Do loyalty programs actually work?
Published · Updated
Yes, when the reward is certain, progress is easy to see and joining is quick. Studies show customers come back sooner as a reward gets closer, and finish more cards when a card starts with a stamp or two already on it. Programs fail when joining is hard, progress is hidden, or the reward is a prize draw.
The evidence, briefly
How loyalty cards change behaviour is one of the better-studied corners of consumer research:
- Goal-gradient: customers come back sooner as they near the reward. Kivetz, Urminsky and Zheng (2006, Journal of Marketing Research) saw it with a real café reward card. In plain words, someone on stamp 8 tends to come back sooner than someone on stamp 2.
- Endowed progress: head-start stamps help people finish. Nunes and Drèze (2006, Journal of Consumer Research) found a 10-stamp car-wash card with 2 stamps already filled in was finished more often than a blank 8-stamp card, for the same 8 washes.
- Keep it certain: our advice is a reward customers know they'll get, like a free coffee, rather than a chance at a bigger prize.
None of this requires believing any vendor's marketing: these are independent academic studies, published in peer-reviewed journals.
So why do so many programs feel dead?
Because they're usually set up against how people behave. A paper card hides progress for the weeks between visits. A program that needs an app download loses people at the download screen. A 20-stamp card puts the reward too far away to pull. Each mistake can be fixed when you set the program up, for free.
A program that follows the evidence looks like this: join in about 20 seconds at the counter, card in Apple Wallet or Google Wallet, progress updated on their phone after every visit, a certain reward close enough to see (within weeks for a daily or weekly regular, and within 6 to 9 months for a monthly client), and head-start stamps from day one. Rewardtree is built to work this way, and the loyalty program costs nothing to run.
We make Rewardtree, so weigh our advice with that in mind; the studies above are independent of us.
More questions, answered#
What is the goal-gradient effect?#
The closer people get to a goal, the harder they work towards it. The psychologist Clark Hull described it in the 1930s, and Kivetz, Urminsky and Zheng (2006) found it with a real café reward card: customers bought coffee more often as the free one got closer. It's the engine inside every stamp card.
What is the endowed-progress effect?#
People given a head start finish more often. In a car-wash study by Nunes and Drèze (2006), customers given a 10-stamp card with 2 stamps already filled in finished it more often than customers given a blank 8-stamp card, even though both needed 8 washes. It's why head-start stamps are free on Rewardtree.
When do loyalty programs NOT work?#
When joining takes more than about 20 seconds, when customers can't see their progress (paper in a drawer), when the reward is uncertain (prize draws, "surprise" perks), or when the reward is a year away. All four are design mistakes, not proof that loyalty doesn't work.
Do customers actually want another loyalty program?#
They want the reward, not the admin. That's the case for wallet cards: no app, no password, and a card that keeps itself up to date on their phone.