The Leaky Bucket of Customers: Fixing Churn Rates in Loyalty Programmes

For every loyalty practitioner, customer churn rate is one of the most critical challenges to address as it refers to the proportion of customers who stop using the loyalty programme within a given timeframe. Traditionally, reward programmes rely on straightforward indicators such as inactivity or a lack of transactions to identify at-risk members. Others leverage partnerships within their loyalty ecosystems, offering digital coupons or tokens redeemable across partner brands, enhancing both engagement and perceived value. Businesses closely analyse the percentage of customers who re-engage on the back of these campaigns to assess how many they have successfully brought back to their brands. 

Learnings from the fitness and wellness industry

Key stakeholders in any business carefully analyse how rewards programmes influence retention. Many churn-prevention campaigns take a segmented approach, with some companies categorising customers into as many as 20 segments based on spend and frequency. To re-engage inactive members, businesses often deploy automated, trigger-based campaigns that provide added value. This could be a complimentary coffee or drink, a free service, or even a non-transactional benefit. 

However, loyalty programmes should not be viewed as the sole remedy for preventing churn. Factors like subpar service, high membership fees or broken equipment also contribute to cancellations. That said, for many industries, particularly in fitness and wellness, there’s a clear link between programme engagement and retention. 

Early signs of churn may include a drop in gym visits, especially within the first month or at the 90-day mark. Members who don’t engage early are more likely to cancel after a year. To address this, reward programmes often aim to incentivise attendance, with benefits like unlocking a reward for visiting twice a week to boost retention. 

A key driver of retention is instant gratification. Reward programmes that leverage real-time incentives keep consumers engaged and help build lasting habits. Many businesses go beyond extrinsic rewards by integrating personal goal tracking. When members set goals at sign-up and receive timely reminders through meaningful touchpoints, it reinforces motivation during the critical first 30-90 days.

The Middle East and Africa region significantly outpaces the global average when it comes to interest in instant gratification: a notable 43% of respondents expressed a preference for real-time rewards, compared to just 30% globally

^{Source: Euromonitor Voice of the Consumer: Loyalty Survey, fielded March to April 2024}

This highlights a growing trend towards quicker, more immediate satisfaction in customer experiences, reflecting a shift in consumer expectations and behaviours.

Key lessons from the payments sector

The majority of loyalty programmes are linked to credit cards, making the financial services sector uniquely challenging when it comes to customer retention. Often, people sign up for cards to earn specific rewards, like airline miles, and once they’ve received those benefits, they cancel. This results in a higher churn rate, especially when new offers are introduced.

To tackle this, it’s crucial to focus on achieving "top of wallet" status, where customers use your card regularly for various categories, not just for specific purchases like travel or dining. By identifying customers who use multiple cards by offering compelling rewards in everyday spend categories, brands can incentivise them to make their brand card their go-to option.

As of 2024, WeChat Pay and Alipay are the leaders in global digital wallet payment frequency, with 36% and 26% of users, respectively

^{Source: Euromonitor Voice of the Consumer, Digital Survey, fielded in September 2024}

These platforms continue to dominate the digital payment landscape, reflecting their widespread adoption and influence in populous markets such as China.

Additionally, customers tied to partner programmes—like airlines or hotels—are highly susceptible to devaluations, which can lead to churn. Therefore, offering rewards for both luxury and everyday spending creates more balanced, holistic types of programmes. The key is recognising customer motivations and customising rewards accordingly to keep them engaged, especially with instant gratification for everyday purchases. This segmentation and targeted approach can help retain customers and reduce churn, ensuring the capture of a broader range of spending behaviour.

To retain card members, it's crucial to tailor rewards to their specific usage. For customers using cards for travel, brands tend to prioritise exclusive benefits like lounge access or special hotel floors through airline or hospitality partners. For those using cards for everyday purchases, instant gratification rewards like small items at the grocery store play a critical role. The goal is to reach "top-of-wallet" status by engaging all types of customers. 

One size doesn’t fit all: Customising rewards based on engagement

Rewarding highly engaged members at the same rate as less active ones is costly; as a result, businesses must adjust goals dynamically. While this successfully encourages more frequent engagement or shopping, it might not help reduce programmes’ costs as intended. To address this, companies should explore ways to tailor rewards without alienating lower-engagement members. A key focus is enhancing status-driven incentives, as many members value recognition in addition to immediate rewards. Ongoing testing and refinement of the loyalty proposition is essential to drive long-term success.

Read our report, Top Five Trends in Loyalty, for more analysis on the drivers set to shape customer loyalty in 2025 and how brands tackle customer retention.