R*Briefing: The Loyalty Illusion

Weekly Intelligence Scan | April 9th , 2026 | Issue 011

The loyalty program industry in the United States now exceeds $27 billion annually, expanding at nearly 14 percent per year. Consumer enrollment has never been higher. The average American belongs to 17.4 programs. And for the first time in five years, genuine loyalty is falling. SAP Emarsys research published in October 2025 found that True Loyalty — defined as customers who return without incentives — dropped five points globally in a single year. McKinsey data shows that 77 percent of transactional loyalty programs fail within two years due to weak differentiation, high cost, and low member activity. The programs running are increasingly rewarding behavior that would have occurred without them. Finance teams are beginning to ask the question that exposes the gap: if we turned this off tomorrow, how much of this revenue would we actually lose? The answer, in most cases, is less than the dashboard suggests. This issue examines the mechanics behind loyalty program illusion, the commercial cost of incentive dependency, and the evidence on what builds genuine repeat commitment — the kind that compounds brand value rather than subsidizing it.

The Measurement Problem

Walk into most organizations running a loyalty program and you will find dashboards full of green numbers. Enrollment is up. Redemption is active. Average member spend is higher than non-member spend. The program looks like it is working because the metrics it tracks are reporting favorably.

The question finance teams are increasingly asking is a different one: is the program causing the behavior it is measuring, or are we attracting customers who would have behaved this way without the program, and then paying them for it? This distinction, between incremental lift and subsidized baseline behavior, is where most loyalty program economics quietly break down.

McKinsey research has documented the structural problem directly: 77 percent of transactional loyalty programs fail within two years due to weak differentiation, high cost, and low member activity. Yet organizations continue investing in them, because they confuse participation with profitability. Self-selection bias compounds the issue systematically. High-value customers are disproportionately likely to enroll in loyalty programs. This means the spend data attributed to the program is frequently overstated, the program is getting credit for customers who were already going to spend at that level.

KYROS, an actuarial firm that works exclusively on loyalty program economics, released a 2026 trends report, The Hidden Economics of Loyalty, documenting a growing disconnect between how loyalty performance is measured and how value is actually created. Its core finding is precise: programs that track engagement metrics as proxies for ROI are consistently overestimating their commercial impact. While enrollment remains steady across the industry, the activation, repeat earning, and redemption trends that materially increase customer lifetime value are in decline. Long-term profitability is being quietly put at risk while short-term metrics continue to report positively.

Incentivized Compliance Is Not Loyalty

The SAP Emarsys Customer Loyalty Index is one of the few large-scale longitudinal studies that attempts to measure loyalty as a behavioral reality rather than a self-reported preference. Its 2025 findings, drawn from more than 10,000 consumers globally, produced a result that should reframe how organizations think about what their programs are actually building.

True Loyalty, defined as customers who return without incentives, fell from 34 percent to 29 percent in a single year. This is the first decline in the five-year history of the index. Simultaneously, the research identified a new loyalty category it calls Trend Loyalty: emotionally intense, short-lived allegiance driven by viral moments rather than durable attachment. Fourteen percent of consumers now fall into this category, and 29 percent admit they quickly lose interest once a product stops trending.

The implication is structural. Brands have been investing heavily in the wrong kind of loyalty,incentivized repeat behavior, hype-driven engagement, program membership, while the metric that actually compounds commercial value is deteriorating. The 64 percent of shoppers who now ignore brand names entirely when making purchases are not being recaptured by a points multiplier. They are indifferent to the currency the program is denominated in.

The mechanism by which incentives erode genuine preference has been documented in behavioral economics research for decades. External rewards shift the psychological attribution for behavior from intrinsic motivation to extrinsic contingency. Once the reward is established, removing it does not restore the baseline behavior, it often produces a net decline. Brands that have trained customers to expect discounts in exchange for purchases have not built loyalty. They have built a dependency that is difficult and expensive to unwind.

"Finance teams are beginning to ask the question that exposes the gap: if we turned this program off tomorrow, how much of this revenue would we actually lose? In most cases, the answer is less than the dashboard suggests."

The Margin Erosion Cycle

The commercial cost of incentive-based loyalty runs deeper than program operating expenses. The Open Loyalty Trends 2026 report, compiled from 170 practitioners across organizations including IKEA, Adidas, Mastercard, and L'Oreal, documents a pattern its authors describe as discount-led loyalty: an escalating commitment to promotional generosity that progressively transfers margin from the brand to the consumer while producing diminishing behavioral returns.

The cycle is familiar once you recognize it. A brand launches a points program to drive repeat behavior. Initial results look strong, partly because of self-selection and partly because novelty has a genuine short-term lift effect. Competitors respond with comparable or more generous programs. Consumers, now enrolled in an average of 17.4 programs, begin treating rewards as baseline expectations rather than added value. To maintain differentiation, the brand escalates its rewards. The margin cost rises. The behavioral lift, already partly illusory, does not rise proportionally.

In financial services, this dynamic has reached a structural crisis point. Brandmovers research published in early 2026 describes a situation in which rewards budgets grow faster than measurable incremental value, with each percentage point of cashback or points earn rate coming directly out of program margins. As competitors escalate their offerings, programs become interchangeable. Members collect points across multiple programs simultaneously, optimizing for whichever offers the best rate at the moment of transaction. The brand has paid to attract a customer whose allegiance is denominated entirely in price.

