Why Most Loyalty Programs Fail and How to Fix Engagement with Behavioral Science

Think about the loyalty programs you’re enrolled in. How many are there? When you count the number of apps, emails, SMS, or even a printed cafe card, the number might surprise you.

In my experience, consumers where I live in Australia belong to nearly 8 different loyalty programs, but only actively engage with fewer than half of them. That disengagement often happens because too many loyalty programs were designed for transactions, not for humans.

I’ve spent 6+ years working with brands on loyalty and lifecycle programs, and before that, I studied psychology. And studying psychology taught me one enduring truth: people don’t behave like rational spreadsheets or plans from a PowerPoint presentation. Humans are driven by shortcuts, emotion, momentum, and context. My background shaped how I see loyalty today: not as a points ledger, but as a system of behaviors and motivations. When loyalty programs fail, it’s rarely because customers are lazy or disloyal. It’s almost always because the program wasn’t designed to fit how people actually behave.

Let’s unpack why this happens and how you fix the loyalty programs you’re running.

We’re living in what SAP Engagement Cloud calls the Engagement Era. True Loyalty – the kind built on trust and emotional connection – is declining. And trend-driven, short-lived loyalty is on the rise. And the loyalty programs that struggle most tend to share one thing in common: they assume points alone will do the work. Behavioral science tells us otherwise.

Back when I studied behavioral science, we learned about the BJ Fogg model. I love this model of behavior because it’s one of the rare frameworks that both explains and predicts real customer behavior. This model is easy to apply in loyalty programs and helps explain declines in program engagement.

BJ Fogg’s Behavior Model states that a behavior happens when three things come together at the same time:

Think about eating a candy bar. If I have a Mars bar in my fridge, my ability to eat that Mars bar is very high. If I get a trigger, like feeling hungry, and I am motivated because I like Mars bars, I will almost certainly eat it.

Now, if that Mars bar is not in my fridge but 15 minutes’ walk away at the shop, my ability to eat that Mars bar drops.

Or, if I’m trying to eat more real food, my motivation might be lower. In either case, I’m far less likely to eat chocolate.

We can use the same method of thinking on behavior. If engagement isn’t happening, one or more of those levers is broken. Loyalty underperformance is usually a design problem, not a customer problem. Here’s how this concept shows up in real loyalty programs.

Most loyalty programs are very good at rewarding transactions and very bad at motivating participation.

If your program sends a message such as, “Spend $1,000, and eventually you’ll get $10 off,” customers will do the math on how long it will take to earn the reward and often mentally opt out.

Instead, customer motivation increases when your brand experiences feel:

• Immediate
• Relevant
• Emotional

What works better than points alone:

• Exclusive or early access
• Status-based recognition
• Rewards for behaviors, not just purchases (reviews, refills, referrals, social posts)

For example, recently, I received bonus points for leaving a product review for my favorite new deodorant. Writing the review took only a minute. Yet, it helped the brand and pulled me deeper into the program. That’s a win-win for brand and buyer.

Key takeaway: Points reward spending. Experiences reward belonging.

Ease is about more than program rules; it’s also about how much mental effort customers must expend when you communicate with them. Many programs have high sign-ups, but low participation. That’s usually a sign of friction. Common mistakes include:

• Too many tiers with unclear benefits
• Rules that require mental math
• A long gap between sign-up and first reward

People need momentum. The shorter the distance between “I joined” and “I got value,” the more likely they are to stay engaged. Think of it like going to the gym: the first visit is hard. After ten visits, it’s automatic.

This is where the Goal Gradient Effect comes into play. The closer someone gets to a goal, the harder they’ll work to reach it. Loyalty programs that make progress visible and feel achievable keep customers moving forward instead of quietly disengaging.

Fixes that work:

• Design one clear “first win” and give customers a reason to engage before they’ve even made a second purchase
• Make progress visible immediately through tactics such as a progress bar, point counter, or status milestone tracker
• Be careful about adding too many T&Cs and rules. In one example, a clothing retailer discontinued its A-list loyalty program after low engagement. One wonders whether the 29-day waiting period for point redemption contributed to this outcome.

Key takeaway: Loyalty should feel effortless. Don’t make your consumers feel like they’re on a side quest to stay loyal. Show people across a variety of channels how close they are to something worth having.

Even a motivating, easy program fails without the right trigger at the right moment. This is where marketers can use psychological effects such as Goal Gradient, mentioned earlier, and Loss Aversion to strengthen their triggers. Loss Aversion theory suggests that people work harder to avoid losing something than gaining something of equal value. This makes expiration and status-risk messaging especially powerful when used with care.

Effective triggers include:

• “You’re 80% to your next reward.”
• “Don’t lose your status – one purchase to keep it.”
• “Your reward expires soon.”

Without these nudges, customers simply forget what’s available to them, and your brand could miss out on meaningful revenue opportunities.

Key takeaway: Motivation and ease mean nothing if customers aren’t reminded at the right time. To drive action, align triggers to the psychological and behavioral realities of purchase—where urgency, habit, and fear of loss shape what customers do next.

One brand that demonstrates this well is City Beach, an Australian fashion retailer that set out to better connect its online and in-store customer experiences through loyalty.

Rather than relying on disconnected channels or generic promotions, City Beach focused on unifying customer data and designing more behavior‑driven engagement. Using SAP Engagement Cloud, the brand created a single view of the customer across touchpoints and delivered personalized omnichannel interactions that responded to real customer behavior—whether someone was browsing online, shopping in store, or at risk of lapsing.

A key part of this approach was making loyalty more visible and accessible in everyday moments. By extending loyalty into channels like Mobile Wallet, alongside email and digital campaigns, City Beach reduced friction and made it easier for customers to engage at the exact moment decisions were being made—online or offline.

The impact was significant, including:

• +10% increase in average order value on loyal shoppers vs. non-loyal shoppers
• +34% increase in customer purchase frequency
• 35% open rate for loyalty campaigns
• 4% conversion rate for loyalty campaigns

In short, City Beach succeeded because the company aligned motivation, ability, and timely triggers. By making engagement easier, more relevant, and more visible, they gave customers more reasons to return—and to stay loyal.

The fastest way to improve loyalty engagement requires you to use real‑time customer data to remove friction and respond to intent as it happens. So, if you’re responsible for a loyalty program today, follow these four steps for a practical reset:

1. Identify which Fogg lever is weakest (motivation, ease, or trigger). An easy way to test trigger issues in-platform is to pull a report of loyalty-related comms. If they are significantly lower than your benchmarks, you’ve found your issue.
2. Remove one unnecessary rule.
3. Add one non-point benefit that feels human.
4. Launch one progress-based or loss-prevention trigger.

Small behavioral changes compound fast. And you can make progress quickly.

If there’s one idea to walk away with, it’s this: run the “best friend test” on your loyalty communications.

Ask yourself: “If my best friend worked at this brand, what would I actually want them to text me?”

Examples might include:

• “The product you wanted is back in stock.”
• “You’re about to lose your status – one action saves it.”
• “This is on sale, and I know you care about it.”

When loyalty communication passes the best friend test, it usually passes the engagement test too. The brands winning loyalty today don’t rely on points alone. They design systems that respect human behavior: motivation, simplicity, and timely nudges.

And that’s exactly the kind of thinking brands like City Beach apply—using personalization and timing to show up like a helpful insider, not a loud advertiser.