Loyalty program best practices: Take a hint from behavioral psychology


The best loyalty programs borrow heavily from behavioral economics. The worst ones ignore it.

Traditional customer loyalty programs — ones you’re probably reluctantly a part of currently — require a customer to continuously “opt-in” by taking some action every time they transact: scanning a plastic loyalty card, entering personal information into a POS, or checking in somewhere.  However, there’s a simple explanation as to why this never works long-term for brands seeking to drastically improve customer retention:

Customers must deliberately “opt in” to these types of loyalty program many,  many times over the course of their patronage with the business.

The customer loyalty struggle is real

Every time they visit, customers must be prepared: they need to have their plastic loyalty card at the ready! They need to have their phone with them and charged up! Hope you’re not in a hurry, because you need to enter your phone number or email into this POS before paying (now, which phone number did I use to sign up…?).

If the stars don’t align and the customer forgets to opt in a few times, your loyalty data is effectively useless: you no longer have reliable information about the frequency or spend of this customer. They didn’t feel like bringing their stack of loyalty cards with them today, and now you’re SOL.

You can’t fight evolution

However, there’s a way to address the laziness of consumers: in a card-linked loyalty program, customers take no additional action after they’ve signed up ONCE. Once a customer is signed up and has a card linked, they don’t even have to open the mobile application. Every time the consumer pays with their credit card, the data is collected. This type of effortless relationship removes the possibility of loyalty fatigue, where consumers are tired of constantly being asked to carry around additional loyalty cards, enter personal information during check-out, or open up their phones while transacting. Customers have to intentionally opt-out, deliberately removing themselves from the program.

…but you can embrace it
Customers don’t typically opt out if a program is sufficiently delighting them and delivering value. Thanx merchants see 96% long-term engagement of signed-up users (as compared to ~18% for traditional loyalty programs) because of this “opt-out” approach. This approach draws heavily from the psychology that was employed when countries in the EU were looking to increase rates of organ donation (seems like a far stretch, but hear me out). Consider the delta in consent rates between Austria and Germany: Germany — which uses an opt-in system — sees only 12% give their consent; in Austria, which uses opt-out, nearly everyone (99%) maintains the status quo.

This almost perfectly mirrors our findings when it comes to opt-in vs. opt-out loyalty programs: when people have to take action to stay involved in a program, they overwhelmingly fail to do so. When people are already opted in and have to deliberately opt out, they end up staying enrolled.

The main takeaway? Humans are lazy.

They don’t want to jump through hoops in order to participate in your loyalty program. The average American is a member of 29 different loyalty programs but actively participates in less than half. Why? Because we take the path of least resistance.  Pro tip: Cater your program to actual observable human psychology. This means removing friction and making it as easy as possible for your customers to stay enrolled in your loyalty program.

Case in point: Even a nicely paved path won’t get traffic if there’s a quicker way to go.