Kobie Marketing, drawing on program experience across multiple industries, identified a revealing pattern from 2025: the brands that held margin did so not by competing on rewards generosity but by redesigning the value exchange entirely. Friction reduction — making the experience genuinely easier — and strategic partnerships that extend utility without forcing core-product discounts were more effective at sustaining repeat behavior than richer reward structures. The insight is straightforward: convenience is value, and it often costs less than points.

What Actually Produces Repeat Commitment

The evidence on what builds genuine repeat behavior without creating incentive dependency is more consistent than the loyalty program industry typically acknowledges. Three mechanisms emerge reliably across the research.

The first is product and experience quality. SAP Emarsys data is unambiguous on this: 59 percent of consumers cite high-quality products as the primary driver of brand loyalty. This is not an insight that requires a program to operationalize. It requires a product investment and a service standard. Brands that compete on quality build loyalty that does not require subsidization to sustain.

The second is emotional connection and identity alignment. The Kobie research documents a consistent finding across 2025 program data: members who were asked "what motivated the choice?" rather than only "what did the customer buy?" revealed that repeat behavior is fundamentally driven by feeling recognized, understood, and connected. Nike's running groups and shared experiences are a regularly cited reference point — community loyalty built around brand identity rather than reward currency. When belonging reinforces behavior, the brand is not renting the relationship. It is owning it.

The third is personalization that serves the customer rather than the program. Retailers in the Talon.One research from Harvard Business Review found that 66 percent of enterprise brands are moving toward integrated incentives strategies that use rewards with precision, rewarding specific behaviors at specific moments, rather than blanket discount structures. Sephora, Adidas, and ASOS have moved toward firewalling discounts behind loyalty programs, turning incentives into a deliberate value exchange. The distinction is important: the discount is not the loyalty mechanism. It is a selective benefit available to the relationship, not the price of maintaining it.

"Brands that have trained customers to expect discounts in exchange for purchases have not built loyalty. They have built a dependency that is difficult and expensive to unwind."

The Rebuild Question

Organizations that recognize the incentive trap face a structural rebuild question, and it is not primarily a program design question. It is a strategy question about what kind of relationship they are trying to build and whether the current program architecture is capable of producing it.

The Loyalty Program Trends 2026 report from Open Loyalty identifies the shift that leading programs are making: away from activity metrics and toward outcomes, away from enrollment as a primary KPI and toward metrics that reflect real commitment, activation rate, repeat earning behavior, and the degree to which members would genuinely miss the program if it disappeared. That last measure, adapted from Fred Reichheld's foundational loyalty research at Bain, remains one of the most reliable proxies for genuine attachment. It is also the one most uncomfortable to ask when the program is primarily discount-driven.

The transition from incentive-based to relationship-based loyalty is not a campaign. It requires renegotiating the implicit contract with existing customers, which means accepting a period of reduced transactional frequency among incentive-dependent segments while building genuine preference among the segments worth having. This is a short-term cost with a long-term commercial logic: the customers retained through discounts are the least profitable and the most likely to defect for a competitor's better offer. The customers retained through genuine preference are the ones who compound lifetime value.

The brands that emerge from the loyalty reckoning with a structural advantage will not be the ones that ran the biggest programs. They will be the ones that figured out the difference between purchasing behavior and owning it.

"The brands that emerge from the loyalty reckoning with a structural advantage will not be the ones that ran the biggest programs. They will be the ones that figured out the difference between purchasing behavior and owning it."

The RDLB Point of View

The loyalty program industry has constructed an elaborate measurement apparatus that is optimized for appearing to work rather than actually working. The distinction matters commercially. Programs that measure enrollment, redemption activity, and average member spend are generating data that tells a plausible story while obscuring the more important question: is this investment producing preference, or is it purchasing the appearance of it? The actuarial evidence suggests the latter is more common than most program owners are willing to examine. When 77 percent of transactional programs fail within two years and True Loyalty is declining while program investment is growing, the most parsimonious explanation is that the dominant model is structurally wrong.

What the research consistently points toward is a reorientation from incentive architecture to relationship architecture. These are not the same thing. Incentive architecture is designed to modify behavior in the near term by attaching a reward to a desired action. It works in the short term and produces diminishing returns as it becomes normalized. Relationship architecture is designed to build genuine attachment by delivering experiences worth returning for — quality, recognition, ease, identity alignment — without making the reward the reason for the relationship. The commercial advantage of relationship architecture is durable: it produces the kind of repeat behavior that does not require ongoing subsidy to maintain and that competes on preference rather than price.

RDLB's position is direct: organizations treating loyalty as a program question are answering the wrong question. The right question is what it would take for a customer to genuinely miss this brand if it disappeared. That question does not get answered by points mechanics. It gets answered by the quality of the product, the coherence of the brand identity, the relevance of the experience, and the degree to which the relationship feels reciprocal rather than transactional. Brands that have clarity on those four dimensions do not need to buy their way back into the consideration set. They are already in it.