The Retention Illusion

Biweekly Essay + Scan| April 21, 2026 | Issue 009

There is a number that deserves more attention than it is receiving. According to Antavo’s Global Customer Loyalty Report, loyalty programs now consume, on average, 28 percent of a company’s marketing budget, up from 23 percent the prior year. By most measures, the investment is working. Programs generate returns of roughly 5.3 times their cost. Members who redeem rewards spend three times more annually than members who do not. The top-performing programs increase revenue by 15 to 25 percent per year. The ROI case, in the narrow sense, is strong.

And yet, at the exact moment loyalty program investment is reaching its highest share of the marketing mix, something else is happening at the brand level. SAP Emarsys’s fifth annual Customer Loyalty Index, drawn from more than 10,000 consumers across five countries, found that deep, trust-based brand loyalty fell to 29 percent in 2025, the biggest single-year drop since the research began and the lowest figure ever recorded. Forrester had predicted the decline a year earlier: brand loyalty would fall 25 percent, the firm forecast, while loyalty program usage rose. Both things happened. On schedule.

These two data points, rising program investment and collapsing emotional brand commitment, are not a contradiction. They are a description of the same underlying dynamic. And most organizations are reading only one of them.

The Confusion at the Center of the Investment

The loyalty industry has developed a sophisticated vocabulary for obscuring a simple problem. Members. Redemption rates. Tier attainment. Incremental revenue. Lifetime value uplift. These are real metrics, and they measure real things. What they do not measure, and what most loyalty program reporting is structurally incapable of measuring, is whether the program is building or destroying the brand.

The distinction matters enormously. A brand with genuine emotional loyalty commands pricing power. Its customers choose it when a cheaper alternative is available. They forgive it when it makes a mistake. They recommend it without being asked. They return after a lapse in buying frequency. None of these behaviors are captured in a redemption report. They are the outputs of a relationship, not a transaction record, and they are the mechanisms through which brand equity converts into durable margin.

A loyalty program, in its standard form, trains consumers to do something different. It teaches them to expect a reward for purchasing. It establishes the discount or the points accrual as part of the value proposition. And when that reward is removed, delayed, or made less accessible, a significant share of the loyalty it appeared to generate evaporates. The Data and Marketing Association found that nearly half of shoppers would abandon their favorite brands if those brands stopped offering deals. That statistic does not describe loyal customers. It describes customers who have been rented, not won.

Loyalty programs have become the most expensive way to avoid building a brand. The returns look real on the dashboard. The cost is in the equity you cannot see from there.

What the Economics Actually Show

The marketing budget composition data from Antavo has a second-order implication that is rarely discussed in the loyalty industry press. If 28 percent of the marketing budget is now flowing into loyalty programs, that is 28 percent that is not building brand salience, emotional distinction, or the category presence that determines whether a brand is considered in the first place. The allocation is not neutral. It shapes what kind of brand asset is being built.

Brand equity research consistently finds that the brands with the strongest pricing power are those that have invested in the kind of awareness and emotional predisposition that makes a consumer reach for them before the discounting calculation begins. Kantar’s BrandZ analysis, spanning decades of data, shows that brands with high Meaningful Difference scores consistently outperform their peers on pricing power, market share resilience, and long-term growth. That Meaningful Difference is not built by a points program. It is built upstream, in positioning, creative expression, and the consistent signal of brand identity across every touchpoint.

The private label data makes the commercial consequence concrete. U.S. store brand sales reached a record $282.8 billion in 2025, growing at nearly three times the rate of national brands, according to Circana. In Europe, private label share is at 30 percent, with several markets above 40 percent. The consumers driving that shift did not switch because the loyalty programs of national brands failed to function. They switched because the national brands gave them no reason strong enough to justify the price gap. Points could not close that gap. Only a brand strong enough to make the premium feel self-evident could have.

The Generation Problem

The generational dynamics of loyalty make the structural risk more acute. Gen Z shows a 60 percent likelihood of joining a loyalty program, significantly higher than the overall average. They are enrolling at rates that loyalty marketers celebrate. But the research on what that enrollment means reveals the issue. SAP Emarsys found that Gen Z loyalty is experience-driven rather than discount-driven. Forty-three percent of Gen Z shoppers admit to buying a product purely because it was trending on social media. Twenty percent say they are loyal to brands because they trend. Twenty-five percent say they will be less loyal once a trend fades.

