The Hidden Psychology of Loyalty Engagement – and why easy rewards backfire
Loyalty By Design (Part 3) — Building motivational loyalty programmes
Part 1 — Points of Points | Part 2— Building a Better Mousetrap
Mark Sage - 14 min read - 7/10/2025
A few years ago, I met with a UK bank exploring how to build a loyalty programme for its investment products. They described a fund where customers could invest a set amount to earn an attractive rate of return. On the surface it looked like the bank was taking a risk on behalf of customers. But under the hood, the product had already been packaged and sold into the wholesale market. The return was effectively locked in — all the bank needed was to fill the pot with customers’ cash.
To me, it seemed simple. Why not just say, “Here’s a guaranteed, high-yield product”? Instead, the rules for how you could access it were bafflingly complex.
So, I asked the obvious question — why make it complicated?
The banker’s reply floored me… she said, “because if it’s too simple, customers don’t buy it. They need to feel smart.”
At the time I was puzzled — but looking back, I get it. For me, complicated financial products are a turn-off. For others however, a simple tracker fund feels too easy — as if their money isn’t working hard enough. We usually frame investment choices in terms of risk appetite, but there’s another lens; engagement appetite. Too much effort and people walk away; too little and they don’t feel invested.
This is also where the psychology shifts. In the previous article we looked at Skinner and operant conditioning. His work defined the levers of sticky behaviour — the reinforcements that draw people in and keep them pressing the bar. But Skinner didn’t say much about how hard to pull those levers.
That’s where Mihaly Csikszentmihalyi comes in. His theory of flow is about calibration — the balance between anxiety (when the task feels too hard) and boredom (when it feels too easy). Game designers use flow as their compass, keeping the challenge high enough to matter, but not so high that players walk away.
And so, this chapter is about holding the line — keeping members in flow. It means not putting unnecessary blockers in their way, not devaluing their efforts, and not collapsing the game into something so trivial that it ceases to matter.
In that sense, holding the line is also about pushing back on things that compromise flow. Requests that may feel to the benefit of the requestor, may seem to make sense financially, or may seem to make things easier for the customer. Holding the line is about evaluating all of these through the lens of flow.
Balance Earn & Burn
A loyalty programme is, at its heart, a balance of give and take. Members exhibit the behaviours the brand desires — shop more often, consolidate spend, choose higher-margin products, stay loyal to the channel — and in return they receive future value.
The emphasis here is on future.
A well-designed programme pulls the member forward, ensuring the next visit, the next booking, the next purchase. But if you tilt the balance the wrong way, you break the flow.
Make it too hard to earn or redeem, and members disengage. Make it too easy, and it collapses into a discount — they churn out even faster.
This may seem counter intuitive — surely, if you make rewards easier to obtain, customers will want to participate even more?
Xavier Drèze and Joseph Nunes put this to the test in a series of experiments (The Effect of Loyalty Program Divisibility on Consumer Purchase Behavior, 2005). What they saw was that when rewards required moderate effort, repurchase rates were 57%. Make the hurdle too high, and as expected, repurchase dropped — down to 36%.
But here’s where it gets really interesting. When rewards were made too easy, repurchase collapsed to just 11%.
This doesn’t feel logical as you’d expect rewards which are easier to attain to keep people hooked longer than those which are more difficult — but that’s not the case.
The lesson is striking — too easy can be worse than too hard. Moderate thresholds keep people in flow, challenging enough to be motivating, but still within reach. Loyalty, like a game, works best when the player is striving but still winning.
Maintaining flow
The concept of flow though isn’t simply about adjusting the levers of effort to keep it within a range that keeps people coming back. Skinner taught us that variability is key to maintaining the strongest behaviours.
However, his research was looking at behaviour reinforcement in terms of its durability when these motivators were removed. How then do we ensure its maintained and stretched, while the motivator is still there?
This is where the power of uncertainty can come into play.
