"Why Most Loyalty Programs Fail - and What the Foundations Actually Look Like" - A Pulse Commentary

In the run up to the Pulse eCommerce Summit on the 13th - 14th May 2026, we are launching a series of commentary pieces on topics that will be a focus point at the conference, led by members of the Vervaunt team. Here is our commentary piece on loyalty, retention, and membership strategy, with input from Conor Jones.

Almost every eCommerce brand of any scale now has a loyalty program, or is in the process of building one. The tools are accessible, the platform integrations are straightforward, and the general expectation from customers that some kind of membership or rewards structure should exist has become a baseline. But accessibility has created its own problem: programs that look similar, offer similar rewards, and generate similar levels of customer indifference.

The barrier to launching a loyalty program has never been lower, and the barrier to making one that actually influences customer behaviour has never been higher.

The brands getting meaningful commercial value from loyalty are approaching it as a strategic project grounded in customer data and sustained operational commitment, not as a feature to be switched on. This article covers what that process looks like in practice, what the data should be telling you before you invest, and why so many programs stall after launch.

Starting with the right question: whether to build a program at all

The first question most brands ask about loyalty is what their program should look like. The more important question, and the one that should come first, is whether the data supports building one at all, and if so, what specific problem it needs to solve.

The answer sits in how customers are currently behaving at each stage of the purchase lifecycle. When you segment your customer base by order count - one purchase, two to five, six to ten, eleven and above - and map the revenue share of each bucket against the number of customers it contains, the picture becomes specific.

If a disproportionate share of your customer base sits in the single-purchase bucket and you are struggling to generate second orders, a loyalty program may help, but only if the reason customers are not returning is addressable through the mechanisms a program provides. If the issue is product-market fit, delivery experience, or pricing competitiveness against wholesale partners, a points system will not fix it.

For brands where there is a healthy proportion of customers making second and third purchases but where the relationship tends to stagnate beyond that point - customers who have grown up the brand, feel less connected, or simply run out of reasons to return - loyalty becomes a more natural intervention. The program gives the brand a structured way to maintain engagement and provide ongoing value to customers who have already demonstrated willingness to buy.

One premium fashion retailer provides a useful illustration of how this analysis works in practice. Their products are sold through their own direct-to-consumer channels but also through wholesale partners, meaning the brand is competing on both price and fulfilment experience. Understanding that competitive dynamic is essential context for designing a program that gives customers a reason to buy direct rather than simply rewarding purchases they might have made anyway.

The data should also inform what you can realistically expect. Using industry benchmarks against your own customer behaviour, you can model conservative, moderate, and aggressive projections for how a loyalty program would affect revenue, and that modelling should include the cost of building and maintaining the program. If the business case does not hold under the conservative scenario, the investment may not be justified at this stage.

"Most loyalty conversations skip a foundational step: can you actually reach the majority of customers you're trying to retain?

Customers who receive retention marketing deliver higher lifetime value than those who don't. That's because the brand earned permission to continually reach the customer, and of course shoppers that continue to receive marketing touchpoints across their lifecycle are more likely to do things like activate a product subscription or subscribe to a loyalty program.

Before investing in tiers, points, and platform evaluations, brands should ask a simpler question: what percentage of your paying customers can you actually market to? For many, it's shockingly low — as low as 9% in European markets where privacy regulations shape default consent settings.

The best retention strategies don't start with a loyalty program. They start with making sure every customer who buys from you can hear from you again. Get that right, and your loyalty program has an audience worth investing in. Get it wrong, and you're building a program most of your customers will never see." - Matt Gottron, Dataships 

Building the program on customer data, not assumptions

Once the decision to invest in loyalty has been made, the design of the program should be driven by customer data rather than by what other brands are doing or what the loyalty platform's default configuration suggests.

The foundational work is a detailed analysis of spending behaviour to establish the tiering structure. This involves mapping customer segments by lifetime spend - for example, zero to £200, £200 to £500, £500 to £1,000, and upward - and understanding the volume of customers in each bracket, the average order value within each tier, the repeat purchase rate, and the threshold at which customers naturally graduate from one level of spending to the next.

The tiers should be set so that the gap between them is achievable with a reasonable number of additional purchases, creating a genuine incentive for incremental spend rather than a structure that rewards behaviour that would have occurred anyway.

If the average order value is around £40, the first tier threshold should be set so that a customer who has made one purchase is close to qualifying for the next level, making the second purchase feel like a natural step that unlocks tangible value. This is where the commercial logic of the program actually operates - it is not about giving away points, but about engineering the moments in the customer lifecycle where a small additional incentive tips the balance toward another purchase.

