TL;DR: A misaligned loyalty program isn’t neutral—it’s a negative‑value asset. It taxes retention, inflates service costs, distorts your data, and dents brand trust. Doing nothing costs real money every month.
What actually goes wrong
- Retention drag: Friction and “gotcha” moments push members out. (Losses loom larger than gains, so one bad experience outweighs several small perks.)
- CLV suppression: Fewer repeat purchases and slower time‑to‑first‑redemption flatten lifetime value.
- Service bleed: More tickets, refunds, and goodwill credits from confusion or perceived devaluation.
- Brand damage: “They took my points” travels faster than “I saved $5.” Prospects hesitate; casuals churn.
- Data distortion: High breakage and tight rules make P&L look better than reality, masking churn and negative sentiment.
- Liability shocks: Point revaluations or partner price drift can spike your balance‑sheet liability.
- Opportunity cost: No early “win,” no habit formation—acquisition has to carry the load.
- Cultural drag: Frontline teams stop promoting; product ships around brittle rules; finance mistrusts forecasts.
Back‑of‑napkin math (use this to size the leak)
Inputs: 50,000 monthly active members · ARPU $45 · Gross margin 30%
Status‑quo risk: +2.5pp churn from a bad program
- Monthly gross margin at risk:
50,000 × $45 × 0.30 × 0.025 = $16,875 - Annualized: $202,500
- Service overhead from loyalty issues (conservative):
+1% contacts → 500 tickets × $5 fully‑loaded = $2,500/month
15% goodwill credits × $10 = $750/month - “Do nothing” total (monthly): $16,875 + $2,500 + $750 = $20,125
→ Quarter: $60,375 · Year: $241,500
CLV you’re leaving on the table:
Annual margin per customer = $45 × 12 × 0.30 = $162
CLV ≈ 1+d−rm⋅r, with d=10%
- At 70% retention: $283.50
- At 75% retention: $347.14
- Delta: $63.64 per customer → across 50,000 members ≈ $3.18M lifetime margin
Liability example:
120M points × $0.008 = $960k liability today.
Revalue to $0.01 (1:1 carryover) → $1.2M (+$240k). Without a plan, that’s an avoidable shock.
Spot the “bad program” pattern fast
- Time‑to‑first‑redemption is long or hidden at checkout.
- Support tickets skew to surprise/loss (expiry, blackout, rule changes) vs. how‑to.
- Earn and burn live in different channels or partners with inconsistent rules.
- Leadership relief when members don’t redeem (i.e., economics rely on breakage).
- Social threads repeat the same loss‑tinged story.
If two or more of these ring true, you’re paying the silent tax right now.
The real takeaway
Keeping a weak program “until next quarter” isn’t free. It’s $20k+/month in hard costs on a midsize file, plus seven figures in suppressed lifetime value, and a brand story that gets harder to rewrite. In a world where acquisition keeps getting pricier, a bad loyalty program is one of the most avoidable leaks in the business. Fix it to stop the bleed—and then let a clear, trusted redemption path do what loyalty does best: lift retention, not liability.UX clutter or structural misalignment.
