The State of Retail Loyalty Programs and What's Driving Engagement

The Current State of Loyalty: Hit or Miss?

Loyalty isn’t just a buzzword in 2025 – it's a real world big bet, and an even bigger win. In a world where consumer attention is fleeting and competition is relentless, the brands that focus on retention over acquisition come out on top.

It’s the Pareto principle at play – 80% of future business revenue often comes from the 20% of its existing customers!

India’s loyalty market is set to hit $3.58 billion by 2025, growing at a staggering 18.3% annually. A whopping 79% of consumers are enrolled in at least one loyalty program, and 75% of them admit they spend more with brands they’re loyal to.

The impact? Top-performing loyalty programs see a 15-25% annual revenue boost. Bain & Company reports that a modest 5% uptick in retention can skyrocket profits by 75% - proof that keeping existing customers engaged is more lucrative than acquiring new ones.

A remarkable 69.2% of companies report satisfaction with their loyalty programs, and those measuring ROI are seeing massive returns—an average of 5.2X on every dollar spent. It’s no surprise that loyalty and CRM budgets are on the rise, now accounting for 31.4% of overall marketing spend, according to a study by Antavo AI Loyalty Cloud.

Despite such a compelling business case, why do so many loyalty programs fall flat?

44% of consumers cite a lack of reward relevance, flexibility & value ; 33% struggle with friction across touchpoints, and 17% invoke frustration with poor customer service.

So, the real question isn’t whether loyalty matters — it’s how to make it matter more.

The Big Consumer Wishlist: Beyond Points & Perks

Consumers come for the financial benefits, but stay for the experiences. So, what makes a loyalty program truly work?

Rewards that Actually Matter & Go Beyond the Purchase: The biggest loyalty killer? Perks that don’t excite! While of course more than half, 57% of customers sign up to save money, traditional discounts aren’t enough to drive long-term engagement. Winning programs offer a mix of monetary incentives and exclusive experiences — think VIP access, limited-edition drops, and surprise perks that make members feel valued. But customers neither want to feel like you’re just selling to them. The best programs reward engagement beyond transactions—from writing reviews, referring friends, completing challenges, sharing on social media, and even just visiting the brand’s website.

Reward Customization remains a rare feature, despite 81.2% of members preferring to personalize their perks. The Nordy Club by Nordstrom nails this with flexible redemption options like reward swapping, bidding, and Member’s Choice Double Points Days, where customers pick when they want extra rewards.

The result? Higher spend, deeper engagement and smarter customer insights.

Emotional Loyalty > Transactional Loyalty - Forrester studies confirms that emotion is a stronger driver of loyalty than convenience or price.

76% of consumers feel more connected to brands that support causes they care about, and 89% are willing to switch brands for it. Take H&M's membership program—beyond discounts, it emphasizes sustainability by offering members the chance to save more money by recycling clothes and using reusable bags.

Optimization & Gamification, a Win-Win Strategy - With 59% of consumers preferring mobile apps to interact with loyalty programs - loyalty essentially lives on mobile in 2025 -making speed, seamless and instant experiences a must. Every second of page delay can reduce conversions by 7%, so optimization is just as crucial as the rewards themselves.

Programs that integrate gamification, surveys, and interactive engagement see higher participation rates. And when done right, gamification isn’t just engaging—it’s a goldmine for high-quality customer insights & data. Case in point: Charlotte Tilbury Beauty!

Instead of basic forms, they use photo scanning, visually immersive quizzes, and interactive product match tools to make participation feel effortless and exciting. From fragrance finders to AI-powered skincare analysis, they turn loyalty engagement into an experience—keeping customers entertained while gathering valuable data.

Similar activations have been employed by brands like Chanel & Nike.

Exclusivity that feels personal - 91% of America's best apparel loyalty programs offer early or exclusive access to sales and new products.

Why? Because consumers love to live like insiders. And nothing says VIP like early access, invite-only perks, personalized recommendations and experiences.

Luxury sets the gold standard here with invitation-only world of exclusivity. Walk into Maison V by Louis Vuitton, and you’re not just shopping; you’re stepping into a private world of early product drops, intimate in-store soirées, and bespoke travel experiences. And Chanel? Consider it as a personal gateway to luxury, where high-spending clientele enjoy concierge service, exclusive previews, and a seamless line to the most coveted collections before they hit the floor.

Pooling Perks: Loyalty that Grows Together - Call it family accounts, point pooling, account sharing or household accounts – what consumers want is collective earning, smarter redemptions & shared rewards.