The data analysis should also overlay RFM (recency, frequency, monetary) segmentation to inform the CRM strategy that sits alongside the program. Understanding which customer segments are at risk of lapsing, which are increasing their purchase frequency, and which are high-value but infrequent creates a foundation for the marketing calendar - the campaigns, flows, and communications that keep the program active in customers' minds between purchases.

For brands with physical retail alongside their online channels, the analysis extends further. In one recent project, we identified that 4.2% of a European customer base had shopped both online and in store. Breaking that down geographically revealed a significant concentration of customers willing to shop across channels and locations - a different kind of engagement that the loyalty program should recognise and reward.

Understanding the omnichannel mix by tier also informs how the program should function across channels and what the operational requirements are for connecting online and in-store purchase data.

Differentiation through rewards: moving beyond points-for-pounds

The most common and least differentiated approach to loyalty is a straightforward points-per-pound mechanic where accumulated points convert to money off future purchases. It is easy to implement, easy for customers to understand, and almost entirely undifferentiated from what every other brand is doing.

The challenge is that when every program offers the same basic value exchange, the program itself stops being a reason to choose one brand over another.

"Your loyalty program is a chance to stand out in a crowded ecommerce market. Our research shows that 88% of Shopify brands see loyalty as a key revenue driver - meaning if your program isn’t distinctive, your competitors’ will be.

Generic programs don’t build lasting relationships. Instead, the strongest programs connect to what customers care about most: shared values. People want to feel emotionally aligned with the brands they buy from. A sustainable coffee brand’s customers may value environmental impact, while supplement shoppers often prioritise wellness.

A loyalty program is a powerful way to reinforce these connections and make customers feel part of something bigger. Brands can reward behaviours that reflect their mission — for example, offering points for recycling like Waterdrop, inviting members to submit product ideas like LEGO, or incentivising quizzes to deliver personalised routines like The INKEY List." - Fiona Thompson, LoyaltyLion. 

The brands running programs that genuinely influence behaviour are thinking about rewards differently, starting with what their specific customers actually value rather than what the loyalty platform makes easiest to configure.

Some global luxury retailers run extensive tiered programs that move beyond standard discount mechanics, unlocking complimentary services, VIP experiences, and elevated in-store treatment for higher-value members. These rewards are difficult to replicate because they are built on the brand's existing operational capabilities and physical retail presence. They reward loyalty with something that feels genuinely exclusive rather than transactional.

The principle applies at different price points and across different categories. For brands in categories like watches, accessories, or gifting, the reward structure might centre around premium packaging, care services, personalisation, or exclusive product access rather than discounts.

The approach is the same: identify what the brand can uniquely provide that a customer would value, and build the reward structure around that rather than defaulting to discounts.

For brands operating in community-led categories such as music, culture, or specialist retail, the most valuable thing the program can offer is not monetary at all - it is access to community, conversation, and shared interest. A loyalty program that facilitates that connection is often more aligned with what the customer actually values than one that simply offers money off once a points threshold is reached.

The question worth asking during the design phase is: what can we offer that a customer cannot get from any other brand's program? If the answer is nothing beyond a standard discount, the program will likely perform like every other standard discount program - functional but unremarkable, and unlikely to change customer behaviour in a meaningful way. 

Platform selection: a structured evaluation, not a feature comparison

Selecting a loyalty platform is a decision that is frequently made based on familiarity, existing relationships, or surface-level feature comparisons. Given that a loyalty platform becomes deeply integrated into your ecommerce infrastructure and customer data flows, the decision warrants more rigour than that.

The approach we use is a weighted vendor matrix. The process starts with defining the evaluation criteria based on the specific requirements established through the strategy and data work - not a generic feature list, but the capabilities that actually matter for this brand, this program, and this operational context.

For a headless commerce build, headless API capabilities might carry the highest weighting. For a brand with significant physical retail, omnichannel functionality and POS integration might be the deciding factor. For a brand running on Shopify with no immediate plans to replatform, native integration quality matters more than platform-agnostic flexibility.

Each platform under consideration is scored against the criteria, and the scores are multiplied by the priority weightings. A platform that scores highly on a low-priority criterion should not outweigh one that scores well on the features that actually drive the program's success.

The output is a defensible, documented rationale for the selection rather than a subjective preference, which matters when the decision needs to be justified internally and when the brand needs to look back in 12 months and understand why the choice was made.

In a recent project, we evaluated platforms including Rivo, Yotpo, LoyaltyLion and 99 Minds through this process. The brand's requirement for headless capabilities carried significant weighting, which ultimately shaped the final recommendation. The point is that platform selection should be a consequence of the strategy work, not a parallel decision made on different criteria.

