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Are loyalty rewards still effective for customer service?

What's the best way to acknowledge the customer's loyalty with your products?
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Comments
As a consumer - I like loyalty points a lot. I use Starbucks' and know that I go there over other places half the time purely because I get something in return.
Another one im a member of is less clear in what my points get me - but I always insist on getting my points! It's human nature I think - we all love the chance at something for 'nothing'!
How are you doing it yourself?
1) retain your customers. Everyone loves special treatment or reward.
2) encourage more sales. "Buy more, more rewards".
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