Antavo found 76% of consumers prefer brands that let them pool points with friends and family, but only 43.7% of loyalty programs offer this. Hilton Honors by Hilton sets the benchmark by making rewards more valuable and attainable. Members can seamlessly pool points with up to 10 others, transfer points between accounts, and even gift elite status to friends and family.

Cross-Industry & Cross-Brand Perks - Loyalty Without Borders: Loyalty is more powerful when it fits into a consumer’s entire lifestyle, not just their shopping cart. The best programs break industry barriers, offering perks that extend beyond a single brand’s ecosystem. From airlines partnering with hotels to fashion brands collaborating with lifestyle services, cross-industry rewards create seamless value—making memberships more versatile and desirable.

Take Marriott Bonvoy by Marriott International — members don’t just rack up points on hotel stays across 30+ Marriott portfolio brands. They can redeem them for Uber rides, luxury cruises, high-end fashion, VIP access to galas and sports events, culinary experiences, and even concert tickets.

The Loyalty Hall of Fame: Membership Programmes that have Stood the Test of Time

From turning occasional shoppers to brand evangelists to creating engagement hooks that feel almost like a second nature, these brands have cracked the code on customer loyalty.

1. Tesco Clubcard: 30 years of Data-Led Loyalty

What started in 1995 as the UK's first mass-market loyalty program, is now a data-driven juggernaut, with 23 million UK households actively using it and 82% of Tesco’s sales tied to Clubcard members. By leveraging Dunnhumby’s analytics, Tesco transformed customer insights into a business powerhouse, surpassing Sainsbury's within a year and doubling its grocery market share in three.

“It’s 30 years since we broke the mould of grocery retail. What amazes me most is that some are still playing catch-up. It isn’t rocket science. Knowing your customer means a better shopping experience, better products, better pricing, improved ROI on promotions and happier customers,” says Clive Humby, Founder of Dunnhumby.

The secret? Constant reinvention!

From launching Reward Partners in 1999 (doubling points with travel & dining partners) to adding joint household accounts for seamless point pooling, and now digitizing the experience with app-based tracking and redemptions – the program has evolved continuously to keep engagement high.

The latest move? AI-driven hyper personalization. It has unveiled a new phase of its Clubcard Prices scheme, offering tailored discounts & health-based recommendations based on the consumers’ past shopping habits.

“I’ve noticed over time in your shopping basket that your sodium salt content is 250% of your daily allowance. I would recommend you substitute this, this and this,” Tesco CEO Ken Murphy candidly remarked at a retail conference.

Over the last decade, Clubcard driven sales have added £60 billion to Tesco’s bottom line – a true retail masterclass in staying ahead.

2. Sephora Beauty Insider: A VIP Pass to the Beauty Universe

This is the loyalty program that feels less like a marketing tool and more like a beauty-obsessed bestie—making it retail’s ultimate success story & winning formula. With 34+ million members, this program doesn’t just reward spending, it fuels obsession.

The impact? 80% of Sephora's total sales come from members, website engagement surged 22% post the launch of the program, and upsell revenue has skyrocketed between 13% to 51%.

What makes it thrive? Status, Community & Exclusivity!

Sephora's tiered structure—Beauty Insider, VIB, and Rouge—turns shopping into a prestige game where bigger beauty hauls unlock bigger perks. Think early access to must-have drops, invite-only events, and luxury rewards that make members feel like true insiders.

Sephora ditched the basics for experiential rewards in 2016 with the Rewards Bazaar, letting members redeem points for everything from luxe products to exclusive experiences. And a year later in 2017, Beauty Insider Community turned loyalty into a social affair, creating a go-to space for beauty lovers to connect, swap tips, and obsess over the latest trends.

At its core, hyper-personalization is Sephora’s real magic. Leveraging the data-driven insights, it predicts what members want before they even know it, delivering tailored product recommendations, exclusive offers, and curated content that makes every shopper feel seen.

3. Shoppers Stop First Citizen Club: Making Every Swipe Count

In the Indian retail landscape, few loyalty programs have stood the test of time like Shoppers Stop's First Citizen Club (FCC). Loyalty isn’t just an add-on here—it’s the backbone of the brand. And with FCC constantly evolving, Shoppers Stop is turning customer retention into retail domination.

With 11.5+ million members as of Q3FY25, FCC fuels a staggering 83% of the brand’s sales, with 69% coming from repeat members. And the spending gap? Massive! First Citizen members shell out 20-25% more per transaction than non-members. Proof that when loyalty is rewarded well, customers return the favor.

