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The Death of Traditional Loyalty Programs! Why Is Your Points-Based Loyalty Program Failing You?

The Death of Traditional Loyalty Programs! Why Is Your Points-Based Loyalty Program Failing You?
Published On
July 14, 2023

Discover why traditional loyalty programs in retail are becoming obsolete and explore the emerging alternatives that are revolutionizing customer engagement. Learn about the limitations of traditional programs, the shifting customer expectations, and the need for personalized, experiential approaches. Find out how retailers can adapt to this changing landscape by embracing innovative strategies, leveraging technology, and creating immersive customer experiences.

Let's talk about loyalty programs, shall we? How many loyalty programs are you a part of? And more importantly, how many do you actually participate in? If you're like most people, you've probably signed up for numerous programs, enticed by the promise of rewards, discounts, and exclusive perks, only to forget about it shortly afterward. Or perhaps you've accumulated a mountain of points but never really understood what to do with those points. These are signs of an irrelevant loyalty program, one that fails to engage and excite customers.

You see, loyalty programs have been around for ages, and they've been a staple for retailers, brands, and marketers to cultivate customer loyalty. The idea is simple: make a purchase, earn points, and redeem them for exciting rewards. Sounds great in theory, right? However, as time goes on, it seems that traditional points-based loyalty programs are losing their charm and failing to deliver on their promises.

So, what exactly do we mean by the "death" of traditional loyalty programs? In this blog, we are gonna dissect why these programs have become irrelevant and what are the alternatives out there for you.

The Changing Landscape of Customer Loyalty

The digital age has completely revolutionized the way consumers interact with brands. With just a few taps on our smartphones, we have access to a world of products and services at our fingertips. This newfound convenience has fundamentally changed our behavior and raised the bar for what we expect from businesses.

Think about it. Back in the day, loyalty programs were all the rage. You'd sign up, get a physical card, and present it at the checkout to earn your points. It was simple, straightforward, and maybe a little old-school. But fast forward to today, and things have taken a dramatic shift.

With the rise of e-commerce, social media, and mobile apps, consumers have endless options available to them. We can browse through different brands, compare prices, read reviews, and make purchases without leaving the comfort of our homes. This level of convenience and choice has significantly impacted our loyalty. The competition has increased significantly making it extremely difficult to build brand loyalty. 

Traditional loyalty programs, with their one-size-fits-all approach, struggle to meet these evolving demands. Customers today crave personalized experiences that cater to their unique preferences and needs. But what’s going wrong with traditional loyalty programs and can it be fixed? Let’s explore.

Why Traditional Loyalty Programs don’t work anymore?

In a world where choices abound and personalized experiences reign supreme, traditional loyalty programs find themselves struggling to keep up. What was once a tried-and-true method of retaining customers now feels outdated and ineffective. The reasons behind this shift are rooted in the evolving expectations and desires of today's consumers. They seek more than just points and discounts; they crave tailored rewards, emotional connections, and meaningful engagement with the brands they choose to support.

One-Size-Fits-All Approach:

Traditional loyalty programs often rely on this one-size-fits-all model, treating every customer as if they were cut from the same cloth. However, in a world where personalization reigns supreme, this approach falls flat. Consumers expect recognition, recommendations based on their preferences, and brands that remember their history. They want to feel valued as individuals, not just as another faceless member of a loyalty program.

According to a study by Accenture, 75% of consumers are more likely to buy from a retailer that recognizes them by name, recommends options based on past purchases, or knows their purchase history.

Lack of Emotional Connection:

Discounts and freebies are undeniably appealing, but they alone fail to forge a strong emotional connection between customers and brands. Today's consumers crave more than transactional benefits; they yearn for experiences that resonate on a deeper level. Emotional connections have become paramount in the world of consumer-brand relationships. Customers want to align themselves with brands that understand their values, evoke positive feelings, and create memorable experiences. For loyalty programs to succeed, they must tap into this emotional realm and offer more than mere material benefits.

Limited Engagement Opportunities:

Gone are the days when customers passively collected points and rarely interacted with the brands they patronized. The rise of social media and digital communication has given consumers a voice and a desire to be heard. They want to engage in a two-way conversation with brands, sharing their feedback, experiences, and suggestions. Traditional loyalty programs often fall short in this area, lacking avenues for ongoing engagement. Today's consumers expect brands to be responsive, approachable, and present across various platforms. Ignoring this demand for interaction can leave loyalty programs feeling disconnected and irrelevant.

Complexity and Lack of Transparency:

Many traditional loyalty programs have complex rules, tiers, and redemption processes that can be confusing for customers. When the program becomes difficult to understand or navigate, it can lead to frustration and disengagement. Moreover, some programs may lack transparency in terms of how points are earned, redeemed, or expire, which can erode trust and deter participation.

Lack of Differentiation:

Many loyalty programs offer similar rewards and benefits, making it easier for customers to distinguish between them. When programs fail to provide unique value propositions or stand out from competitors, customers may lose interest or feel less inclined to actively participate.

And that’s just the tip of the iceberg. There are some fundamental problems that exist within traditional loyalty programs in terms of the perceived value of points vs the actual value of points. 

Points Perceived Value vs. Actual Value:

Points-based loyalty programs typically assign a certain value to each point earned. However, the perceived value of these points often differs significantly from the actual value customers can derive from redeeming them. Customers may feel that the rewards they can obtain with their accumulated points are not worth the effort or the purchases they made to earn those points.

For example, a loyalty program may advertise that customers can earn enough points to redeem a high-value product or service. However, when customers actually try to redeem their points, they may encounter limited availability, restrictive terms, and conditions, or inflated point requirements. This creates a sense of disappointment and a perceived devaluation of the points they have earned.