This is not a cohort primed for long-term brand relationships. It is a cohort forming its default purchasing behaviors right now, in an environment where the signals available to them are: which brand is trending, which offers the best deal, and which rewards program delivers fastest. The brand that wins their enrollment is not winning their belief. It is winning a provisional, conditional transaction pattern that will hold only for as long as the conditions that created it hold.

What is expensive about this is the asymmetry of recovery. Research on private label share gains found that they are structurally asymmetric: when economic pressure eases, private label brands retain a significant portion of their gains, while national brands do not recover all of the market share they lost. The same logic applies to loyalty. A consumer who forms their habits under incentive conditions does not automatically revert to preference-based purchasing when the incentives change. The habit is the new baseline. The cost of having relied on incentives to build it compounds forward.

The Programs That Work Differently

The framing here is not that loyalty programs are without value. The evidence that they drive short-term purchase frequency and member-level revenue is substantial and credible. The argument is more precise: loyalty programs built primarily around points, discounts, and tier incentives are retention mechanisms, not brand-building mechanisms, and organizations that confuse the two are misallocating a growing share of their marketing investment.

The programs generating durable brand value share a structural quality that distinguishes them from the majority. Brands like Sephora, Patagonia, and Apple have constructed their loyalty architecture around the brand premise itself, not around a financial rewards mechanism. Sephora’s Beauty Insider program succeeds not because it offers the most generous points economy, but because it is embedded in an experience identity that its members find genuinely meaningful. The program reinforces the brand rather than substituting for it. The distinction is not cosmetic. It is the difference between a loyalty investment that builds the asset and one that rents behavior against it.

Retail Dive noted that the smarter brands have been firewalling discounts behind their loyalty programs, turning incentives into a deliberate value exchange rather than a default margin drain. The movement is toward precision, rewarding specific behaviors at specific moments, rather than training a broad customer base to expect a permanent discount on everything. That shift is significant. But it is happening at the margins of an industry that has grown to absorb more than a quarter of the average marketing budget, and the center of gravity has not moved.

The question most loyalty teams are not asking is the one that matters most: if we removed all the rewards, would our customers still choose us?

The Upstream Correction

The intervention implied by this analysis is not to shut down loyalty programs. It is to answer a question that most loyalty teams have never formally been asked to address: if we removed all of the rewards tomorrow, would our customers still choose us? Not the members who joined for a discount. Not the high-frequency purchasers who redeem heavily because the math works. The broader customer base, exposed to the category without the financial inducement. How many of them would stay?

That question is a proxy for the brand’s underlying equity, the real pricing power that determines whether the business is structurally sound or structurally dependent on a margin investment to generate volume. Brands with genuine equity can answer it comfortably. Brands that have used loyalty programs as a substitute for brand building cannot. And in the current environment, where 64 percent of shoppers report ignoring brand names entirely when making purchases and true emotional loyalty has hit its lowest recorded level, the number of brands that cannot answer it comfortably is growing.

The strategic implication is direct. Loyalty investment needs to be evaluated against a different standard than it currently is. Not: does this program generate positive ROI in the narrow sense? But: does this program build or erode the brand equity that creates the conditions for any ROI at all? That evaluation requires measuring something harder than redemption rates. It requires tracking whether the brand is becoming more or less meaningful to the consumers it serves, independent of the incentives it is offering. Most loyalty programs are not structured to surface that signal. That absence is not a data problem. It is a positioning problem.

 The RDLB Point of View

The loyalty program industry has built an impressive ROI case for itself, and most of it is technically accurate. Programs do drive incremental revenue. Members do spend more than non-members. Redemption correlates with retention. None of that is wrong.

What the ROI case does not capture is the cost of what is being replaced. Every dollar flowing into points and discounts is a dollar not flowing into the kind of brand investment that builds the emotional predisposition that makes price premiums feel earned rather than justified by incentive. Brands that have built genuine equity can run loyalty programs on top of that equity without compromising it. Brands that are using loyalty programs in place of brand building are renting their market share on increasingly expensive terms.

The upstream question, the one RDLB asks before any retention or loyalty strategy is designed, is simple: what does this brand offer that a consumer would genuinely miss if it disappeared? The answer to that question is the brand. Everything else, including the program, is execution. Building the program before building the answer is not a loyalty strategy. It is a pricing concession with excellent reporting infrastructure.