Loyalty program

Based on Wikipedia: Loyalty program

The Velvet Handcuffs of Commerce

Your wallet probably contains at least one piece of plastic that isn't money—a loyalty card, points card, rewards card, or whatever euphemism your favorite coffee shop or grocery store prefers. You scan it, you earn points, you eventually get something free. Simple enough.

But here's the thing: you're not really the customer in this transaction. You're the product.

Loyalty programs represent one of the most elegant double-sided markets in modern commerce. On one side, customers receive discounts, free merchandise, or cash back. On the other side, businesses receive something far more valuable: an intimate portrait of your purchasing behavior, your preferences, your patterns, and—if they're clever about it—your predictable returns to their store instead of their competitor's.

The Architecture of Attachment

Loyalty programs come in several distinct flavors, and understanding the differences reveals how companies think about customer relationships.

The simplest form is the single-brand program. Target has one. McDonald's has one. You shop at their stores, you earn their points, you spend those points at their stores. It's a closed loop designed to make you think twice before wandering over to the competition.

Single-corporation programs work similarly but span multiple brands under one corporate umbrella. Gap Incorporated, for instance, runs a joint program across Gap, Banana Republic, Old Navy, and Athleta. From the customer's perspective, these might seem like different companies. From the corporation's perspective, they're all the same cash register—and the same loyalty program keeps you circulating within their ecosystem rather than escaping to H&M or Zara.

Then there are coalition loyalty programs, which are something else entirely. These create partnerships between completely unrelated businesses. Rakuten Rewards, operating in the United States, offers cash back at more than 3,500 different stores. Air Miles, dominant in Canada, the Netherlands, Bahrain, Qatar, and the United Arab Emirates, awards points for purchases from dozens of different merchants in each market.

The economics here get interesting. Coalition programs can offer customers more opportunities to earn points—buy groceries, get points; book a flight, get points; fill up your gas tank, get points—which makes the program more attractive. But they also require complex revenue-sharing arrangements between participating merchants and the program operator. Who pays for the points you earn at the pharmacy and spend at the movie theater?

Shopping centers have gotten in on the game too. Tanger Outlets runs loyalty programs that work across the various merchants located in their outlet malls. Downtown Olympia, Washington—a small city best known for being the state capital—launched a coalition program in 2021 specifically for merchants in its downtown shopping district, essentially treating the whole neighborhood as a single loyalty ecosystem.

By 2020, McKinsey—the consulting firm whose vocabulary tends to seep into how businesses talk about themselves—had started using the term "loyalty program ecosystems" to describe these increasingly complex arrangements.

From Punch Cards to Phones

The physical loyalty card has had quite a journey. In its classic form, it's a piece of plastic roughly the size of a credit card, often with a barcode or magnetic stripe that lets the cashier scan it. Some use chip technology or proximity sensors for contactless scanning. American supermarkets, in a gesture toward the practical realities of crowded wallets, often issue two cards: one credit-card-sized and one small enough to fit on a keychain.

But the plastic card is increasingly becoming a relic.

As of 2024, most programs in the United States offer digital versions of their loyalty cards, accessible through mobile apps. Customers scan a QR code or barcode from their phone screen at checkout. Some programs have abandoned physical cards almost entirely. Marks and Spencer's "Sparks" program, launched in the United Kingdom in 2020, only issues physical cards upon special request. American Airlines doesn't even send welcome kits to new frequent flyer members anymore—what would be the point?

This shift to digital isn't just about convenience. It's about control and data.

When customers use a mobile app to present their loyalty account, the merchant gains capabilities that a plastic card could never provide. They can show customers special offers tailored to their purchase history. They can send push notifications—those little message bubbles that appear on your phone—alerting you to sales on items you've bought before. They can understand not just what you buy but when you buy it, how often, and in what combinations.

Critics point out that this digital push is unfriendly to people without smartphones, including many elderly customers. This is a valid concern that retailers have generally chosen to accept as a worthwhile trade-off.

The trend has spread beyond the large retail chains. A 2025 case study from Romania documented how mobile wallet-based loyalty cards are enabling small independent businesses to build customer relationships without the expense of developing proprietary mobile apps. These systems use QR codes to track visits, deliver automated rewards, and provide merchants with customer insights they couldn't access when orders came through third-party delivery platforms. The lower operational costs have driven adoption among small businesses that could never have afforded traditional loyalty infrastructure.

Points, Tiers, and Subscriptions: The Mechanics of Stickiness

Loyalty programs generally operate through one of several mechanical systems, each with its own psychological hooks.

Points-based programs are the most common. Customers earn a certain number of points for each purchase—often one point per dollar, or one point per ten dollars. Once accumulated, these points can be redeemed for free merchandise, discounts, gift cards, or cash back. The cash back is rarely actual cash; more typically, the program transfers money to your bank account or, in a throwback to an earlier era, mails you a paper check.