What keeps the members coming back? Strategic partnerships, a structured tier system, seamless omnichannel access, and meaningful rewards. The membership tiers—Silver Edge, Gold Glow, Platinum Aura, and Black—offer increasing levels of exclusivity.

The elite Black Card members alone powers 17% of total sales, proving that exclusivity sells. Perks? From Golf and sailing Sundays to cocktail-mixing events, Grape Stomp Wine Carnivals and even a year-long exchange window, these benefits turn transactions into premium experiences.

And in 2024, FCC leveled up. Its partnership with Single.id introduced vINR rewards, letting members earn and redeem across an extended partner network—including Pizza Hut, Mad Over Donuts, Truefitt & Hill, McDonald's, and more—ensuring the loyalty stretches far beyond fashion.

4. Starbucks Rewards: Written in the Stars

When it comes to loyalty that keeps customers hooked (and coming back cup after cup), Starbucks Rewards plays in a league of its own. Seamlessly blending convenience, gamification, and frictionless transactions, this program turns everyday coffee runs into a rewarding ritual.

With 34+ million active members in the U.S. alone, Starbucks Rewards is one of the most successful programs in the café loyalty space. And the numbers prove it:

• Engagement? Nearly 48% of all mobile users who engage with restaurant apps choose Starbucks Rewards.
• Sales impact? Rewards members drive about 53% of total in-store spend.
• Spending Gap? Members spend 2.5x more per transaction than non-members.
• Retention? A staggering 44% — almost double the industry average of 25%.
• Satisfaction? A remarkable 90% satisfaction rate among members.

Since its launch in 2019, the program has fueled a 7% increase in sales—proof that when loyalty is brewed right, customers keep coming back for refills!

The ingredients behind its loyalty success? Personalized perks, gamified engagement, and effortless access. Members enjoy birthday rewards, free in-store refills, mobile ordering, and exclusive games that unlock free food, drinks, and special prizes.

Double Star Days, where customers earn twice the usual rewards, drive urgency and bigger checkouts. And with mobile orders making up 26% of U.S. transactions, Starbucks has unarguably built a program that fits seamlessly into customers’ everyday routines.

Loyalty 3.0: Loyalty 2.0 + The Power of AI

Loyalty 3.0 involves the art of surprise, powered by the right technology.

Instead of predictable rewards, brands are tapping into ‘invisible loyalty’—using AI to analyze shopping habits and drop unexpected, ultra-relevant perks when customers least expect it- a personalized gift right when a customer is about to churn or early access to a limited-edition drop before they even realize they need it. The best loyalty today doesn’t wait for customers to ask—it anticipates, delivers, and makes them feel what no generic points system ever could.

Brands today are leveraging top-tier mechanisms to increase lifetime value and memberships is a sustainable way to do it. The Storefox.ai team has a great case study to share- reach out to learn more.

And let’s talk about spending power flexes. The new-age loyalty isn’t just rewarding the big spenders—it’s rewarding the right spenders. With the power of AI and effective tools, brands are tracking who engages, who advocates, who actually moves the needle, and rolling out exclusive perks for them. Because a customer who posts their haul on TikTok or Instagram and gets a 100K views? Probably more valuable than someone who just buys quietly - Welcome to the era where influence is just as good as currency.

And of course, emotional loyalty is where the real magic happens. Brands that truly get their customers aren’t just handing out perks—they’re building cults. The kind where people feel a personal attachment, where the product is part of their identity. It’s why Glossier stans will defend Balm Dotcom like it’s a family heirloom and why sneakerheads will camp out (or fight bots) for the latest drop.

But you already knew this.

Now, AI is helping brands detect sentiment and respond proactively. If a frequent shopper has a negative experience, an automated yet thoughtful recovery effort—like a personal outreach or a tailored offer—can rebuild trust instantly.

The brands that win at loyalty aren’t just in your inbox with a 10% off coupon—they’re in your personality traits.

Decoding Retail: Your Insider Glossary

'Engagement Loops'

Also known as "dopamine loops" or "loyalty loops," these are a carefully designed cyclical strategies that keeps customers continuously engaged across multiple brand touchpoints. Unlike the old school earn-and-burn model—where customers rack up points and cash them in—modern loyalty loops ensure every interaction feeds into the next, creating an effortless, addictive, feel-good engagement cycle.

As a key part of the loyalty program, these loops trigger dopamine hits & turn one-time buyers into lifelong fans.

Allbirds fuels its engagement loops through eco-conscious incentives, nudging customers to recycle old pairs for store credit while reinforcing sustainability at every step. Lowe's recently overhauled its MyLowe’s Pro Rewards, making engagement sharper, smarter and more compelling for its customers.