By Lucy Wilkinson, 5th November 2026
At Ellipsis, we’ve supported over 250 successful customer loyalty programs over the years. However, not all programs succeed, and here are some insights into why.
1. Complexity: If customers can’t easily understand the program’s benefits and how to access those benefits, they won’t engage. It's a no-brainer, but still not all programs get it right.
Complicated program rules. Confusing status tiers, fragmented rewards earn and redemption mechanics, can fail a program.
Customer experience must be seamless, but not too seamless. Healthy friction is important, as long as it's balanced to regulatory compliance, so customers are aware of the value your brand and program delivers. If the CX is too seamless, the customer won't notice that you're rewarding them.
Points or tier status, or both? Points and status tiers are unique loyalty currencies, that play different roles in a program. Using both to incentivise the same customer outcome (usually spend), is wasted opportunity and cost (more below).
Transactional or experiential rewards, or both? Transactional rewards typically drive incremental spend, but niche, personal experiential rewards can evoke an emotional customer connection. However, trust must first be earned before a customer will emotionally invest into your loyalty program. To earn that trust, your program must first deliver tangible value via transactional rewards. Via these rewards you drive customer engagement to gain an understanding of their preferences, to design and deliver more relevant, personal experiences and rewards. This is not easy.
Tip: If your program T&Cs are more than two pages, it’s too complicated!
2. Too Generous: Many successful programs award customers with loyalty points based on spend, to redeem against future purchases, but there are many scenarios where a points-based program becomes commercially unviable.
Liability: Without a healthy cycle of earn, redemption and expiry, the increasing points liability on the balance sheet will attract unwanted CFO attention.
Over-investment: Allowing members to earn rewards and status for the same outcome (e.g. spend) means there is a points cost and a status benefit cost to be accrued for every $1 the customer spends, yet only one (spend) uplift is being delivered.
Promotional discounts are offered by retailers to boost slow sales, but when discounts and rewards redemptions collide, savvy double-dipping members will erode margins. Some program operators happily promote their loyalty program success on one side, without consideration to the declining sales margin on the other side.
Discounting is tactical and doesn’t evoke the same psychological effect of points pressure - where customers will work harder to accumulate points as they near a redemption threshold, and soon after a redemption, to rebuild their points balance.
Tip: Avoid margin erosion by implementing program rules to restrict redemptions with discounts and/or apply a minimum redemption threshold. Be aware of the cost of allowing savvy members to double-dip – ideally find program partners to fund incremental costs.
3. Not Generous Enough: Programs don’t survive if rewards distance is long, and/or value isn’t sufficient.
Rewards Distance: If it takes too much time or effort for the average customer to get a reward, they’ll give up unless that reward is suitably rich. (Airline programs typically perform well with long reward distances as a free flight is worth the wait).
Rewards Value: On the flip side, rewards value can be low if easily achievable based on purchase frequency (e.g. get your 10th coffee free). Yet we still see programs where the rewards value available to an engaged member is still lower than the reward a non-member gets if they wait for the next promotional discount!
Tip: Be clear on average customer behaviour, time and likelihood of reward achievement, then set a stretch on the average customer engagement to deliver to uplifts.
4. Lack of Awareness: It’s a mistake to assume members are aware of their loyalty program membership, particularly if they were auto-enrolled, and/or have opted out of marketing communications.
Earning: Program members may still spend and earn rewards without awareness.
Redeeming: With their next purchase, this member is given the opportunity to redeem the points they didn’t know they had (without healthy friction).
Points pressure: With no prior knowledge of their points balance, the member won’t experience the emotional impact of accruing and maximising points value (points pressure) and redeems their points without incremental spend or engagement.
Re-engaging unaware members: Closing the awareness gap with members who've opted out of marketing is a challenge, and crucially, raises compliance risks. Under the Spam Act, any message with promotional content (even including a points balance with an offer) requires consent and an unsubscribe option. The ACMA is actively focused on loyalty program compliance, with recent examples of $700K - $4M in penalties imposed on some well-known brands.1,2
Watch-out: Under the proposed Privacy Act Tranche 2 reforms (draft 2026)3, auto-enrolment and data use will also need to pass a “fair and reasonable” test, where consent alone won’t be enough and the test would also apply to data already held.
From 1 July 2027, the Australian Consumer Law4 will prohibit practices that unreasonably manipulate consumer decisions such as artificial urgency, misleading progress cues, and redemption friction (specifically designed to deter engagement will) carry regulatory risk.
Tip: With point-based programs, understand and effectively utilise the psychological levers of points pressure (including endowed progress and goal gradient effects), making sure you use these levers with transparency and in the member's interest.
BE VIGILANT: Keep an eye on the Privacy Act reforms and from 1 July 2027, healthy friction should still help your members get more value, not stop them claiming it!
5. The Paradox of Choice: A loyalty program can’t be “all things to all people,” but many try to appeal to everyone by offering an extensive range of rewards redemption options.
80/20 Rule: A broad rewards catalogue works when connected to high-spend and frequency (e.g. travel or credit cards). Even then, the 80/20 rule often applies, where 80% of members redeem only 20% of the available rewards.
Too much choice can cause customer confusion or inertia, having an adverse impact on redemption rates.
