The Loyalty Paradox: Why 66% of Schemes are Actually Destroying Value

There is a sobering statistic currently circulating through retail boardrooms: McKinsey & Company recently published an article stating that nearly two-thirds of established loyalty programmes are failing to deliver meaningful value. Even more alarming is the realisation that many of these schemes aren't just stagnant, they are actively eroding the retailer’s bottom line.

In the post-pandemic landscape, where over 75 percent of consumers have fundamentally changed their buying habits, the old "points for pounds" model has hit a wall. Shoppers are increasingly willing to switch brands for better value or convenience, yet retailers are still pouring millions into legacy systems that are slow, expensive, and largely ignored by the people they are meant to attract.

The High Cost of Standing Still

Most retailers treat loyalty as a defensive necessity—a tax they pay to keep customers from drifting to a competitor. But when you factor in the SaaS fees, the data management costs, and the margin-stripping effect of self-funded discounts, the math stops working.

The problem is that traditional loyalty is a closed loop. The retailer funds the reward, manages the liability, and takes 100 percent of the financial risk. When engagement drops, the response is usually to offer deeper discounts, which only accelerates the value erosion. It is a race to the bottom that no one wins.

Breaking the Value Erosion Cycle

At Activeloyalty, we believe that if your loyalty programme feels like a burden, you are using the wrong architecture. The transition from a "cost centre" to a "value driver" requires moving away from the retailer-funded model entirely.

We focus on three critical levers to flip the script:

• 1. Moving Beyond the Transaction
  Top-performing companies realise that loyalty isn't just about the spend; it’s about behaviour. However rewarding behaviour is expensive if you are the only one paying for it.
  By integrating third-party brands into your ecosystem, you can incentivize store visits and specific product choices using external marketing spend. You provide the infrastructure; the brands fund the customer value—protecting your margins while driving growth.
• 2. Real-Time "Phygital" Relevance
  Data is only valuable if it is actionable. Many retailers are sitting on mountains of shopper data they can’t use in real-time.
  Instead of a generic voucher that gets lost in an inbox, brand-funded offers at the moment of highest shopping intent, deliver increased engagement rates, shopper satisfaction and ROI.
  This isn't a discount; it's a high-margin media interaction.
• 3. Eliminating the Balance Sheet "Ghost"
  Traditional points systems create deferred revenue liabilities that haunt the P&L. Shifting to an offer-driven, brand-funded model, removes that weight. There is no "point debt" to manage because the value is exchanged instantly.
  

From Passive Cost to Active Profit

The retailers who will win the next decade are those who stop viewing loyalty as a way to "buy" customers and start viewing it as a media asset to be monetised.

When you stop funding the rewards yourself the entire financial profile of the programme changes. You move from a 66 percent chance of value erosion to a 100 percent certainty of margin contribution.

Activeloyalty makes all this possible.

Loyalty shouldn't cost you a fortune to run. If it does, it isn't loyalty—it’s just an expensive habit.