Where Loyalty Programs Still ‘Kinda’ Work

In our first article, we challenged the obsession with data acquisition. Businesses chase data because they think it fuels loyalty. But as we showed, most CRM systems fail to produce the retention they promise.

In the second article, we went further: loyalty itself is overrated. In a world of transparency and infinite choice, consumers are not loyal in the way businesses want them to be retention, if it exists, comes not from binding people to a brand but from enabling advocacy and trust at scale.

So where does that leave us? If loyalty is mostly irrelevant, are there still places where loyalty programs work?

The answer is yes—but only in very specific industries, and only under very specific conditions.
Let’s break this into two categories of industries: premium industries (e.g., airlines) and platform-based/marketplace industries (e.g., e-wallets and fintech platforms).

Below is a detailed analysis with data, examples, and strategies.

1. Premium Industries: The Effectiveness of Loyalty Programs

Why Loyalty Programs Work Here

Premium industries—such as airlines, hotels, or high-end retailers—have characteristics that make loyalty programs effective:

High Switching Costs

• Frequent flyer points that take years to accumulate deter consumers from switching airlines.
• Familiarity and trust in service quality.
• Perceived reliability and exclusivity.

Emotional Attachment

• Airlines offer lounge access, priority boarding, or upgrades, creating a sense of privilege.
• Premium hospitality brands use personalized services to foster a feeling of belonging.

Rational Incentives

A long-haul traveler may pay slightly more for a premium airline because the benefits— comfort, miles accrual, and service—justify the extra spend.

Key Data Points

• Repeat Customers Are More Profitable: Acquiring a new customer costs 5–10 times more than retaining an existing one (Harvard Business Review).
• Airline Loyalty Impact: A Deloitte study found that 82% of airline loyalty members prefer sticking to their primary airline, even when competitor airlines offer similar fares.

Strategies for Premium Industries

Personalization

• Use data to tailor rewards
• Example: bonus miles for frequent travelers during peak seasons or birthdays.

Tiered Memberships

Provide tiered benefits (Silver, Gold, Platinum) to lock in frequent usage

Integrate Ecosystems

Extend loyalty value via partners: e.g., airline miles redeemable for hotel stays, car rentals, or retail

Customer Experience as Differentiator

Service quality is the true anchor. Without superior experience, points alone won’t sustain loyalty.

2. Platform-Based and Marketplace Industries

Why Loyalty Programs Often Fail

In contrast, loyalty programs rarely succeed in platform-driven sectors like fintech, e- wallets, or e-commerce: 1. Low Switching Costs • Users can switch between apps in seconds. • Example: if an e-wallet offers fewer discounts than a rival, users move instantly. 2. Price Sensitivity • Cashback and discounts attract users, but destroy margins. 3. Commoditization • Platforms operate in highly competitive environments with little differentiation. 4. Misaligned Incentives • Many fintechs focus on acquisition without clear plans for long-term retention or profitability.

Examples of Failure

E-Wallet Burnout

A 2021 McKinsey report showed that fewer than 10% of e-wallets launched globally achieved sustainable profitability.

Cashback Pitfall

Startups relying on cashbacks see users abandon the platform once incentives dry up.

Strategies for Success

Focus on Daily Utility

Winners like PayPal or Grab succeed because they embed themselves in daily life (bill payments, rides, shopping)

Reward Usage, Not Just Spending

Example: reward users for completing X transactions per month rather than single big spends.

Gamify Engagement

Streaks, progress bars, or challenges that encourage repeat usage.

Build Partner Ecosystems

Example: e-wallets partnering with food delivery, ride-hailing, or retail for universal reward networks.

Data-Driven Optimization

• Segment users and tailor offers.
• Example: reward frequent micro-transactions differently from occasional high-value spenders.

Key Takeaways

For Airlines & Premium Industries

• Loyalty programs work when switching costs are high, emotional attachment is strong, and rewards tie into lifestyle
• The anchor is exclusivity and superior experience.

For Fintech & Platform-Based Industries

• Loyalty programs must prioritize daily utility, gamification, and partnerships to avoid irrelevance.
• Success requires creating sticky ecosystems, not one-off cashbacks.

Closing Context

This is the third piece in our ongoing exploration:

First, we challenged the myth of data as a loyalty driver

Second, we showed why loyalty itself is mostly irrelevant in today’s world.

Now, we’ve seen where loyalty programs still work—and why even here, their effectiveness is narrow and conditional.

The bigger question we’ll tackle next is this: If loyalty is linear, and generic referrals are still limited, what would it take to engineer exponential growth?

Stay tuned!