Shoppers, Facing Holiday Spending, Turn to Loyalty Programs

Chrissy West is taking a new approach to her Christmas shopping this year. When buying gifts for her family, she plans to finance them by cashing in her Ulta loyalty points.

A makeup aficionado who enjoys buying lip gloss and blush, Ms. West has racked up hundreds of loyalty points at Ulta, the beauty retailer. During a shopping haul in September, she redeemed over 800 points, which brought an $89 bill down to $57.

Ms. West has focused on spending less money this year, and using her loyalty points is the way she plans to actually do that during the holiday shopping season. She has 233 points left.

“I would just use my points on the gifts for my sisters because I kind of have all the products that I want,” said Ms. West, a 23-year-old graduate student in Tallahassee, Fla. “I would like to use it to the point where it’s almost free, but because I have so little it’s just going to be a discount.”

Ms. West is not alone in her approach. This holiday season, 39 percent of shoppers plan to use rewards and cash-back offers to buy gifts for others, according to a PayPal survey released in November. Nearly the same proportion of people said they would use their rewards points on items for themselves.

Retailers are taking notice. These programs and the incentives that come with them will be critical to attracting shoppers, who are slowing their overall spending and holding out for deals before buying. Stores recruit customers into their loyalty programs throughout the year, but the programs become a major attraction at the end of the year — when retailers can make up to a third of their annual revenue. Retailers are also spending the year testing different incentive strategies, but they roll them out en masse during December.

Customers see the benefit in these programs, with the money they spend getting rewarded through free products or other perks. One in four shoppers feels that buying gifts using rewards is getting something for free, according to the PayPal survey.

“This is the time of year that brands put on their most aggressive loyalty tactic,” said Stephanie Meltzer-Paul, a Mastercard executive who helps retail clients shape their loyalty programs.

The shoe retailer DSW, with 27 million members, is among the companies leaning into their loyalty programs. On Black Friday and Cyber Monday, it offered a four-piece travel kit as a gift with purchase — an incentive it does just five times a year. Online, it’s pushing a “12 days of V.I.P. deals” program to loyalty shoppers.

“Those extra incentives to get them to convert give them validation that they’re making the right choice, but doing so in a fun experience,” Julie Roy, DSW’s chief marketing officer, said in an interview.

Many retailers, like Sephora, are turning the act of earning points into a game. The beauty retailer is allowing loyalty members to rack up points by performing certain tasks, such as signing up for text alerts or buying something online and picking it up in a store.

Ulta, which has among the biggest U.S. retail loyalty programs, with 42 million members, knows that people like the feeling of accumulating points. Fifty-six percent of shoppers told Ulta that earning points was a main reason they shopped during Black Friday and Cyber Monday.

Typically, Ulta offers shoppers points that are equal to the price of the item. Spend $80, get 80 points. During promotions this holiday season, it is offering customers the opportunity to boost their points by five times the amount of a purchase. So that $80 can now equal 400 points. The calculations can get complicated, though, and there are TikTok channels dedicated to decoding “Ulta math.” For example, one creator explained in a video that if she bought beauty products on a day when Ulta was offering double points for purchases, she had money for a future purchase that would then feel free to her.

“People are genuinely trying to maximize volume in very different ways, and the points are a critical enabler of that,” Michelle Crossan-Matos, Ulta’s chief marketing officer, said in an interview.

Kim Spader, a 44-year-old secretary at a middle school in Mystic, Conn., in October posted a video on TikTok about how she combined her 10,000 Ulta points with a 20 percent coupon for a shopping spree worth $800 in October. The video has been viewed more than 2.5 million times.

Ms. Spader, who last year was paid by Ulta to create content on social media but is not currently compensated by the retailer, estimated that she spent $1,200 on makeup, hair care and skin care starting in April, much of which she used when creating content. She boosted her overall point count by timing her purchases of certain brands or products to when Sephora offered deals that would multiply her points.

“You don’t want to buy a product just because there is a point multiplier,” Ms. Spader said. “Don’t put it on credit cards for the sake of buying it. But if you’re buying the product anyway, and can earn more points quickly, it’s a great way to get ‘free’ makeup.”

Toward the end of the year, shoppers also race to secure a higher tier of status within many loyalty programs. Generally companies boost incentives for members who hold higher status. For example, Ulta loyalty members of the highest tier earn 1.5 points for every purchase they make. Each year, shoppers look to secure and boost their status, before the process starts all over again come January. Recognizing this, Ulta is not shy about sending emails to remind members that they are close to reaching a new tier — if they spend more.

“People are obsessed about elevating in their tiers,” Ms. Crossan-Matos said. “They feel like they’re getting extra benefits. People love the concept of building points so that when they do see something that they absolutely love that might be a stretch cash-wise, that they can invest in themselves or invest in gifts.”

Of course, encouraging shoppers to spend is beneficial to Ulta, where the end-of-the-year shopping period brings in nearly a third of its annual sales.

For retailers, the holidays can be an opportune time to turn customers into new loyalty members, hoping the programs will get customers to return in the coming year.

“If you get somebody to redeem a reward, they’ll spend more later,” said Kate Hogenson, a principal consultant at the Mallett Group, a brand-loyalty consulting firm. “Ulta has the highest penetration of any loyalty program out there, and 95 percent of its revenue is attached to a loyalty member.”

When Ulta offered a 20 percent discount on its Dyson Airwrap hair dryer (which retails for $600), it saw a spike in sales as people cashed in their points to purchase it. During major sales like these, shoppers go to TikTok to giddily share the moment when their bill dropped precipitously after their points are redeemed at the register.

“We see a number of loyalty programs, including ours, that people really enjoy being able to share what they’re doing with their loyalty points and being rewarded for it,” Ms. Crossan-Matos said. “Gamification” — adding competitive elements to the shopping process — “on its own is not that exciting,” she added. “It’s when you feel like you’re part of a community that is celebrating who you are, what you’re doing and it infuses more points and rewards for you.”

Ms. West, the graduate student in Florida, has posted on TikTok about her Ulta purchases and the free black Fenty tote bag that she got when she made a purchase. Still, she knows there’s always room to be savvier.

“Because of the way I spent this year, I have a new strategy for next year,” Ms. West said. “Don’t spend all my points in one go.”