The psychology here is deceptively simple. Points feel like money you've already earned, even though they're not money at all—they're promises of future value that can only be realized within the merchant's ecosystem. Every unredeemed point represents a customer who feels they'd be "losing" something by switching to a competitor. This is precisely the intended effect.

Tier-based programs add another dimension. These define status levels—silver, gold, platinum, or whatever metallic hierarchy the marketing department prefers—that customers achieve by spending enough within a defined period, usually a year. Sephora, the cosmetics retailer, awards one point per dollar spent. Accumulate enough points and you advance to higher tiers with better discounts and access to exclusive products.

The genius of tier systems is that they tap into something beyond simple economic calculation. Status matters to people. The prospect of being a "platinum member" rather than a mere "silver member" can motivate spending behavior that wouldn't be justified by the actual dollar value of the benefits. Hotels and airlines have refined this psychological lever to a fine art.

Subscription-based programs flip the model around. Instead of earning rewards through spending, customers pay upfront for the privilege of receiving benefits. Barnes and Noble, the bookstore chain, charges approximately forty dollars per year for its "Premium Membership and Rewards" program, which provides a ten percent discount on most merchandise. There's also a free tier that offers no discount but allows members to collect virtual "stamps"—loyalty points by another name.

The subscription model is particularly interesting because it extracts value from customers before they've made any purchases at all. Once someone has paid forty dollars for a membership, they're psychologically invested in shopping at Barnes and Noble to "get their money's worth"—even if the same books might be cheaper elsewhere.

The Data Goldmine

Here's where we arrive at the real engine driving loyalty programs: data.

Loyalty programs generate extraordinarily detailed information about customer behavior. Application forms for cards typically include agreements about customer privacy, usually promising that the store won't disclose individual customer data. But aggregate data—data about patterns and trends across many customers—is another matter entirely. This the store uses internally for marketing research, and sometimes shares externally with partners.

Over time, this data can reveal almost anything. A customer's favorite brand of beer. Whether they're vegetarian. What time of month they tend to shop. Whether they buy premium or budget products. What they bought last week that might predict what they'll buy next week.

As of the mid-2020s, loyalty programs have begun integrating artificial intelligence and sophisticated data analytics to personalize customer experiences. This means not just understanding what you've bought, but predicting what you'll want—and presenting that prediction to you before you knew you wanted it.

The industry also talks increasingly about "omnichannel experience," a term that means reaching customers through multiple touchpoints: in-store, via mail, email, mobile apps, push notifications, text messages, websites. Each channel generates its own data stream, and the holy grail is unifying all these streams into a single comprehensive portrait of each customer's behavior.

Economists have a term for the pricing structure that loyalty programs implement: the two-part tariff. This refers to any pricing scheme that combines a fixed fee with a per-unit charge. Subscription-based loyalty programs are explicit about this—pay the membership fee, then pay reduced prices per item. But even points-based programs function similarly, extracting value through the collection and use of customer data while providing discounts as the per-unit benefit.

The Casino Perfection

If you want to see loyalty programs at their most sophisticated, look at casinos.

Almost every major casino chain in the United States operates a loyalty card program. Caesars Entertainment runs Caesars Rewards (formerly known as Total Rewards). MGM Resorts International operates Mlife. These programs award tier credits, reward credits, complimentary services—"comps" in casino parlance—and various other perks.

What makes casino loyalty programs distinctive is the concept of "theo," short for theoretical win. Casinos track not just what you actually win or lose, but what the mathematical odds predict you should have won or lost given your playing patterns. A player who bets fifty dollars per hand at blackjack for four hours has a calculable theo, regardless of whether luck ran for or against them on that particular day.

Casino loyalty programs use theo—combined with demographic data and spending patterns across restaurants, shops, and entertainment venues—to determine exactly how valuable each customer is and exactly how much it's worth spending to keep them coming back. The sophistication is formidable. These programs know not just what games you play, but what time you prefer to play, how long your sessions last, what you eat afterward, what shows you attend, and whether you're likely to bring friends who'll also gamble.

The Curious Case of Disloyalty

In 2011, something amusing happened in Boston, Toronto, and London. A scattering of independent coffee shops launched what they called "disloyalty card" programs, rewarding customers specifically for visiting a variety of different coffee shops rather than remaining loyal to any single one.

This was partly a marketing stunt—the novelty of inverting the loyalty concept generated free publicity. But it also reflected an alternative philosophy. The participating shops were betting that coffee enthusiasts who explored widely would ultimately spend more total money on coffee, and that being associated with this spirit of exploration was worth more than trying to lock customers in.

The disloyalty card also illustrated something about customer psychology. The appeal of loyalty programs lies partly in their gamification—the sense of accumulating something, advancing toward a goal. A disloyalty card offered the same psychological satisfaction of collecting stamps and working toward a reward; it just pointed that satisfaction outward rather than inward.

A Global Phenomenon

Loyalty programs have spread across the globe, with each market developing its own distinctive characteristics.

