That satisfying sound when you scan your rewards card, the rush of accumulating points, the thrill of redeeming miles for a “free” flight – these moments often define modern consumer behaviour, yet they mask a deeper issue about who truly benefits from these exchanges.

Around 86% of Australian consumers are members of at least one loyalty program, and around half actively engage with them, according to the Australian Loyalty Association, which estimated that the loyalty market in Australia is expected to grow by 15.5% on an annual basis to reach US$1.2 billion in 2025. Programs like Flybuys (Coles Group) and Everyday Rewards (Woolworths) continue to dominate due to their broad reach and variety of benefits.

Rising living costs have also pushed consumers to find more value in their spending, making loyalty programs attractive. Programs offering fuel discounts, grocery cashback, and free products are particularly sought after. This trend is expected to intensify as consumers rely on loyalty benefits to counterbalance inflationary pressures, with retailers expanding loyalty benefits to target high-frequency shoppers, fostering deeper consumer engagement.

Steve Hui is recognised as Australia’s foremost authority on maximising the return from reward points for businesses. Known as “The Points Whisperer”, Mr Hui built a successful consulting firm called iFLYflat that helps businesses navigate loyalty programs. “Loyalty programs are really just there on a commercial basis to get repeat business,” said Mr Hui, who was recently interviewed by Dr Juliet Bourke, Adjunct Professor in the School of Management and Governance at UNSW Business School for The Business Of, a podcast from UNSW Business School.

The psychology behind points and status

The conversation between Mr Hui and Dr Bourke challenged conventional thinking about customer retention strategies and exposed the mechanics behind programs that generated billions in revenue while leaving many participants questioning their value. Mr Hui observed that loyalty programs might be better termed as reward programs – “because loyalty is supposed to be a two-way street, but nowadays it more and more feels like it’s a one-way street, that the customer is loyal to the business, but the business is not really that loyal to the customer,” he said.

This distinction between loyalty and rewards went beyond semantics. Traditional loyalty implied reciprocity and emotional connection, while rewards represented simple transactions. Yet, according to Mr Hui, companies continued using “loyalty” in their marketing because the word carried emotional weight that drove behaviour.

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“Companies want loyalty without really acting for it,” he asserted. “Loyalty is an emotional word. Normally, you say loyalty amongst friends or loyalty amongst colleagues. So, therefore, that means that at one point in time, for all the stuff you’ve done for someone, they’ll reciprocate, and they’ll do something back for you.”

The psychology behind point accumulation revealed why these programs succeeded despite their transactional nature. Mr Hui observed that customers responded differently to points than to money, even when the points represented real monetary value. “They feel valuable because once you’ve got the points, it doesn’t feel like money anymore,” he said. “So it feels free, and then whatever you redeem with those points gives you this real good feeling that you’ve earned it. You got something that you wanted, but you didn’t spend your money on it.”

Status credits create even stronger emotional responses than points themselves. Airlines understood this psychology when they developed tiered membership systems. Mr Hui witnessed customers making decisions that defied rational economics. “I think people are more attracted to the status, because you have many examples where people who are close to losing their gold status, and they’ll tell you about it,” he explained. “They’ll tell you about ‘Oh, I’m only 10 points away. I might have to do a trip to Melbourne just for the weekend,’ for no other reason except to get these 10 status credits.”

How businesses design programs for maximum impact

Companies have structured their loyalty programs around tiered systems that encourage increased spending over time. Mr Hui explained that the mechanics of these programs followed predictable patterns across industries, from supermarkets to airlines to beauty retailers. Each tier required higher spending levels, creating a natural progression that extracted more value from customers.

Mecca’s approach, for example, demonstrated how non-traditional point systems could drive behaviour. Instead of accumulating points toward future purchases, customers received immediate rewards based on spending levels. The strategy recognised that immediate gratification often proved more motivating than delayed rewards, even when the delayed rewards offered greater value.

The mathematics behind reward redemption revealed why programs remained profitable despite appearing to give away value. Mr Hui explained the airline model: “They’re the winner because those seats were spare,” he said. “So, on every flight, there’s actually going to be spare seats that they won’t sell. And when you think about the long-term, they know that on certain flights, certain routes, and certain seasonal periods, there are seats that just won’t sell. And those are the seats that are given to frequent flyer points.”

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This inventory management approach allowed airlines to offer seemingly generous rewards while filling seats that would otherwise remain empty. The perceived value to customers often exceeded the actual cost to the airline, creating a win-win scenario when executed properly.

Credit card programs operate on different economics, but follow similar principles. The merchant fees that retailers paid to accept credit cards funded the points customers earned. “So, when you use a credit card, the merchant, the cafe, the shop, they have to pay a fee to the credit card company – around 1.5% or 1% or so. And generally, they absorb the fee because they want you to buy their product. So, in fact, then you’re getting those credit card points at no cost to you.”

