Why Discount-Based Loyalty Programs Fail & How Points Systems Drive Revenue Retention

In today’s competitive marketplace, businesses often launch loyalty programs to attract and retain customers. However, many make the mistake of offering percentage-based discounts to loyal customers, thinking that this will build long-term brand loyalty.

But here’s the truth: discount-based loyalty programs often backfire, devaluing your brand and attracting deal-seekers rather than true brand advocates. Instead, points-based loyalty programs offer a more sustainable approach to revenue retention and customer loyalty.

In this post, we’ll explore why discount-based loyalty strategies fall short and how you can implement a points system that actually drives customer retention.

The Discount Dilemma: Why Percentage Discounts Are a Bad Strategy

Many businesses launch loyalty programs that focus on giving customers a percentage off their purchases if they show a loyalty card. On the surface, this may seem like a way to encourage repeat purchases, but it has a major downside.

Eroding Perceived Value

When you offer discounts regularly, customers may start associating your products with a lower value. They could wait for discounts, only buying when they feel like they’re getting a deal. Loyalty programs should build relationships, not train customers to expect constant markdowns.

Encouraging Transactional Relationships

Discount-driven loyalty programs focus too much on immediate savings, fostering a transactional mindset. This approach teaches customers to look for deals, leading to minimal emotional connection with your brand.

Attracting the Wrong Customers

Discount programs often attract bargain hunters, who may only be loyal for as long as you’re offering discounts. These customers aren’t truly invested in your brand and will switch to a competitor when a better deal comes along.

Lower Profit Margins

Frequent discounts reduce your profit margins, especially if customers become accustomed to shopping only when they see a percentage off. While you may see short-term sales spikes, the long-term effect is decreased profitability.

Why Points-Based Strategies Drive Revenue Retention

Unlike percentage-based discounts, points-based loyalty programs are designed to incentivize long-term engagement and deeper brand loyalty. By rewarding customers with points for every purchase, you encourage repeat business without devaluing your product or service.

Encourages Repeat Business Without Devaluing

Points programs allow customers to accumulate points over time and redeem them for rewards, which encourages repeat business without lowering the perceived value of your products. Customers are earning rewards for their loyalty, but your core product pricing remains intact.

Fosters Emotional Loyalty

Customers are more likely to develop emotional loyalty when they feel like they are “working” toward a reward. This sense of progress and achievement builds an emotional connection to your brand, increasing the likelihood of repeat purchases.

Increases Customer Lifetime Value

Points-based systems encourage customers to make more frequent purchases to accumulate enough points for a meaningful reward. This increases customer lifetime value as they are incentivized to return and spend more.

Creates Differentiated Tiers for VIP Customers

Points programs also allow you to offer tiered rewards, where higher spenders unlock exclusive benefits. This helps you segment your customer base and provide more value to your top-tier customers, all without eroding profit margins.

Customizable Rewards Encourage Personalization

With points-based loyalty programs, you can offer customized rewards based on customer preferences, making your loyalty program more personalized and engaging.

Conclusion: Building True Loyalty Takes More Than Discounts

In the battle for customer loyalty, it’s essential to choose strategies that enhance your brand’s value and encourage long-term engagement. While discount-based programs may provide a short-term boost in sales, they often fail to foster the emotional connection required for true loyalty. Points-based loyalty programs are a more effective solution, driving revenue retention and ensuring your customers stay loyal for the long haul.

Ready to launch a points-based loyalty program that increases revenue and drives customer engagement? Contact us today to learn more!