customer’s purchases or use loyalty software. Typically, loyalty rewards program members don’t need to be reminded of the program because your product or service is something that they buy daily or weekly. Or at least a few times a month. For example, a coffee shop may have a loyalty card where you buy 5 and get your 6th cup free. Your product or service is something that they already plan on buying and they keep coming back to you because it will eventually pay off for them. 

More on what is customer loyalty?

What are the different types of customer loyalty?

Learn how to drive customer loyalty from top experts

When to use a referral program

A sure-fire way to have word of mouth spread your business is to use a referral program. Where the referring customer provides you with a new customer. Aside from growing your pool of customers, referral programs also keep the program member a loyal customer by usually offering incentives for spreading the word.  One of the easiest ways to run a referral program is by using some form of referral software which is a bit different than loyalty program software. This works well because referral software can seamlessly fit into your business, and that’s just one reason to love a referral program. Plus it allows you and the member to know how many new customers are brought in. It provides an easy way of sharing your company for the program member. Referral programs can be a strategic way to have a constant flow of new customers coming in.

Here are a few reasons why you need a referral program.

Want to know the difference between referral program vs affiliate program?

Some referral program ideas to get your feet wet.

Wrapping up

One of the most remarkable things about these types of programs is that it creates value for the customers and the company.  Meaning you have the opportunity to create long-term relationships while you grow your business.

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Posted by Megan Mosley

Megan Mosley is a writer for Referral Rock. You can find her poking around online or tweeting about marketing, small businesses, SEO, or even sharing funny memes. She is addicted to coffee and uses it as a fuel to keep her going through the day.