The data game: Beyond simple transactions

UNSW Business School Professor Barney Tan provided evidence-based insights for the podcast, and he said research revealed that successful programs generated value beyond simple repeat purchases. The data collected through loyalty programs enabled what academics call “data-fuelled intimacy” – the ability to predict customer needs and personalise experiences at scale.

“A well-known study conducted in the field of marketing showed that firms that combine loyalty program data with analytics and customer relationship management practices can actually lift their customer lifetime value by double-digit percentages,” Prof. Tan explained.

The applications ranged from simple timing predictions to sophisticated behavioural analysis. “This intimacy could take the form of, for instance, your Woolworths Everyday Rewards program, right? Knowing when you stock up, for instance, on pet food every three weeks and then maybe nudging you with a discount every time you need to stock up. It could be, for instance, Qantas spotting that you book holiday flights a year out, and then emailing you a flash sale exactly when you start to plan for your holidays,” he explained.

However, the data collection created a feedback loop that could become problematic. “The result is actually a virtual cycle, because better targeting leads to higher redemption, which leads to richer data, which then in turn sharpens the next offer,” he said. However, when customers felt the targeting became intrusive rather than helpful, programs risked triggering backlash that could damage relationships.

Prof. Tan emphasised that successful data utilisation requires explicit customer consent and clear value exchange. “Permission-based marketing is based on three principles,” he said. “The first is consent. You need to ensure that you have opted in. Customers need to be able to choose the channels, the frequency of being contacted, and the kinds of offers that they receive.”

Common pitfalls and future directions

Mr Hui identified a recurring problem in how businesses evaluated their programs. “I think program owners tend to think that their loyalty program is more loved than it is,” he observed. “They feel like, ‘Oh, we’ve got a loyalty program. We’ve got X number of members, so therefore people must love us so much.’ But I think the love only lasts as long as ‘what’s in it for me?’”

This misperception has led to programs that prioritise membership growth over engagement quality. Companies celebrated enrolment numbers while overlooking metrics that measured actual customer satisfaction and retention, according to Mr Hui, who said this disconnect became apparent when programs failed to deliver expected value, leading to customer disappointment and potential defection.

Learn more: How consumer behaviour shapes brand trust and authenticity

Point expiration policies are another area where companies frequently damage relationships. “If the points expire, that’s the worst feeling for a customer, because they feel like they had something and then they’ve lost it,” he said. “Although they chose to do nothing with it, the feeling of loss makes them remember all the things they could have done with it, even though they probably had not done anything with it in the last five years.”

Customer education emerged as another challenge. Many participants fail to understand the true value of their accumulated points, leading to suboptimal redemption decisions. “Everything’s relative – if you feel like your points are worth $50 then you might be happy just to get something that’s worth $50,” said Mr Hui. “But if you know your points are worth $300 then you’d never accept anything that’s worth $50 because now you know the value.”

The credit card churning phenomenon illustrated how program design flaws could be exploited. When banks offered signup bonuses without adequate protections against repeat applications, customers began systematically moving between providers to collect multiple bonuses. “They were the first to create this credit card churning,” he said. “And now that’s in the mindset people feel like they’re crazy not to churn, because you get all these banks offer you points for a small annual fee, and then you just swap from one bank to the other.”

Looking ahead, Mr Hui suggested businesses should carefully evaluate whether they needed loyalty programs at all: “The only reason why you create a loyalty program and give people a reward is that potentially they’re not doing something that you want them to do.” For businesses where customers have already demonstrated desired behaviours, resources might be better invested in product improvement rather than reward systems.

In closing, Mr Hui said the future of customer retention strategies will likely depend on companies’ ability to create genuine value exchanges rather than simply collecting data and offering token rewards. Programs that succeed will balance business objectives with customer expectations, ensuring that the promise of loyalty remains a two-way commitment, rather than a one-sided transaction.

Loyalty program FAQ

What is the main purpose of loyalty programs? Loyalty programs are designed to increase customer retention and repeat purchases by offering points, discounts or rewards.

How do status credits influence consumer behaviour? Status credits encourage customers to maintain or upgrade membership tiers, often leading to additional spending or travel.

Why do businesses invest in loyalty programs? Businesses use loyalty programs to gather consumer data, personalise offers and build long-term customer value.

What is the difference between loyalty and reward programs? Loyalty implies reciprocity and commitment, while reward programs focus on transactional benefits like points or discounts.

How do airlines and credit card companies fund rewards? Airlines use unsold seats for redemptions, while credit card points are funded through merchant fees.

What risks do loyalty programs face? Programs risk backlash from intrusive targeting, point expiration policies and customer perceptions of poor value.

What trends will shape the future of loyalty programs? The future lies in data-driven personalisation, transparent value exchange and balancing business goals with customer expectations.