Latest / The Retention Marketing Podcast with Fexingo: Email, SMS, and Loyalty for Repeat Customers / Why Customer Loyalty Programs Are Failing Brands
Transcript
- Lucas: Look at the numbers coming out of the retail sector right now, specifically around October 2026. We are seeing a distinct flattening in redemption rates across major loyalty programs. It is not just a seasonal dip; it is structural. Luna: So customers are still earning points, but they just don't care enough to spend them? That feels like a massive waste of infrastructure. Lucas: Exactly. And the interesting part is that acquisition costs have never been higher. Brands are spending billions to get a customer through the door, only to hand them a digital card that feels like homework. I was looking at a report from McKinsey last week about how the average consumer has over seventy loyalty cards active on their phones. Most of them are dead weight. Luna: Seventy? That is insane. It is basically digital clutter. Do you think the friction of managing all those apps is killing the engagement? Lucas: I do, but I think there is a deeper issue than just app fatigue. The problem is that most loyalty programs are built on transactional logic. You buy ten coffees, you get one free. It is predictable, it is boring, and frankly, it is easily replicated by a competitor who offers a slightly lower price or a faster checkout. In 2026, transactional rewards are a race to the bottom. Luna: Right, because if it is just about the discount, I can just switch to the next brand down the street. What actually keeps someone attached to a specific ecosystem? Lucas: Status and access. Look at how Sephora rebuilt its entire loyalty architecture with the Beauty Pass model. They stopped focusing purely on the point accumulation for products and started offering tiered access to experiences, early product launches, and exclusive community events. It shifted the value proposition from what you buy to who you are within their world. Luna: That makes sense. It turns the customer into an insider rather than just a wallet. But does that scale? Can every brand offer exclusive events? Lucas: Not everyone needs physical events, but they need perceived exclusivity. Take Apple. Their loyalty isn't really about points. It is about the seamless integration of hardware and software. Once you are in the walled garden, the cost of leaving is so high that you stay. The loyalty is baked into the utility, not tacked on as a reward. Luna: So the goal should be to make the relationship sticky through utility and identity, not just a ledger of discounts? Lucas: Precisely. And this brings us to the second major shift: zero-party data. Consumers are getting tired of being tracked. They are actively resisting third-party cookies and invasive ad targeting. But they are willing to share data if they get immediate, tangible value in return. Loyalty programs are becoming the primary vehicle for collecting that consented data. Luna: I see. So instead of guessing what I want based on my browsing history, the brand asks me directly via the loyalty program, and I tell them because I want a better experience. Lucas: Yes. And when done right, that data allows for hyper-personalization. Imagine a clothing retailer using your size, style preferences, and purchase history to curate a private preview of items before they hit the main site. That feels like service, not surveillance. It respects your time and your taste. Luna: That would definitely keep me engaged. But it requires a level of sophistication that most mid-market brands probably don't have. Is this becoming a luxury feature for big tech? Lucas: It is becoming a baseline expectation. Even smaller brands can leverage simpler forms of zero-party data. Ask your customers what they want. Run a quiz. Offer a personalized recommendation engine. The barrier to entry is lower than you might think. The real barrier is the mindset shift from viewing loyalty as a cost center to viewing it as a data asset. Luna: I love that framing. A data asset. Because ultimately, if you aren't learning anything new about your customer, you are just paying them to ignore you. Lucas: Spot on. And let's talk about the gamification angle for a moment. Many brands try to force engagement through streaks or badges. But when those mechanics feel arbitrary, they backfire. They feel manipulative. The best gamification aligns with the customer's actual goals. If I am trying to save for a vacation, a travel loyalty program that tracks my progress toward a free trip is motivating. If I am trying to eat healthier, a grocery app that rewards vegetable purchases is engaging. Luna: So the rewards need to be relevant to the customer's life, not just profitable for the company? Lucas: Exactly. Relevance is king. Irrelevant rewards are noise. If I give you a coupon for dog food when you don't have a dog, I am not building loyalty; I am building annoyance. This is where the silence of many programs comes from. They are shouting irrelevant offers at people who have already tuned them out. Luna: It feels like we are moving away from the broad net approach. It is more about precision and intent now. Lucas: Intent is everything. Customers who opt into a loyalty program are signaling interest. The job of the marketer is to honor that signal with value that matches their intensity. Some people want deep discounts. Others want early access. Others want recognition. One size fits none. Luna: Do you think the pandemic changed how people view these relationships? Or was this trend already underway? Lucas: The pandemic accelerated it, but the seeds were planted earlier. People became more aware of supply chain issues, quality, and brand ethics. Loyalty is no longer just about convenience. It is about alignment. Do I trust this brand to deliver? Do I believe in what they stand for? When