Japan has developed particularly sophisticated point systems. Beyond individual store programs, Japan features multi-brand points that can be earned in addition to each store's own rewards. The Japanese market recognizes a "Big Four" of multi-brand points: V-POINT (a merged entity combining T-POINT with SMCC, affiliated with Sumitomo Mitsui Banking Group), Ponta (affiliated with Mitsubishi Corporation), Rakuten Point, and d Point Club (operated by NTT Docomo, the telecommunications giant). Other notable programs include WAON from the AEON retail group, JRE POINT from JR East railways, PayPay Point linked to SoftBank's QR code payment system, and Nanaco.

Hong Kong features Octopus Rewards, integrated with the MTR Corporation's transit system. What makes Hong Kong interesting is how different chain stores under common ownership share loyalty programs. A.S. Watson Group's MoneyBack program works across Parknshop supermarkets, Watsons personal care stores, and Fortress electronics retailers. Cathay Pacific, the flag carrier airline, operates Asia Miles as both a loyalty and frequent-flyer program.

India's largest coalition loyalty program is PAYBACK India. The program has roots in Germany—the German loyalty program operator Loyalty Partner acquired a controlling interest in a program called i-mint in 2010 and rebranded it the following year. Bharat Petroleum's PetroBonus fuel card program claims two million members, while Indian Oil's XTRAPOWER fleet card and XTRAREWARDS retail program together claim three million customers.

Iran launched its first loyalty program in 1996, with East Credit Card Group Kish introducing another in 2005. Malaysia's Genting Highlands Resort operates a WorldCard valid across three countries: Malaysia, Singapore, and Hong Kong. The Philippines features programs from SM Supermalls and BDO Unibank, with rewards cards accepted at SM Store, SM Supermarket, SM Hypermarket, ACE Hardware, and Watsons Pharmacy; Robinsons Malls operates Go Rewards (formerly the Robinsons Rewards card); and Jollibee, the fast-food chain, runs its own HappyPlus card program.

European markets have their own landscape. Austria's two largest loyalty programs are Payback and JÖ (fully launched in 2019). Finland divides between two major retail coalitions: the S-Group with their S-Etukortti card and Kesko with K-Plussa. Germany's largest program is Payback, launched in 2000; DeutschlandCard followed in 2008. Hungary runs SuperShop and Multipoint. Italy, after Nectar exited the market in 2015, relies primarily on Payback alongside supermarket-specific programs from Esselunga, Coop, and Il Gigante.

What's Actually Happening Here

Strip away the points and the tiers and the apps, and what you find is a carefully engineered system for making switching costs visible.

Every economist knows that competition depends on customers being willing to switch between suppliers. If you're unhappy with your grocery store, you should be able to walk across the street to a competitor. This possibility keeps prices down and quality up.

Loyalty programs don't eliminate this possibility. They just make it expensive. Not in dollars directly charged, but in accumulated value that would be forfeited. Those 50,000 points in your account represent months or years of shopping. The platinum status you've achieved required a specific spending threshold. Walk away, and you walk away from all of it.

This is what the handcuffs are made of: not chains, but accumulated investment that you'd have to sacrifice to leave.

There's nothing inherently nefarious about this. Companies compete on many dimensions, and loyalty programs are simply another form of competition—one that rewards sustained relationships rather than one-time transactions. A customer who shops at the same grocery store for years might legitimately receive better service than someone who shops randomly; the loyalty program is one mechanism for providing that better service.

But it's worth being honest about the transaction. When you sign up for a loyalty card, you're agreeing to provide detailed data about your purchasing behavior in exchange for discounts that typically amount to one or two percent of your spending. You're agreeing to have your psychology gently massaged by points and tiers designed to make you feel invested in a particular merchant's ecosystem. You're agreeing, in effect, to be nudged.

Whether that's a good deal depends on your circumstances. If you were going to shop there anyway, the rewards are pure bonus. If you find yourself shopping there when you would have preferred somewhere else, simply because of accumulated points or status, then you're paying for those rewards in ways that don't show up on any receipt.

The Coming Evolution

Loyalty programs continue to evolve. The integration of artificial intelligence promises—or threatens—to make personalization even more precise. Programs are increasingly focusing on what the industry calls "emotional connections," moving beyond transactional rewards toward experiences that make customers feel genuinely valued.

The shift to digital has also democratized access to loyalty technology. What once required expensive infrastructure can now be implemented through mobile wallet platforms available to small businesses. The independent bookshop and the corner café can now run loyalty programs comparable in sophistication to those of major retail chains.

Near field communication (known as NFC) and host card emulation technologies now allow smartphones to store multiple loyalty cards electronically, eliminating the need for physical cards entirely. Google Wallet and similar platforms have embraced these technologies, enabling transactions that work even when the phone isn't connected to the internet.

The direction seems clear: more data, more personalization, more integration across channels and merchants. The velvet handcuffs will become more comfortable—and possibly more difficult to remove.

Which brings us back to where we started. That plastic card in your wallet, or that app on your phone, represents a bargain. Like all bargains, it helps to understand what you're actually trading before you agree to the terms.