Tip: Customers buy the products they want or need from a brand. The best reward for brand loyalty is more access to more of those products. Avoid over-investing in a breadth of reward redemption options that don’t resonate.
6. Personalisation: Just as loyalty programs can’t be all things to all people, one size doesn’t fit all. Well-designed and executed personalisation is key to making program members feel uniquely valued.
Frequency and Relevance: In sharing personal data to access rewards, customers expect personalisation. Generic communications, promoting irrelevant products, too frequently drives unsubscribe rates, yet it's still prevalent.
Tactical Segmentation: Exists for many programs but is no longer enough. Rewarding customers’ birthdays and anniversaries is table-stakes but not true personalisation.
Hyper Personalisation: Customers’ transactional, behavioral, demo- and psychographic data must be available and analysed to feed tailored communication strategies and personalised experiences. However, with ever-changing customer behaviours and preferences, these strategies must quickly and manually adapt so becoming increasingly impossible. Program operators struggle to keep up, offering rewards and mechanics that lose their customer appeal. More help is needed….
AI and Machine Learning is necessary to conduct real-time analysis at scale, identify patterns at the customer level, and predict future behaviours.
Costly Errors: We’ve seen many examples of programs not getting basic communications right. Sending incorrect points balances or promoting unachievable rewards can erode trust and engagement, cause reputational damage and member churn.
The role of AI: AI and machine learning make personalisation work at scale, to analyse customer data in real time to predict behaviour, tailor offers, content and timing to each member, automatically adapting as preferences shift. AI should also QA and catch errors (e.g. incorrect balances, unattainable rewards). The caveat: AI is only as good as the data and guardrails behind it, so clean data, human oversight and transparent data use remain essential.
Tip: Carefully develop necessary customer journeys and trigger-based communications. Track customer behaviours to quickly identify and improve underperforming mechanics. Since AI only amplifies what it’s built on, clean data and clear guardrails (human oversight, transparency about data use, and checks that personalisation is valuable) are crucial to separate trust-building personalisation from creepy customer surveillance!
7. The Holy Grail - Return on Loyalty® Research shows 67% of organisations struggle to effectively measure loyalty ROI5, yet it’s critical to monitor consistent loyalty KPIs – most notably, Return on Loyalty®.
Data and KPIs: Without establishing solid data sources and KPIs there's no consistent view of program performance.
Members versus Non-Members: Comparing member behaviours and value to non-members is a common misleading measure. The best, most highly engaged customers self-select into a program, whereas non-members will naturally be less engaged so are not an effective control group. A more accurate measure will show the uplift of engaged members to unengaged members.
Pre- versus Post-Loyalty: Comparing customer behaviour before and after joining a program is another common mistake. As non-members are often unidentifiable, their value can only be assessed in the aggregate. For new members, it’s impossible to know why they joined the program, and it could simply be due to a change in personal circumstances. At this stage, the customer self-selects as the program is now relevant for them. So ‘after’ loyalty naturally shows stronger engagement but still reflects self-selection bias.
Adaptability: Loyalty programs don’t always drive the desired outcomes. It’s vital to identify underperforming rewards and mechanics, adjust quickly, and keep monitoring.
Customer lifetime value (CLTV) should not be a retrospective metric – it’s more valuable as a predictive measure. Calculations must consider customer acquisition and churn and should be periodically assessed to see how loyalty initiatives have impacted member behaviour and value.
Tip: Have clarity around core KPIs, get access to the right data, very regularly, and continually monitor to enhance program performance. Know which KPIs to monitor monthly and what deeper analysis is required on a periodical basis.
We are Ellipsis, The Loyalty Experts. We help you measure, manage and grow customer loyalty. We're here to help, please get in touch.
References
Australian Communications and Media Authority, “TAB penalised $4 million for spamming VIP customers”, June 2025. https://www.acma.gov.au/articles/2025-06/tab-penalised-4-million-spamming-vip-customers
Australian Communications and Media Authority, “Betfair pays $871K for VIP customer spam breaches”, July 2025. https://www.acma.gov.au/articles/2025-07/betfair-pays-871k-vip-customer-spam-breaches
Attorney-General’s Department, Privacy Amendment (Personal Data Protection) Bill 2026, exposure draft and Consultation Paper, released 31 August 2026. https://consultations.ag.gov.au/rights-and-protections/privacy-reform/ For Ellipsis analysis of the draft, see Simon Wickson, “The Privacy Reforms Hitting Loyalty Programs in Disguise”, 11 September 2026, and “Data Trading: Every Loyalty Program?”, 1 October 2026.
Competition and Consumer Amendment (Unfair Trading Practices) Act 2026 (Cth), commencing 1 July 2027. Sparke Helmore, “Fair enough: the new unfair trading practices regime and what consumer-facing businesses must do before 1 July 2027”. https://www.sparke.com.au/insights/fair-enough-the-new-unfair-trading-practices-regime-and-what-consumerfacing-businesses-must-do-before-1-july-2027/
Forrester Consulting, commissioned by Collinson, loyalty study of APAC decision-makers, April 2018. Collinson, “Putting loyalty back on track: personalisation and advocacy”. https://www.collinsongroup.com/lp/putting-loyalty-back-on-track-apac
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