In a study entitled “The fun and function of uncertainty”, the researchers looked at how repeat behaviour can be impacted by the reward given — specifically whether this reward is fixed or variable.
They carried out a number of real-world tests. Their first one was with a running club, and it gave some members a fixed 5 points per run and others a variable value of 3 or 5. This meant that not only was the variable group getting a level of uncertainty, but that overall, they’d be earning less too. Despite this, the variable reward group literally went ‘the extra mile’ — running an extra 1.61 miles.
So, the introduction of uncertainty of reward value increased participation, despite the value offered being less overall.
The reason given for this apparent paradox is that “it is a pleasant experience for the individual to resolve uncertainty, [of] knowing the unknown.”
Further tests showed the lift only came about when the participant found out immediately afterwards, how much they’d earned. If they knew beforehand how much they’d earn or much later, then performance dropped back to the fixed group or worse.
So, despite the participant knowing they’d get either 3 or 5 points — actually getting 5 points felt like a small win — and it seems that it was this win that was enough to spur them on to try even harder.
Another test applied this to the world of work, using paid surveys that participants could choose to complete daily. As before, those participants getting a variable payment (between $20 and $40 HKD) performed better than those getting a fixed payment ($40 HKD). They did more surveys overall, for less cost — being on average 13% more likely to complete a survey, and overall saving 25% on the costs paid.
We see a similar behaviour within challenges whereby a member is set several stretch thresholds based on their current spend behaviour. Whilst mechanics are different, in that the participant knows the ask and the potential reward at each threshold, the result is very similar. We see more activity for less cost.
So, this pleasant experience the researchers identified seems to tie into many aspects of loyalty programme design, and it also seems to tie into the same kind of response we’d expect from wider variable reinforcement when “every so often there’s something wonderful [..] and I get a reward”.
Lets bring this back to the concept of flow. Csikszentmihalyi talked about the optimal experience of flow, where people are fully absorbed and feel both challenged and capable, and it’s this matching of skill level to challenge level that’s important.
Too easy and they drift into boredom; too hard and they give up in frustration. But in that middle zone — the flow channel — people find deep enjoyment and keep going almost effortlessly. Flow requires clear goals, immediate feedback, and attainable stretch. In loyalty, those same conditions apply: thresholds, progress, and rewards that are neither trivial nor impossible.
One of Csikszentmihalyi’s most important insights is that flow is not a fixed state. It’s dynamic.
As skill matures, so must the challenge. If the bar stays still while customers improve, the programme slips into boredom. If the bar jumps too high, it triggers anxiety. The loyalty programmes that endure are those that stretch the customer just enough — through tiering, challenges, and personalised goals that evolve with participation. Flow is not about standing still; it’s about growing together.
I saw this balance of skill and challenge play out when we shifted a programme from phone-number-based “member price” to an app-based points model. We tested two versions: one pure points, the other a blend of discounts and points. On paper, the blended model offered more value — a shelf discount plus points — so you’d expect higher engagement. Yet the opposite happened. App usage was 13% higher for the points-only group.
By making the discount to easy to obtain — just giving a phone number — , we inadvertently lowered the challenge too far. The points — which required the download and usage of an app — by comparison, now felt out of reach. The balance tipped, and members chose not to stretch further to chase points with the app.
Loyalty, at its core, is about designing mechanics that keep challenge and skill in balance — enough stretch to stay motivating, but never so much that it pushes customers away.
Flow within yuu Rewards
Early Tesco Clubcard introduced a concept called “Keys,” where every £25 in spend unlocked a key, and more keys unlocked greater rewards — 50 keys, for example, doubled the reward value.
In theory it was clever gamification; in practice, customers didn’t get it.
As the book Scoring Points recalls: “Keys were a step too far” and “one of the few innovations from Clubcard about which no one fights for a share of the credit.” Tim Mason added: “Keys was textbook loyalty marketing. The trouble is, it was rational, not emotional. Customers couldn’t be bothered.”
