Summary: While many loyalty programs fizzle out due to flawed economics and missed customer cues, those that embrace smart, data-driven personalization and truly customer-first strategies light the way to explosive growth and lasting engagement.
Loyalty programs are complex. They require strategic planning, investment, and ongoing optimization. But when they work, they can be extremely valuable.
Consider this: some airline loyalty programs are worth more than the airlines themselves. In 2020, United’s MileagePlus program was valued at $22 billion, while United Airlines’ market cap was only $10.6 billion. Similarly, US consumers charged over $268 billion—more than 1% of US GDP—on Delta’s cobranded Amex credit cards.
Loyalty programs also influence consumer behavior. A Bain & Co and ROI Rocket survey found that 63% of respondents said loyalty programs affect their buying decisions. Yet, despite their potential, only a small fraction are truly successful.
Here’s the short version: many loyalty programs operate under a flawed assumption—if you throw out enough offers, transactions will follow. It’s an enticing belief. On the surface, it seems simple: a customer joins, they earn points and rewards, and they keep coming back. Right?
Wrong.
Loyalty programs are about building relationships—human relationships—and those aren’t easy. When businesses realize transactions aren’t happening as expected, they often panic. They start bombarding customers with desperate messages: Come back! Please! We need you! It’s not effective. In fact, it drives customers away.
Here’s the deeper problem: loyalty programs fail due to three primary reasons, as outlined by a Harvard Business Review by Burns, Pierce and Motaal:
Loyalty programs can be expensive, often creating significant balance sheet liabilities. Many companies struggle to make smart economic choices, such as offering discounts on products that customers would have purchased anyway. A classic example is a grocery store discounting milk—an item people would buy regardless.
Another challenge is structuring points and rewards effectively. Many loyalty programs fail because they cannot define a compelling yet sustainable earning and redemption structure.
Here are some questions for you:
Programs that don’t synchronize their goals with customer behavior are doomed to fail. Do you need more transactions? Larger basket sizes? Cross-category purchases? If you’re not collecting the right data to answer these questions, your program will struggle.
Consumers have no shortage of loyalty programs. On average, US consumers belong to 11 different programs. Many join just for the initial discounts, and only a few manage to hold their long-term attention.
If your program ranks 12th on their priority list, you’re simply accumulating liabilities without driving engagement.
Success starts with a deep understanding of your customers. Rather than relying on guesswork, prioritize collecting high-quality, actionable customer data. Combine first-party data with behavioral insights, website visits, and transaction history to build a meaningful strategy.
Personalization isn’t just a buzzword—it’s about understanding what truly drives customer engagement. For example, a major Asian retailer restructured its loyalty tiers and optimized promotional campaigns for cross-category purchases. The result? A 3x increase in snack purchases and an 8x increase in health and beauty spending.
Customers value different things. Sports fans might prefer exclusive event access over discount points. Some customers prioritize convenience above all else. Instead of guessing, conduct research, validate in-market, and iterate based on real insights.
A great example is Amazon Prime. The program started with free shipping, then expanded to Prime Video, Audible, and more. Today, Prime members spend an average of $1,400 annually compared to $600 for non-members.
Consumers love to win, achieve, and be entertained. Sephora’s Beauty Insider program does this well—members earn points with purchases and can redeem them within a short timeframe, reducing liability while encouraging engagement.
Sephora also tiers users by their annual spend, giving more benefits to those who spend more.
If your program revolves around a passion, team, or activity, fostering a community can be a natural extension.
LEGO’s "LEGO Ideas" is a prime example. Fans submit new set ideas, vote, and participate in challenges. Winning designs become commercial products, with the designer receiving 1% of royalties.
Strategic partnerships can significantly enhance your loyalty program. Hyatt collaborates with Peloton to offer in-room workout experiences, recognizing the overlap in their customer base.
Delta and Amex’s cobranded credit cards are another standout example, driving billions in spending while reinforcing customer loyalty.
Loyalty programs can be highly profitable, but they require careful investment and iteration.
The initial phase is the most expensive, as companies must identify their most valuable customers, understand their needs, and design a program that delivers value at a sustainable cost.
Technology helps facilitate this, but the foundation is always customer insight. By continuously testing and optimizing, you can maximize the ROI of your loyalty program.
If you're looking to start or improve your loyalty program, Olive can help.
Our platform offers card linking with Visa and Mastercard, access to thousands of offers across the US and Canada, and an intuitive dashboard for analyzing customer behavior and setting up targeted notifications. It's the fastest way to get to market.
Interested? Talk to sales or book a demo today.