Why Points Alone Will Never Build Customer Loyalty
Written by Tom Peace, CEO & Founder of Sway Outcomes
Tom Peace is the CEO and founder of Sway Outcomes, a global customer engagement consultancy, and the former leader of The Loyalty People. He has advised brands including Sally Beauty, Wingstop, Vans, The North Face and Saudi German Health.
Most loyalty programmes are very good at one thing. They get customers to come back for a discount. That's useful, but it isn't loyalty, and it gets more expensive every year. Here's why points hit a ceiling, and the practical ways to add the emotional value that actually keeps customers.
Why did points become the default?
Points are easy to understand. Spend a pound, get a point, collect enough and get something back. Customers get it in seconds. So does the finance director.
They're also easy to measure. You can see redemptions, visit frequency and member spend. It all fits neatly into a business case.
Once a competitor has one, it feels risky not to. So most sectors ended up with programmes that look remarkably alike. Similar earn rates. Similar vouchers. Similar apps.
As I wrote last week, in our six-level maturity model a points or discount scheme sits at Level 4, conversion and action. It's a tool for changing behaviour, and a good one. Real loyalty lives one step up, at Level 5, where customers choose you because they feel connected, recognised and part of something.
The gap between those two levels is where most programmes stall. In its 2021 review of loyalty, McKinsey observed that around two-thirds of established loyalty programmes fail to deliver value, with many actually eroding it. That's a lot of money spent going backwards.
Not sure which side of the line your programme sits on? Email me at tom@swayoutcomes.com and we'll send you a free Customer Engagement Accelerator (CEA) report showing how you score at Levels 4 and 5.
The hidden costs of points
Points look cheap in the business case. In practice they carry costs that rarely make it onto the slide.
1. Margin given away
Every point is a discount in disguise. Much of it goes to customers who'd have bought anyway.
If your best customers were going to shop with you regardless, you're paying them for something you already had.
2. A growing liability
Unredeemed points are a promise you owe. Your finance team has to account for them, and the balance tends to grow quietly until someone asks why it keeps going up.
Then the programme gets cut back. Customers notice, and the trust you were trying to build takes the hit.
3. Members in many schemes
Your customer probably carries your card alongside two or three of your competitors'. When everyone offers broadly the same points, points stop being a reason to choose you.
They become a reason to shop around. Whoever has the best offer this week wins.
4. Bought behaviour
Customers are quick learners. Run enough double points weekends and they'll learn to wait for them.
Switch the offer off and the behaviour switches off with it. You haven't built loyalty. You've rented it.
What actually drives loyalty
The research on this has been consistent for years. Capgemini surveyed 9,213 consumers across nine countries, including the UK and US, and found that 70% of consumers with high emotional engagement spend up to twice as much with the brands they're loyal to (2017).
The same study found that 80% of executives felt their brand understood the needs and desires of their consumers. Only 15% of consumers agreed.
Pause on that.
Most brands think they're closer to their customers than they are. In our CEA work, the drivers that close that gap come up again and again.
Recognition. Being known as a person, not a card number. Your history, your preferences, the fact you've been coming for ten years.
Relevance. Offers and messages that fit your life, rather than the campaign calendar.
Experiences. Things that feel special because they can't simply be bought.
Belonging. A sense of being part of a group of people who care about the same things.
Service. Being looked after when something goes wrong. This one is often ignored by loyalty teams because it sits in another department. Customers don't care which department it sits in.
None of these replace points. They sit on top of them. That's the move from Level 4 to Level 5.
Adding emotional value to points
You don't need to tear up your programme to do this. Most of these work with the scheme and data you already have.
1. Recognise people by their history
Use what you know. Mark the anniversary of someone joining. Thank your longest-standing members in person, or at least in a message that clearly isn't a template.
A simple "you've been with us for five years" does more than you'd expect. It costs almost nothing.
2. Reward moments, not just spend
Most programmes only notice customers when they pay. Look for the moments that matter in your category. A first purchase, a birthday, a big life event, a review or a referral.
Recognising these tells customers you see more than their basket.
3. Offer things money can't buy
Early access. A behind-the-scenes visit. A seat at a tasting, a preview or a product launch. These feel personal and cost far less than their perceived value.
Luxury brands have known this for years, as this piece on building a loyalty programme for a luxury brand shows. The principle works just as well for a garden centre or a gym.
4. Build a reason to belong
Give members a way to connect with each other, not only with you. A community, a club night, a forum, a member-only event.
People stay where their people are. That's much harder for a competitor to copy than an earn rate.
5. Make service part of the programme
Give your top members a faster route to help. Let frontline teams see member status and history, and give them a small budget to put things right on the spot.
A problem solved well often builds more loyalty than a year of points.
6. Spend less on discounts, more on surprise
Take a slice of your discount budget and move it into unexpected moments. A free upgrade. A handwritten note. A gift that wasn't earned.
Planned rewards are expected. Surprises get remembered, and talked about.
Buying behaviour or building loyalty?
So how do you tell which one your programme is doing? Here are the questions we ask in our CEA work.
If you switched off bonus points for three months, would your best customers still choose you?
Do members behave differently from non-members outside promotional weeks, or only during them?
Can you name your top 1% of customers, and say what they value beyond price?
Would members recommend you without being asked? Compare advocacy scores for members and non-members.
What share of your programme budget goes on discounts, and what share on recognition, experiences and service?
If the honest answers point to promotions doing all the work, you're buying behaviour. That's not a disaster. It just means the programme is working as a Level 4 tool and nothing more.
The fix is rarely a new platform. It's using what you already have with more thought. I talk more about this in my interview on why customers stay and what brands often get wrong.
Frequently asked questions
Do loyalty points programmes actually work? Yes, for changing short-term behaviour like visit frequency and basket size. On their own they rarely create lasting loyalty, because a competitor can match an earn rate overnight. The strongest programmes use points as a base and add recognition, experiences and service on top.
What is emotional loyalty? Emotional loyalty is when customers stay because they feel a genuine connection with a brand, not because of a reward. It shows up as repeat purchase without prompting, forgiveness when things go wrong and recommendations to friends.
How can a small business build loyalty without a big budget? Start with recognition and service, which cost very little. Learn your regulars' names and preferences, thank them properly and fix problems quickly. Small businesses often do this better than large brands because they're closer to their customers.
Build loyalty, not habits
Points get customers through the door. Recognition, relevance and belonging are what keep them coming back when the offer ends. Start with one change from the list above and measure what happens to your best customers.
If you'd like an outside view, my team at Sway Outcomes runs a free Customer Engagement Accelerator (CEA). We'll show you whether your programme is buying behaviour or building loyalty, and where the quickest wins are to move from Level 4 to Level 5.
To get your free CEA report, email me at tom@swayoutcomes.com or message me on LinkedIn.
Read more from Tom Peace
Tom Peace, CEO & Founder of Sway Outcomes
Tom Peace is a customer engagement strategist who helps brands turn transactions into lasting relationships. Under his leadership, The Loyalty People became a globally recognised brand within the loyalty industry, with a rapidly growing and highly engaged following. He went on to found Sway Outcomes, a consultancy that goes beyond loyalty programme strategy to cover every aspect of customer engagement. Its maturity model has six levels and shows brands exactly where they stand and what to do next. By combining deep sector expertise with diagnostics enabled by artificial intelligence (AI), Tom delivers strategic clarity in weeks rather than months for brands such as Sally Beauty, Wingstop, Vans, The North Face and Saudi German Health.