And so we’re back to the concept of flow. On paper, Keys looked smart, but for customers the challenge was mismatched to their skills — too complicated to explain, too hard to care.
This was something we were keen to avoid when designing yuu Rewards.
The initial design of the scheme was deliberately simple. We were moving people from familiar behaviours to a digital model, and the jump had to be one that customers could make. Our core message — “1 point per $1” — kept onboarding clear and easy. The temptation is always to add complexity, but the first aim was simply to get people started.
That simplicity extended to the app itself, with a clean UX and straightforward participation.
From there, we layered in variable reinforcement — mixing promotions and points, adjusting timing, and testing different stretch amounts. The goal was to find the sweet spot, ensuring it was not so easy that it bored members, but not so hard that it discouraged them.
Reward design followed the same principle. Alongside standard rewards we added “hero” items like the KFC egg tart — low-priced, easy redemptions that served as an entry point, but also tied naturally to a broader food purchase. This kept engagement fresh without collapsing into triviality.
Even though we didn’t design for uncertainty directly, the way base and bonus points combined meant members often earned more than expected. Combined with our real-time feedback, this helped amplify that pleasant surprise and reinforced momentum.
We also made participation deliberately a little challenging. We required app usage when others argued for phone-number ID at POS, we mandated in-app redemption when others asked for till-based burn, and we denied member identification in partner apps, when others lobbied for it. These choices were about keeping members in flow.
Over time, as members’ skills and confidence grew, we added stretch — challenges, eCommerce, and gamification. Each new layer raised the bar just enough to maintain the upward rhythm of flow.
Disrupting Flow
Whilst the aim of flow is to maintain this state for members, it’s also possible to disrupt it — putting in place mechanics, constraints or simple valuation changes which impact flow.
Price is often mistaken for loyalty. It can drive traffic and trigger conversion through the fear of missing out, but it is short-term and easily copied.
When Aldi opened near my home, I was a loyal Tesco customer. But Aldi’s sharp pricing on essentials shifted my main shop almost overnight. Tesco became my “top-up” store, covering what Aldi didn’t. Penetration for Tesco was technically intact — I still shopped there — but my share of wallet collapsed. This wasn’t just me — Aldi market share was increasing rapidly.
Tesco’s response was to lean harder into price, narrowing the gap but at a cost. To fund shelf cuts, they devalued partner loyalty redemption. In theory this kept me in flow by lowering the price barrier; in practice it hit me twice — fewer pounds spent at Tesco, and less loyalty value per pound. My flow collapsed, and I diversified further, adding M&S for treats and Aldi for basics.
Price, in this context, became a double-edged sword; necessary to defend against Aldi, but corrosive to loyalty. Tesco ultimately rode it out with stronger member pricing and regained share, but at an individual level I was gone.
That is the paradox of price in loyalty. If the competitive gap is small, loyalty can hold the line. But when the gap is wide and sustained, flow gets broken and it can be game over.
Another aspect that can disrupt flow is tying channel or product selection to loyalty.
The rationale seems clear. We want customers to make more profitable decisions for us — booking direct or taking a more flexible flight option — and in return, we’ll give them more loyalty. More points. Faster tiering.
Cathay Pacific is a case in point. Their fare classes are structured so cheaper tickets earn fewer miles and less status credit. Rationally, that aligns value with spend. In practice, it turns loyalty into a transaction.
Instead of being pulled into the game, members are forced into a calculation — is a handful of points worth $50 more on the fare? For me, even as a loyal top-tier member, the answer is no. I still play to protect my tier, but I won’t pay more just for more points. Each booking becomes a reminder that the programme is mechanical, not magical — as if Cathay keeps pulling back the curtain.
As with the Tesco pricing example previously, this also has the potential to disrupt participation and flow. By exposing the cost of points too starkly, the game feels transactional. Customers may take the cheaper fare, then momentum drops, and flow breaks. The low-cost competitor suddenly looks fair game.
