Loyalty Plans: The Big Shrug?
Firms spending billions on loyalty programs may be seeing less value as consumers treat them as commodities. Can AI help return more high-touch treatment?
An elite member of an airline’s loyalty program waits in a line with other members for access to the “exclusive lounge.” A longtime member of a retail loyalty program finds herself wasting 30 minutes in a chatbot spiral of misery, only to be passed on to an equally unhelpful AI agent. And a longtime fan of a restaurant who had reached “VIP” status was shocked to be told no reservations were available that week.
After years of effort to build programs to reward their most valuable customers, loyalty programs are at a crossroads. They’ve become revenue-generating behemoths for many firms, but that growth has come at great expense—both literally, in their financial cost, and figuratively, in their declining levels of customer service and personalization. Whether it’s elite-level frequent fliers or high-status members of a big-box retailer, consumer complaints appear to be mounting, experts say, with many feeling more unrecognized and less special than ever before. “Even elite members of loyalty programs feel like they are part of the herd. It’s like ‘Welcome to the program, you’re one of millions,’” says Torrey Foster, managing partner for the Consumer Markets Practice in North America for Korn Ferry.
Certainly, many firms have prospered with the plans—studies show frequent customers spend 12% to 18% more than average—and continue to put strong resources into them. But the cost of running many of the plans or offering discounts has been enormous. Even as the value of the global loyalty-management market has grown from $5.5 billion in 2020 to an estimated $17.38 billion in 2026, costs for software, infrastructure, and management tools have risen by more than 200%. This has forced firms to weigh the plans’ expenses against the business they bring.
“Loyalty programs have become a mathematical game to maximize revenue that has little to do with loyalty,” says Peri Hansen, leader of the Consumer Products sector and Marketing Officers practices in North America for Korn Ferry. For her part, Renee Whalen, consumer and healthcare market leader for professional search in North America at Korn Ferry, agrees. By overly automating customer-service loyalty, she says, the programs have “lost the sense of emotional connection and human touch that make them special.”
Experts say consumers are partly to blame. Many have gamified loyalty programs, using them indiscriminately to maximize points, often on purchases that aren’t even directly associated with the brand. Now, as industries devalue loyalty “points,” many consumers see no value to being loyal. As Hansen describes it, “The definition of loyalty has become quite transactional.”
Airline loyalty programs underscore this new reality. The industry has long been a model for using loyalty programs to drive increased consumer engagement, retention, and spending. Its frequent-flier programs have built up an enormous base of loyal and high-spending customers. But experts say the bigger, more successful, and more expensive these programs have become, the less special even their elite members may feel about them. A recent report on airline-industry loyalty programs found that 80% of a carrier’s most loyal flyers—or 4 out of 5 members—feel unrecognized by the airline. “I’ve heard people complain that airline lounges feel more like amusement-park rides than a refuge for their most loyal customers,” says Foster.
Putting the loyalty back in loyalty programs all comes back to experience, says Whalen. She says rewards are great, but what really makes consumers feel recognized and valued is human connection and personalized experiences. For instance, Whalen attributes luxury retail’s recent outperforming of the broader market to its creation of high-touch, differentiated experiences for consumers.
The more AI learns about an individual consumer’s behavior and spending patterns, the more it will be able to create tailored experiences at scale. But the technology isn’t there yet, and even when it does reach that point, the interactions must be authentic and human rather than automated, says Tamara Rodman, a senior client partner in the Culture, Change, and Communications practice at Korn Ferry. “A lot of times, it’s the small things like a personalized note from the pilot that make people feel special, and not like they are being treated with a shrug of the shoulders,” she says.
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