The Rise of Alternative Loyalty Models

While traditional loyalty programs may be losing their appeal, fear not! The realm of customer loyalty is evolving, giving rise to exciting and innovative alternative models that are shaking things up.  Let's explore some of these game-changers that are redefining how brands build and maintain customer loyalty.

Subscription-Based Models

Subscription-based loyalty programs have gained immense popularity in recent years. Instead of relying on points or discounts, these models offer exclusive benefits and perks to members who pay a recurring fee. It's like being part of an elite club, with access to special content, early product releases, and personalized experiences.

Example: Look at companies like Amazon Prime or Sephora's Beauty Insider program. For a monthly or annual fee, members enjoy free shipping, exclusive deals, and access to unique services. This approach not only generates consistent revenue for the brand but also fosters loyalty by providing ongoing value and a sense of exclusivity.

Experiential Rewards

In the pursuit of memorable experiences, brands are turning to experiential rewards to captivate their customers. Rather than focusing solely on material incentives, these loyalty programs offer opportunities to participate in special events, VIP access, or once-in-a-lifetime experiences. According to a study by Eventbrite, 78% of Millennials prefer to spend their money on experiences rather than material goods.

Example: American Express is a popular example of a brand that has successfully implemented experiential rewards in its loyalty program. Through their "Membership Experiences," American Express cardholders can redeem reward points for exclusive access to concerts, sporting events, Broadway shows, and meet-and-greet opportunities with celebrities. By offering these highly sought-after experiences, American Express creates memorable moments that deepen the connection with their cardholders and enhance customer loyalty.

Tiered Programs

Tiered loyalty programs add an element of progression and achievement, enticing customers to climb the loyalty ladder. As customers engage more with the brand, they unlock higher tiers with greater benefits and privileges. This not only provides an incentive for continued engagement but also recognizes and rewards loyal customers for their dedication.

Example: Starbucks is a popular brand that has successfully implemented a tiered loyalty program called "Starbucks Rewards." Customers progress through different tiers based on their purchases, unlocking greater benefits and privileges. This tiered approach incentivizes continued engagement, recognizes loyalty, and makes customers feel valued and important.


Gamification injects an element of fun, competition, and rewards into loyalty programs, appealing to our innate desire for challenges and achievements. By incorporating game-like elements such as challenges, badges, and leaderboards, brands can make loyalty programs more engaging and interactive. According to Gartner, more than 70% of Global 2000 organizations will have at least one gamified application by 2023.

Example: Nike's NikePlus program is a popular example of gamification in a loyalty program. Through features like the Nike Run Club and Nike Training Club apps, Nike incorporates gamified elements like challenges, badges, and friendly competition. This motivates customers to stay active, track their progress, and earn rewards, enhancing customer loyalty and engagement.

Embracing Change for Success

In order to revive loyalty programs and thrive in the evolving landscape of customer loyalty, retailers, brands, and marketers must be willing to adapt and innovate. Here are some key considerations for success:

Embrace New Technologies

The digital age has opened up a world of possibilities for loyalty programs. Brands should leverage emerging technologies like artificial intelligence, machine learning, and data analytics to better understand customer preferences, deliver personalized experiences, and optimize their loyalty strategies.

Personalization is Key

Today's customers crave personalized experiences. Loyalty programs should utilize customer data to tailor rewards, recommendations, and communications to individual preferences and behaviors. By making customers feel seen and understood, brands can foster deeper connections and loyalty.

Innovative Reward Structures

Consider moving beyond traditional points and discounts and explore creative reward structures that align with your brand and resonate with customers. Experiential rewards, subscription-based models, tiered programs, and gamification are all examples of alternative approaches that can captivate and engage customers in new and exciting ways.

Seamlessness Across Channels

In an omnichannel world, loyalty programs should seamlessly integrate across various touchpoints, whether it's in-store, online, or on mobile. Customers should have consistent experiences and the ability to earn and redeem rewards across all channels, enhancing convenience and satisfaction.

Foster Engagement and Interaction

Provide opportunities for customers to actively engage with your brand. Encourage social sharing, reviews, feedback, and participation in contests or challenges. This not only strengthens the customer-brand relationship but also generates user-generated content and word-of-mouth marketing.

Continual Evaluation and Improvement

Loyalty programs should be viewed as dynamic and ever-evolving. Continually monitor and evaluate program performance, gather feedback from customers, and make adjustments as needed. Regularly assess the value and relevance of rewards, the ease of participation, and the overall customer experience.

Bottom Line

Well, it’s no secret that traditional loyalty programs are loosing their charm. However, the death of traditional loyalty programs does not signify the end, but rather a rebirth of innovation and creativity.  It is an opportunity for brands to rise above the ordinary and create extraordinary experiences that leave customers saying, "Woah!"

So, let's leave behind the days of forgotten points and lackluster rewards. Let's create loyalty programs that truly resonate, connect, and delight customers. It's time to ignite loyalty in ways that make us feel appreciated and keep us coming back for more. The future of loyalty programs is here, and it's filled with endless possibilities. 

P.S Want help building a loyalty program that works? With Xeno, you'll create an emotional connection with your customers that goes beyond points and discounts. So, why settle for ordinary when you can create loyalty that feels like a warm hug? Schedule a demo now and let's infuse your loyalty program with heart and soul! ❤️✨

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Lead Consultant

With over 7+ years of experience in his field, Prashant brings a wealth of knowledge and expertise in customer analytics, Retail, and Data Strategy. Prashant works closely with our clients to provide strategic guidance and innovative solutions for their business. When he's not deciphering data puzzles, Prashant enjoys exploring new hiking trails and finding peace in the beauty of nature.

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