Loyalty and Retention

Loyalty Schemes Based On Reward Points Do Not Work

When I’m shopping online and someone tries to entice me with rewards points, this is what goes through my head:


Why do I channel my inner Bruce Lee I hear you ask?

I admit that I’m jaded. Too often have I signed up for a points-based loyalty scheme, only to realise that it would take me ages to squirrel away enough points that would translate into a free Cadbury dairy milk. But not only that — I would also have to run to hell and back to redeem it, navigating a byzantine process on web pages designed in 2002.

My feelings are best summarised in this rant by comedian Bill Burr.

“You’re giving them a free survey on what products you can’t live without, so they can jack the price of that up under the guise of giving you a nickel off some bootleg fruit loops.”

To be fair, some loyalty schemes are indeed popular and seem to work for the customer. But they all tick the following boxes:

  • The product has to be high-frequency and/or big-ticket: Supermarkets, coffee shops and airlines come to mind.
  • The company is either big enough to do their own thing (like Tesco) or is part of a reward scheme network (such as Nectar or Avios).

There are no solo loyalty point schemes by mid-sized companies that work well for the customer — at least I’m not aware of them.

The reasons that Loyalty Points don’t work outside of the narrow use cases I mentioned are:

  • Unless you plug into a network like Nectar, it’s really complex to build: You have to create an account structure for people to log in, view their point status and redeem rewards. Also, you have to gather and keep reward partners who provide the rewards (or you have to provide the rewards yourself). There are some players in the market who provide a white label solution, but using them will come with limitations in functionality.
  • Loyalty points systems have a poor reputation. On the one hand, the rewards they offer are usually low value. There’s a reason Bill Burr gets the laughs for his “nickel off bootleg fruit loops” line. On the other, for every customer you win, you will turn off another who thinks that this is just a sinister ploy to get at their data. Customers are suspicious of schemes where their behaviour is being continuously monitored and the relevant data possibly sold on to others. In a time of growing mainstream awareness of data privacy (hello GDPR, hello Facebook, goodbye Cambridge Analytica), this effect will grow. In our blog post on incentives and GDPR , we are arguing in favour of using incentives to maximise opt-in to your email list — this is different because the user knows exactly how their data is being used for the company’s financial benefit and you are just trying to maintain a status quo.
  • They delay gratification into the far future. And what customers want is instant enjoyment.


If you don’t fall into the above categories of large companies with high-frequency / big-ticket spending, I frankly wouldn’t bother setting up a loyalty points scheme — there are better ways to boost your customer loyalty.

What do you need to do then?

As a business you should be doing everything you can to engender customer loyalty and a positive experience. You need to create “true brand loyalty”, not bean counters looking for a way to game the points system.

You need to make the customer really feel a tangible benefit. Nothing does this better than providing instant gratification (for further reading check out my post on instant gratification, loss aversion and reciprocity ).

Instant gratification does not have to be expensive. Pret A Manger made the news a few years ago by allowing their employees to give out free coffees to people they liked. This is incredibly powerful on two levels. On one level it empowers and gives the employee autonomy (a topic for another day, but check out Dan Pink’s great TED talk), and on another it makes the customer receiving the free coffee feel incredibly special and rewarded, as it was such a surprise. It also happens to cost Pret next to nothing. No points-based scheme can ever achieve this and yet it is one of the most powerful aspects of human psychology needed to encourage customer loyalty: reciprocity!

I can see how this works in the real world, but how to do it online?

In the online world, gratification can be given instantaneously through email, messaging, SMS, push notifications and more.

The key is to give the customer something they actually want. And as long as we cannot peek inside their heads, we need to offer customers choice to pick what they want. At Loyalty Bay , we offer rewards from 150 providers in varying denominations, using our Rewards Hub or Always-On Perks products.

What the customer actually wants depends on the journey they are taking through your website. It could be a discount or it could be as simple as free access to a valuable piece of content that’s normally behind an email gate (e.g. an eBook).


Personalisation also plays a huge role. The more you know about your customer, the less costly a reward can be to have a massive effect. Imagine a customer service agent told a customer this:

“Hi Laura, I just saw on your account that your work address is near Liverpool Street Station. There’s a Costa in the station. I’m sending you a Costa voucher, have a brew on us next time you go to work.”

Another example of personalisation would be situational. If you know that a customer has bought a flight to Sao Paulo, throw in the Lonely Planet guide to Brazil as a reward. You’ll get a smile guaranteed – and ultimately, that’s what matters most: The association of a positive experience with your brand.

In summary, don’t build your loyalty scheme on a points-based system. Use instant gratification and personalisation and keep the customer at the heart of whatever you do.

Download our eBook on Loyalty and Retention here.

Or get in touch with us for a zero-obligation consultation on how to boost your customer loyalty

About the Author :

Founder, Director of Product and Marketing at Loyalty Bay. I’m tasked with creating global scalable products and building out the Product and Marketing teams, now that we are part of Perkbox.

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