You Launched a Loyalty Program. Now You Have Three Problems.

And you probably saw them coming.

Introduction: The Loyalty Illusion

Loyalty programs are still launching in 2025 at an astonishing pace. Budgets are approved, dashboards are built, and buzzwords fly. The promise? Increased customer spend, deeper relationships, and a powerful differentiator for your brand. But there’s a troubling reality beneath the surface: a staggering 77% of loyalty programs fail within their first two years, often due to a loss of engagement after the initial sign-up phase. Furthermore, the constant need for reinvention is highlighted by the fact that nearly 79% of companies plan to redesign their loyalty programs within the next three years.  

Why the constant churn and high failure rate? Because many programs are built on a foundation that’s already showing cracks. The irony is painful: the very initiative intended to build loyalty might be quietly undermining it. If you're starting to see signs of trouble – the kind we outline below – you're not alone. And honestly? We wish we could say we didn’t see it coming. Ignoring these foundational flaws doesn't just lead to disappointment; it often leads to costly and reputation-damaging program overhauls down the road.  

Shoot, you may be in the middle of an overhaul right now, but if you’re not fixing the foundational problems of your last program you can pretty much guarantee all the work you’re doing right now will get done again in a couple of years.

Problem #1: Your Loyalty Program Is Quietly Shrinking Customer Spend

What’s happening: You notice customers timing purchases around point promotions, spending just enough to hit the next reward tier, or delaying buys until a discount code arrives. They're learning to game the system. Instead of fostering brand excitement ("I love this brand!"), you're inadvertently training calculated behavior ("I’ll wait for the points.").

Why it happens: Loyalty programs built primarily on accumulating points for discounts reward purchase-based behavior, not genuine loyalty. They incentivize minimum required action rather than maximum brand engagement. This heavy reliance on discounting can eat into profit margins and train customers to prioritize price over brand value, potentially leading to a "race to the bottom". When rewards feel unattainable or take too long to earn, customers lose interest; one common loyalty program problem is rewards being too difficult or time-consuming to achieve. Instead of demonstrably increasing Customer Lifetime Value (CLV), these programs risk flattening it, or worse, attracting primarily discount-chasers while training your regular customers to buy only when incentivized.  

What this leads to:

• Lower margins as discounts become the primary driver of repeat purchases, eroding profitability.  

• Potentially lower overall purchase frequency outside of specific promotions.

• Diminished emotional investment in your brand; the relationship becomes purely monetary, meaning you’re easily replaced by the next brand with the next best deal.  

• The slow erosion isn't obvious until months later when LTV trends stagnate or decline, despite surface-level "engagement" metrics.

Problem #2: Your Best Customers Don’t Feel Seen — or Special

What’s happening: The enthusiastic customer who evangelizes your brand online gets the same generic "10% off" email as the person who made a single small purchase six months ago. Your program treats all members largely the same, regardless of their actual passion or advocacy.

Why it happens: Your program likely measures and rewards simple transactional loyalty (repeat buys, spend thresholds) but fails to recognize or cultivate deeper emotional devotion. There's often no mechanism to identify, acknowledge, or reward the depth of a customer's engagement, their advocacy, or their alignment with your brand values. This oversight is critical; research indicates that customers with an emotional relationship with a brand can have a 306% higher CLV. Furthermore, generic rewards often miss the mark – one study found a third of customers leave because brands don't deliver on their needs, often offering irrelevant rewards. Consider Dillard's past program struggles, where lackluster rewards and increasingly exclusive perks failed to resonate and alienated segments of their customer base.  

What this leads to:

• Your actual superfans – the ones who should be your greatest asset – feel underappreciated, like just another number in your database instead of valued partners. These advocates often spend more and refer others, significantly boosting revenue.  

• The customers who would naturally evangelize your brand may quietly drift away or disengage. Your program data, focused solely on points and transactions, won’t even register their quiet departure until they're long gone.

Problem #3: You Built a Purchase Engine, Not a Relationship (or a Community)

What’s happening: Your loyalty initiative exists as a separate entity – points, tiers, a rewards catalog – often feeling disconnected from the overall brand experience and story. It doesn't foster connections between customers or deepen their relationship with the brand beyond the purchase itself.

Why it happens: Most loyalty programs are primarily purchase-focused by design. They reward the act of buying but often fail to build anything deeper. They aren't inherently built to be communal, immersive, or emotionally resonant. They lack mechanisms to foster genuine connection, shared identity, or a sense of belonging among members. This transactional nature, focusing solely on rewarding the purchase rather than the relationship, is a core reason cited for program failure – they aren't truly customer-centric. Poor communication about changes or benefits, as seen in Uber's past Rewards program issues where limited accessibility and unclear updates caused frustration, can further fragment the experience and erode trust.  

What this leads to:

• Your brand becomes just one of dozens offering points, easily substitutable and failing to create meaningful differentiation.  

• No true sense of community forms around your brand via the program, missing out on the powerful retention and advocacy benefits that community provides. Research highlights that emotionally connected customers have 306% higher LTV, a connection transactional programs rarely build.  

• Your loyalty program risks becoming forgettable background noise or, worse, purely a cost center that eats into margins without building lasting value.

If This Sounds Familiar… That’s the Point

We wrote this because these aren't isolated incidents; they are predictable patterns. We’ve watched brands across industries repeat them, often fueled by good intentions but hampered by flawed assumptions about what truly drives loyalty in today’s world.

The high churn rate and constant need for program redesigns aren't accidental. It's driven by these exact issues. As mentioned, nearly 79% of companies plan revamps within three years. Why? Because they eventually hit these walls. But overhauling a loyalty program isn't simple or cheap.  

Consider the costs of replacement:

• Financial: Significant investment is needed for new platform technology (potentially upwards of $500,000 for an initial in-house build ), integration with existing systems like POS and CRM , marketing for the relaunch, and managing the financial liability of potentially billions in outstanding points.  

• Operational: Migrating customer data, retraining staff on new systems and rules, and managing the complex transition period require substantial internal resources.  

• Reputational: Handled poorly, changing rules or devaluing rewards can cause significant customer backlash, negative press, and erode hard-won trust. Starbucks, for example, faced public outcry and a drop in brand perception when altering their star-earning structure in 2016, as customers felt their loyalty was devalued. Communicating the 'why' and 'how' effectively is critical but challenging.  

Some brands recognize these patterns early and rethink their approach before engagement stalls and the costly overhaul becomes unavoidable. Others circle back six months or a year after launch and tell us, “We’re seeing the exact problems you described.”

Final Thought: Devotion > Loyalty

Transactional loyalty, bought with points and discounts, is fleeting and expensive. True devotion is cultivated through recognition, genuine connection, and a sense of shared identity and value.  

Most programs chase the former and inadvertently neglect the conditions necessary for the latter.

If you’re ready to build something deeper than points and perks – something that demonstrably grows LTV by fostering real connection, makes your best customers feel truly seen and valued, and strengthens your brand from the inside out – we're here when it's time.