Research by Capgemini showed that 90% of consumers have a negative perception of loyalty programs. In addition, over half (54%) of loyalty memberships have fallen inactive and over a quarter of consumers (28%) abandon loyalty programs without redeeming any points.
Why does this happen, and crucially, how can your brand avoid these pitfalls?
Drawing on deep insights from successful (and unsuccessful) loyalty programs, combined with TLC’s unique experience, we’ll dissect why many brands fall short- and precisely how yours can thrive.
Loyalty Pitfall #1: Over-Reliance on Transactional Rewards
Traditionally, loyalty programs focus heavily on transactional incentives such as discounts, cashback, and points redemption.
While attractive initially, this approach cultivates transactional relationships rather than genuine loyalty. Customers become loyal to deals rather than your brand, creating a revolving door of price-sensitive, short-term consumers. True loyalty requires emotional engagement. According to the Harvard Business Review, Emotionally connected customers have 306% higher lifetime value. Customers today seek relationships beyond rational or financial considerations, and discounts are losing effectiveness as primary motivators.
TLC insight: At TLC, we’ve consistently found that integrating emotional engagement into your program drives deeper relationships, increasing both retention and customer lifetime value significantly. Rewarding customers through personalized experiences, exclusive events, or community-building initiatives fosters deeper emotional connections, making your brand part of the customers’ lives rather than merely their wallets.
Loyalty Pitfall #2: Failure to Personalize at Scale
Generic, one-size-fits-all loyalty schemes rarely resonate deeply enough to drive ongoing engagement. Consumers today expect hyper-personalization and will switch brands when they feel unseen or misunderstood. Research shows that 71% of consumers expect companies to deliver personalized interactions – and three quarters will switch if they don’t like their experience.
Personalization at scale isn’t just desirable; it’s essential. The rewards you offer determine your program’s success. The most effective rewards deliver real value aligned with customer needs. Many businesses make the mistake of selecting rewards based on operational convenience, such as availability, price, or ease of fulfilment but this approach inevitably leads to customer dissatisfaction and can be costly too.
The brands that benefit from the highest engagement beyond initial purchase are using personalized content, experiential rewards, tiered benefits curated discounts, and more immersive, gamified platforms.
Crucially, we don’t all share the same passions and dreams, so brands must use the data they have to go beyond generic rewards, creating genuine excitement and engagement from their customers.
TLC insight: Adopting sophisticated data analytics and customer insights or using partners who can provide this, allows brands to deliver highly personalized rewards and interactions. Segmentation based on purchasing habits, preferences, and demographic data can create tailored experiences that resonate powerfully with individuals, significantly boosting engagement.
Loyalty Pitfall #3: Ignoring Non-Transactional Engagement
Most loyalty programs incentivize spending behavior, exclusively, overlooking powerful non-transactional engagement opportunities like referrals, feedback, social sharing, or consuming content. Without diversified engagement touchpoints, programs risk customer disengagement when they’re not actively purchasing.
TLC insight: To drive genuine engagement, loyalty programs must incentivize a variety of interactions beyond purchases. At TLC, we encourage brands to reward non-transactional behaviors like celebrating personal milestones, participating in a quiz, engaging socially or enriching personal information. By broadening engagement touchpoints, frequency increases, along with richer, more insightful customer data.
The more people engage, the more willingness there is to share data with you, and richer data empowers your ability to increase personalization and relevance to each customer. In fact, 83% of consumers are willing to share their data to create a more personalized experience. At TLC, we call this the Virtuous Loyalty Data Loop.
Knowing more about customers gives you permission to tap into more moments in a relevant and welcome way.
Loyalty Pitfall #4: Misaligned Brand Storytelling and Reward Strategy
Many loyalty programs fail because they offer benefits disconnected from the brand’s identity, values, and storytelling. Customers notice when rewards feel generic, inauthentic, or irrelevant, weakening their emotional ties.
Research shows that 33% of consumers will leave their favorite brands when offered irrelevant promotions and rewards.
TLC insight: Successful programs blend authentic brand storytelling with aligned benefits. TLC’s methodology involves identifying the “sweet spot” where brand values intersect with customer passions. For example:
Decathlon’s shift from generic discounts to sports and wellness rewards aligns authentically with their brand identity, dramatically improving customer engagement and loyalty, with over 30,000 re-engaged dormant customers.