those questions are answered positively, the transactional layer becomes secondary. Luna: That is a profound shift. From transactional to relational. It changes how you measure success too, doesn't it? Lucas: It does. We used to look strictly at redemption rates and points liability. Now, smart CMOs are looking at engagement depth, sentiment analysis, and net promoter scores within the loyalty cohort. Are they talking about us? Are they referring friends? That is the true metric of health. Luna: And those metrics take longer to build but are much harder for competitors to copy. A discount can be matched in a day. Trust takes years. Lucas: Exactly. Trust is the moat. Discounts are the bait. If you rely on bait, you are always fishing in shallow water. If you build a moat, you own the deep end. Luna: I am going to hold onto that. Discounts are bait, trust is the moat. That is going into my notes. Lucas: Good. Because here is the hard truth for marketers listening. Your loyalty program is likely broken. Not because the technology is bad, but because the psychology is outdated. You are treating loyal customers like transactions. Start treating them like partners. Luna: Partners implies a two-way street. What does that look like practically for a small business owner? Lucas: It looks like asking for feedback and acting on it. It looks like sending a handwritten note or a personalized video message for a milestone. It looks like giving them a voice in product development. These are low-cost, high-touch actions that scream partnership. Luna: Low cost, high touch. That is the sweet spot. It reminds me of how local coffee shops remember your name versus the big chains scanning a barcode. Lucas: The human element is irreplaceable. Technology scales the reach, but humanity builds the bond. Use the tech to remove friction, not to replace the connection. Luna: So the tech should be invisible, letting the relationship shine through? Lucas: Ideally, yes. The best loyalty program is the one you don't notice until it makes your life easier. Like a credit card that automatically applies the best cashback category without you having to select it. Invisible utility. Luna: I like that. Invisible utility over visible hustle. Lucas: Right. Hustle burns people out. Utility keeps them coming back. If you can embed yourself into their routine in a way that adds value, you win. Luna: What about the risk of data breaches? With all this personal information being collected, isn't that a liability? Lucas: It is a huge risk, which is why transparency is part of the loyalty contract. Tell customers exactly what you are doing with their data. Give them control. Let them delete it if they want. Paradoxically, giving up control increases trust. It shows you have nothing to hide. Luna: Transparency as a feature. That is a refreshing take. Usually, privacy policies are hidden in legalese. Lucas: Legalese is a trust killer. Clear language is a trust builder. Write your privacy policy like you are explaining it to a friend. Luna: I will start doing that. Okay, speaking of keeping things running, we need to pause here for a quick moment. Lucas: We do. If these marketing conversations have sparked something you've actually used, a couple of dollars a month is genuinely what keeps these going. You can support us at buy me a coffee dot com slash fexingo. It helps us keep the show independent and ad-free. Luna: Yeah, it really makes a difference. And if you do, thank you. It lets us dig deeper into these topics without worrying about sponsors dictating the agenda. Lucas: Appreciate it. Now, back to the idea of transparency. We mentioned privacy policies, but what about the terms of the loyalty program itself? Luna: Oh, the fine print. That is usually where the disappointment happens. Points expiring suddenly, rules changing overnight. Lucas: Exactly. Surprise is the enemy of loyalty. If the rules change, communicate it clearly and early. Give people a grace period. Treat them with respect even when the economics get tight. Luna: Respect during the tough times is what separates good brands from great ones. Bad times test the relationship. Lucas: They do. And if you handle it well, that customer stays for decades. If you cut corners, they leave and never come back. It is a stress test for your entire brand philosophy. Luna: So loyalty is really just integrity in action over time? Lucas: I think that is a fair way to put it. Integrity is the foundation. Loyalty is the roof. You can't have one without the other. Luna: Integrity and loyalty. Two words that seem simple but carry a lot of weight. How do we measure that? Lucas: You measure it by retention. By repeat visits. By the fact that they choose you even when there is a cheaper option. That choice is the ultimate vote of confidence. Luna: A vote of confidence. I like that. It shifts the power dynamic back to the customer, which is healthy. Lucas: It is. And when you empower the customer, they empower you back. It is a virtuous cycle. Break the cycle, and you break the business. Luna: Breaking the cycle is easy. Building it takes work. But it seems worth it. Lucas: It is. Especially in 2026, where attention is scarce and trust is earned. Every interaction counts. Luna: So, what is one thing listeners can do today to start rebuilding that cycle? Lucas: Audit your top twenty percent of customers. Reach out to them. Ask them what they love. Ask them what frustrates them. Listen more than you talk. That is step one. Luna: Simple, direct, and human. I think that is the best advice we have heard all week. Lucas: Maybe. But it is also the hardest to execute consistently. Consistency is key. Luna: Consistency builds the habit. And habits build the future. Thanks for digging into this with me, Lucas. Lucas: Anytime, Luna. Let's see if we can turn some of those transactions into relationships.