The Hidden Cost of Loyalty

Loyalty programs have been around for a long time.

Retailers have them.
Airlines have them.
Hotels, restaurants, beauty brands, coffee shops… everyone seems to have one.

At this point, they’ve become part of the game.

As a consumer, I’ll admit I usually don’t bother joining unless I believe I can reach the upper tier — or already know I’m likely to be a high-value customer.

But that raises an interesting question:

Are you actually a high-value customer… or a high-cost customer?

Because the customers who spend the most also tend to receive the most rewards. Free nights, upgrades, bonus points, discounts, birthday gifts, exclusive offers.

Which means the very customers companies celebrate may also be the ones that cost the most to retain.

Maybe that’s fine.

But I’ve always believed something simple:

Once someone reaches a top-tier loyalty level — and maintains it for several years — they should be able to stay there.

Anniversaried in.

Because you take care of those that got you to the party.

A great example of this is Marriott.

Back in my corporate days when I traveled globally, I spent a lot of nights in Marriott properties. Eventually I earned lifetime status. Even though I don’t travel nearly as much today, that status remains.

And because of that, Marriott is still my default choice when I travel.

Now compare that with the opposite experience.

American Airlines couldn’t wait to trample my status the moment my travel slowed down. No grace period. No transition. One day I was elite — the next I was Group 5.

Needless to say, they’re no longer my airline of choice.

This week I had another reminder of how fragile loyalty can be.

Starbucks.

To my horror, I opened the app to discover I’d been placed in the Gold bucket with a steep climb to reach the new Reserve level.

Now, I’m someone who actually understands the points system. I track them. I use them.

But the moment Starbucks made it clear that reaching the top tier would require nearly daily visits, something shifted.

Before this week, I would have casually stopped by most mornings without thinking about it.

Now?

It feels like a race.

And races change behavior.

Imagine a day when we aren’t all wrestling with an app — trying to remember our points balance, what rewards we have available, or whether today is the day we’re supposed to redeem a discount.

Or avoiding that dreaded moment when the person ahead of us at the checkstand is quietly and harmlessly asked if they want to use their points today… only for it to turn into an unplanned lesson in retail math while they try to figure out the best value.

All while we wait.

Ulta Beauty is another interesting example.

I’ve been Diamond status for years. Hitting the annual spend threshold isn’t difficult for me — I work in the industry and try a lot of products.

But if you asked me what I actually receive for being Diamond…

I’d struggle to tell you.

All of this brings back memories from my time at Sally Beauty.

Some of my most intense executive meetings were spent debating whether to change the company’s loyalty program from a discount model to a rewards model.

The room was always full — the CMO, COO, merchants, marketing teams — all wrestling with the same questions:

• How much should loyalty cost?
• What truly motivates customers?
• Are rewards actually driving behavior?
• Or have they simply become expected?

Because loyalty programs aren’t free.

They cost real money.
They create complexity.
And increasingly, they can be difficult for customers to understand.

Which leads to the bigger question:

How often do loyalty programs actually motivate purchases?

And when are they just fluff?

Or have they simply become a convenient crutch?

After all, consumers are already being hammered nonstop with social media, email, text messages, and every other form of marketing imaginable.

Is that not enough?

At the end of the day, customers come back for two things:

Outstanding product.
Great service.

Everything else is secondary.

So here’s the question I keep coming back to:

If chasing loyalty program expectations begins to create a worse customer experience, isn’t that counterintuitive to the entire goal?

Because loyalty shouldn’t feel like a math problem.

It should feel like a relationship.