Design and implementation: from strategy to customer-facing experience

Once the program structure, tiering, rewards, and platform are established, the project moves into defining how the program will be presented to customers across every relevant touchpoint. This phase is where the strategic work becomes visible, and where poor execution can undermine sound strategy.

The design brief should cover every point at which the customer encounters the program. This includes the loyalty landing page in both signed-in and signed-out states, product detail pages where points earning and tier benefits are communicated, product listing pages where loyalty content cards might appear, the account area where members manage their rewards and track their progress, and data capture moments where the brand collects customer preferences in exchange for points.

That last element - data capture integrated into the loyalty experience - is particularly underutilised. If the program offers points for answering profile questions, brands can gather first-party preference data that improves personalisation across the entire customer experience.

For example, asking members about category interests, style preferences, or product affinities - and rewarding them for sharing that information - creates a data asset that makes every subsequent communication, recommendation, and on-site experience more relevant, while the customer feels they are getting something in return for sharing that information.

The design work should also include a detailed technical specification for the development team, covering how the program behaves across states - cookie handling for signed-in versus signed-out users, how wallet passes integrate with in-store scanning, how points balances sync across channels, and how the email flows triggered by the loyalty platform interact with the existing CRM setup.

The omnichannel dimension: connecting online and physical retail

For brands with physical stores, the omnichannel element of loyalty has become increasingly important, and the technology to support it has improved significantly, though it has not fully matured.

Wallet passes now allow customers to scan at point of sale and access their loyalty status, points balance, and rewards in store. Purchases made in store accrue to the same loyalty profile as online purchases, and rewards earned online can be redeemed in person.

This connectivity changes the commercial dynamic - a customer who earns a reward online might visit a store to redeem it, creating an additional touchpoint and the opportunity for an incremental purchase in an environment where the level of personal service is inherently higher than online.

At the upper end of the market, some brands are using loyalty tiers to unlock dedicated in-store experiences, appointments, hospitality, and elevated service. The loyalty program is not just a digital overlay on the shopping experience - it shapes the physical experience the customer receives when they walk into a store.

That level of integration is aspirational for most brands, but the direction it points toward is relevant for anyone with physical retail: the program should connect the channels rather than running parallel programs that happen to share a points balance.

For brands without physical retail, this creates a different challenge. Some address this through events, pop-ups, and collaborations that create temporary physical touchpoints. Others focus on building community through digital channels, where content, communication, and shared interest become the connective tissue that a physical store would otherwise provide.

Why programs stall: the sustainability problem

The most common failure mode for loyalty programs is not a bad launch - it is what happens in the months and years after launch.

The program goes live, customers sign up, there is an initial period of engagement, and then momentum fades because the brand does not sustain the investment required to keep the program feeling active and valuable.

This happens for several reasons. The rewards catalogue does not evolve, so members who have been in the program for a while have already redeemed everything interesting and have no reason to continue accumulating points. New perks are not introduced, so the program feels static compared to competitors who are adding features.

The marketing and CRM teams treat the program as a completed project rather than an ongoing one, and the communications around it become infrequent or formulaic.

One apparel brand we analysed had been running the same loyalty programme for over five years. Over time, the program became stale - the same rewards, the same mechanics, the same experience.

Customer feedback gathered through surveys and in-person sessions surfaced a consistent theme: members had accumulated significant points balances but had no compelling way to spend them. They had engaged with the program, and the program was not giving them enough back.

The response was to rebuild the entire program from the ground up - new perks, benefits, design, development, and platform.

The insight that drove the rebuild came from actually listening to customers rather than relying on internal assumptions about what was wrong, which is a pattern worth noting.

Brands that maintain direct feedback channels with their loyalty members - through surveys, community sessions, or structured analysis of support interactions - are better positioned to identify when a program is losing relevance before engagement metrics confirm it.

The operational implication is that a loyalty program requires an ongoing content and commercial calendar in the same way that other marketing channels do. New rewards, limited-time perks, member-exclusive products, seasonal campaigns, and programme updates should be planned and resourced as recurring work rather than treated as optional enhancements if there is spare capacity.

The brands that treat loyalty as a living, evolving part of the customer experience sustain engagement. The brands that treat it as infrastructure that runs itself after launch see diminishing returns.

Many of the themes explored here from building loyalty programmes grounded in customer behaviour and designing retention strategies that scale, to structuring omnichannel experiences and creating genuinely differentiated membership value - will be unpacked in far more depth at the Pulse eCommerce Summit on the 13th and 14th May 2026. Across two days, we’ll bring together senior eCommerce leaders, operators and specialists to share real-world experiences, practical frameworks and honest lessons from scaling brands internationally in a far more complex global landscape. If international growth is on your roadmap for 2026 and beyond, register now to secure your place.