Before funding a loyalty program, test whether it can change buying behavior
Loyalty programs can appear active while failing to generate purchases that would not have happened anyway. The central question for marketers is not simply how many customers enroll or how many points are issued, but whether the program gives customers a reason to buy again—and whether the cost of that incentive is justified by the behavior it produces.
Tim Boylan, a founder and fractional marketing leader, argues that brands should answer that question before committing to new loyalty tiers, perks or rewards. A competitor’s launch, he cautions, is not a business case. Marketers need to identify what customers will do because of a program that they would otherwise not do.
Separate earned rewards from price cuts
A conventional loyalty program offers customers a future benefit in return for repeat purchasing. Points that accumulate toward a later reward are one common structure; status levels or members-only benefits may also be included. The defining feature is that customers must meet a threshold to earn something extra.
By contrast, an immediate price reduction available to every member, without a purchase requirement or threshold, is a discount rather than an earned loyalty reward. Discounts can still be an intentional commercial choice, but labeling one a loyalty program does not establish that it will encourage repeat business. Enrollment alone is not evidence that customers will participate, either. And a points scheme cannot, by itself, resolve cancellations.
Check whether the reward is within reach
Boylan describes a client that had operated a points program for years and faced a familiar decision: whether to fund another round of tiers and perks. The review exposed a mismatch between the program’s reward threshold and customers’ purchasing patterns. About seven in 10 points issued were too small to redeem, while nearly nine in 10 customers had made only one purchase. Yet the reward was earned after a fourth purchase.
That structure left rewards out of reach for most of the customers the program was meant to motivate. The figures illustrate why marketers should examine both the path to a reward and the customer behaviors needed to complete it. A program can distribute points and still fail to create a realistic incentive for the next purchase.
Points also carry a financial obligation. Boylan notes that issued points represent a promise to customers, meaning the business needs to be prepared for the possibility that customers will take the action required to redeem them. Budgeting should therefore account for the reward commitment, not just the cost of launching or promoting the program.
Compare loyalty spending with the next-purchase opportunity
In the client example, Boylan asked what the same budget might achieve if directed toward customers who were trying to make a second purchase. His analysis put that alternative at roughly seven times what the existing loyalty program was earning at the time. The company shifted its focus toward encouraging a second purchase.
The comparison is not a universal return estimate: it is a result from one client’s analysis, with no broader figures provided. Its strategic implication is that marketers should compare a loyalty program with other uses of the same budget, rather than treating renewal as automatic. If most customers have bought only once, an incentive aimed at the next transaction may merit evaluation alongside a points program designed to reward customers much later.
Before investing, teams can establish what behavior they want to change, determine whether the reward threshold is attainable for the intended audience, and calculate the cost of fulfilling earned rewards. They should also assess whether the program’s results represent incremental purchasing or simply subsidize existing habits. Loyalty mechanics may support retention, but the business case depends on matching the incentive to a customer action that can realistically occur—and has value beyond the reward itself.
