Are loyalty programs worth it?

"Do what you do so well that they will want to see it again and bring their friends."

- Walt Disney

" Get closer than ever to your customers. So close that you tell them what they need well before they realize it themselves." Steve Jobs

For a business, large or small, finding a customer can be an expensive task. In a world of infinite ways to purchase things, advertising for new, elusive customers can take time and money, both of which are in limited supply. It's far easier to retain existing customers than to find new ones, even though inevitably many will die, move away, or find better alternatives. This is where loyalty programs come in.

Practically every retail establishment has some sort of loyalty program, aka frequent shopper reward program. You will find them at grocery stores, department stores, airlines, hotels, movie theaters, and just about anywhere where discretionary income is spent. Some programs are free (grocery and department stores), and some ask for a yearly fee (Amazon, Costco). These programs are cleverly designed to increase return shopping traffic and choke off competition.

Loyalty programs can include:

• Asking members for identifying information, usually cell phone numbers and email addresses where marketing messages can be sent.

• Tracking every purchase by members, including what, when and where things are bought. This data can be extremely valuable.

• Some kind of points system that rewards shoppers from time to time with discounts or free items that can be redeemed at a later time.

• A tiered membership platform (Gold, Silver, Platinum) where the more people shop, the higher the tier and better the rewards.

• A cell phone app.

• Emails that ask shoppers to rate their experience and give feedback.

• Offers for a branded credit card with even better perks, but very high interest rates

These programs can seem like a win/win for everybody. Shoppers save money, and businesses retain customers and drive up their spending. Personally, I belong to several loyalty programs, but I'm leery of depending on them too much. Too much loyalty can be a bad thing. Blind loyalty keeps us in a rut and prevents us from seeking out new experiences. And there is another danger that's little discussed.

Giving up your shopping data can make you vulnerable to clever pitches from companies that know you better than you know yourself. These pitches can be hard to resist and may take you in a direction you don't really want. Data is being collected on all of us by data miners, data brokers, and tech giants that we might not want out there. Social media is free only because it collects enormous points of data on us and uses it for advertising.

Is the data from a loyalty program shared with other data brokers? Of course it is, and this is a source of income for the folks collecting it. They can afford to take a small hit on profits by taking in money for your data.

There's a famous story from 2012 that a Minneapolis father questioned a Target store why his daughter was receiving ads for baby clothes and cribs. It turned out that the daughter was pregnant, but hadn't told anyone- yet Target knew because its algorithm was designed to link her purchases to the likelihood the buyer was pregnant. If this was possible 12 years ago, who knows how powerful the predictions could be in the future?

We all need to be wary of targeted advertisements if we're going to be using loyalty programs. I still like to think I know my needs better than a computer does and I've resolved to enjoy the discounts but try to not let them influence my buying behavior.

Opening up new credit cards has become fast and easy in the retail environment, and retailers have capitalized on that to move into the banking market with their own credit cards. Customers are offered a one-time discount or freebie for opening a card, and it seems like a win/win again. Card holders may be offered preferential treatment for special events, and are eligible for the highest tiers in the loyalty system.

But for retailers it's a huge win, because they not only save on the substantial swipe fees that banks charge on outside credit cards, but they profit from the high interest rates (average of 30-33% annually!) that these cards inevitably charge customers that carry a balance. Many businesses like retail have very thin profit margins, and this extra money can make the difference between growth and bankruptcy. Earnings from store credit cards can amount to an average of 30-40% of net profits according to Google, which is why stores are keen to keep on opening them. Many offer incentives to their employees for convincing a customer to open up a card.

Needless to say, using any credit card carries risks if people are unable to pay them off. Store credit cards come with goodies, but must be used sparingly. If one must carry a balance from time to time, it's best to look for a bank card with the lowest interest rate, and not carry too many cards.

Here is one listing of the best loyalty programs from emarsys.com

The 10 Best Retail Customer Loyalty Programs (Quick Comparison)

Program	Type(s)	Headline perks	Standout feature
Starbucks Rewards	Points, Omnichannel	Stars → free customizations, drinks, food	34.6M U.S. active members (Q1 FY2025)
Sephora Beauty Insider	Tiered + Points	Birthday gifts, Rewards Bazaar, early access	~34M members; gamified “Challenges”
Nike Membership	Omnichannel, Value	Exclusive drops, free returns, member offers	Free shipping for members on $50+ (US)
Amazon Prime	Paid	Fast shipping, Video/Music, deals	RxPass $5/month generic meds
IKEA Family (U.S.)	Omnichannel, Points + Value	Member prices, workshops, free coffee	New Rewards from IKEA Family points (2025)
H&M Membership	Points + Tiered	Member prices, early access, sustainability actions	App‑first tracking; sustainability earners
myWalgreens	Cash rewards	Personalized offers, pharmacy integration	Health goals → rewards; same‑day services
Ulta Beauty Rewards	Points + Tiered	Points → $$ off, frequent multipliers	2025 refresh; rebrand from “Ultamate Rewards”
PetSmart Treats Rewards	Points + Value	Earn on products and services; pet b‑day perks	Huge base; tiered perks rollout; AI offers
Nordstrom The Nordy Club	Points + Experiences	“Notes,” alterations, early access	No points at Nordstrom Rack as of Jun 3, 2025; 5% instant discount w/ card at Rack

Bottom Line: If you will actually benefit from the perks, by all means sign up for loyalty programs, especially if they're free. But remember that corporations are not your friends, and their loyalty only lasts as long as you keep shelling out the $$$$. If you want to truly feel part of a group, find one that doesn't require purchases all of the time. With the rise of artificial intelligence, these programs will only get more powerful and intrusive, so handle them with care.