MediaWorld’s replacement of their previous discount-based program to rewarding customers with travel, entertainment and dining experiences aligns with their core personas and has seen a 40% reduction in reward costs and a 28% increase in engagement.
YouTube’s loyalty program for content creators recognized and rewarded efforts with bi-weekly emails and treats in line with creator behaviors resulted in them exceeding their UK targets by 200%.
Loyalty Pitfall #5: Cost-Intensive Rewards with Low Perceived Value
Brands often shy away from frequent customer rewards, fearing prohibitive costs, particularly when using cash incentives or discounts. This limits engagement frequency, stifling data collection and personalization opportunities.
It’s the million-dollar question: how can you reward more customers or reward the customers you have more often? Simply put, it’s impossible if you continue to only offer financial rewards, as you’d quickly run out of budget. For many, the only solution is to offer lots, and lots, and lots of loyalty points, which simply accumulate for far too long before customers can swap them for a reward of any sort of value. Naturally, this leads to frustration, disengagement, and abandonment of programs.
TLC insight: 30 years ago, TLC pioneered an alternative solution – creating a unique reward ecosystem, allowing clients to unlock sustainable generosity for a fraction of the reward value. Today, we call this the Reward Value-Cost Paradox, meaning that our clients can now afford to reward all program members, more regularly and more generously. Our global network of over 100,000 experience rewards allows brands to consistently delight customers without eroding profitability. Sustainable generosity unlocks regular, engaging moments, driving consistent customer interactions and invaluable data capture.
Loyalty Pitfall #6: Complexity & Unrealistic Thresholds
Another common pitfall is overly complex program designs.
According to the Bond Loyalty Report 2024 the average person now has 19 memberships, 9 of which are active.
When customers find the reward structures complicated, redemption processes tedious, or redemption thresholds too high, their initial enthusiasm quickly turns into frustration and disheartenment. This complexity discourages participation, diminishing the effectiveness of the entire initiative and leading the customer to question the value of continued participation. Programs that set overly ambitious or unrealistic reward targets often experience high abandonment rates.
TLC insight: Simple user experiences combined with sophisticated backend capabilities remain a winning formula. Make sure to focus on UX, making balance checking and redemption straightforward, easy sign up processes and structuring rewards to recognize and encourage specific behaviors. The key is prioritizing value and simplicity to create an engaging, frictionless customer experience. While your program should incentivize engagement through elements like gamification and tiered rewards, these features must be simple and easy to use for the customer and align with realistic and achievable goals.
Loyalty Pitfall #7: Inconsistent or Poor Communication
Thinking that reward programs are a “set-and-forget” kind of thing is a huge mistake. If you don’t put any marketing efforts behind your program, then engagement will be low. Effective ongoing communication is crucial to a program success. Yet many loyalty programs suffer from inconsistent, inadequate, or overwhelming messaging. Customers become either confused or irritated when receiving irrelevant messages, too few updates, or conflicting information.
In fact, according to Adobe 48% of consumers unsubscribe from loyalty programs due to excessive or irrelevant communications.
TLC insight: While most businesses excel at announcing new initiatives, many struggle with ongoing program communication. We see this manifest in three common ways:
- First, information overload– bombarding customers with complex program details that obscure the core value proposition.
- Second, inconsistent messaging– where marketing doesn’t accurately reflect the program’s benefits.
- Third, insufficient promotion– often due to limited omnichannel support or restrictions from brand partners.
The solution lies in clear, engaging, and consistent communication. Make sure your messages reflect your brand’s unique personality and values and always deliver personalized, timely updates through the channels your customers genuinely use.
How TLC Turns Pitfalls into Opportunities
TLC understands the evolving landscape of customer loyalty intimately. Our programs seamlessly integrate emotional engagement, strategic personalization, diversified non-transactional touchpoints, authentic brand alignment, sustainable generosity, and advanced data analytics.
We’ve demonstrated repeatedly that this holistic approach doesn’t just improve loyalty; it transforms passive customers into genuine advocates, significantly boosting customer lifetime value and ROI.
By partnering with TLC, your brand leverages:
- Hyper-personalized customer experiences