Both examples show the same risk. When loyalty collapses into price, momentum get slowed and flow gets disrupted. What should feel like a capability suddenly feels like a calculation.
Staying with the travel theme, another common disruption to flow is channel exclusion.
Many programmes only award points if you book direct, not through an online travel agent (OTA). From a P&L perspective it makes sense — OTAs take 20–30% of the booking — but for a business traveller bound to a corporate platform, this isn’t an incentive, it’s a dead end. Progress halts and the programme ceases to matter.
Chatting to a friend using Marriot Bonvoy for example, she highlighted her feeling when being told at the desk that the booking she made via an OTA wouldn’t attract any points.
She made a conscious choice to book Marriot. They made a conscious choice to sell via an OTA. Yet those choices meant loyalty collapsed. This wasn’t just a loss of points; it was a loss of feeling ‘seen’ — of being recognised.
American Airlines almost made this mistake in 2024, planning to restrict AAdvantage accrual by channel. They reversed at the last moment, with CEO Robert Isom admitting it would “create confusion and disruption for our end customer.” He was right. Taking away choice isn’t a nudge; it’s a block.
The better strategy is not to cut members out but to signpost value. In the DFS programme I managed, some luxury brands mandated that we couldn’t issue points. Even so, we ensured members were recognised, counting spend towards tier status even when it didn’t earn points. Members stayed in the game — and their overall flow remained intact.
But flow can also be disrupted on the burn side. The original DFS loyalty proposition had redemption thresholds which were so low that customers could earn and burn in a single visit. This produced unintended consequences like split baskets, meaning redemption didn’t impact spend behaviour. Points had become instant discounts and, as Drèze and Nunes show, repurchase propensity drops when rewards are too easy.
We raised thresholds to require three or four purchases, which made participation slightly harder but still attainable. Sign-ups held steady, though low-value redemption behaviour fell away, increasing breakage. The intent, however, was never just to protect margin — it was to keep members in flow.
So we refined the rules. We enabled lower-value redemption through coupons, but only with a minimum spend threshold. This re-engaged members and stretched baskets. By testing different offer–ask ratios we found the right mix of challenge and reward.
The result was that redemption baskets grew by 84%, tripling spend on those visits. Balance and flow had been re-established.
One of the more subtle ways of disrupting flow is through customer experience.
Take Nectar. We initially allowed real-time redemption of points at the Sainsbury’s till. On the surface it should have boosted engagement by making redemption easier. In practice, it made redemption too easy. Points lost their pull, and members slipped out of flow.
In coalitions, a frequent partner request is to bring earn and burn into their own app. On paper the rationale is simple — the customer is already there, so why add friction? Partners often argue it’s their customer and they want to provide recognition in their own space.
But this disrupts flow in two ways.
First, every coalition activity in a partner app is one less in the coalition app — a loss of ecosystem engagement. What looks like a partner gain is everyone else’s loss.
Second, it undermines the partner too. Typically, those using a partner app are already high-loyal customers. We saw this in yuu Rewards when we replaced the Mannings programme with the coalition. Within a month, penetration was higher than Mannings had achieved in a decade. The same held true for Pizza Hut, and for Homebase when it joined Nectar.
What this means in practice is that these ‘high loyals’ will now be using the partners own app for earn and burn, missing out on wider opportunities to earn in the network. Overtime, this will reduce the programme effectiveness for that partner, and they’ll see less app opens overall and less opportunities for their own messaging.
The opposite dynamic played out in AB InBev’s BEES programme. As one executive explained, expanding their app to include both AB InBev and third-party products gave retailers more reason to open it. More app opens meant more exposure to AB InBev products, and hence higher sales.
Whether through greater range in a marketplace or more partners in a coalition, the lesson is the same; by keeping customers in a single app, you strengthen both your sales and theirs.
It’s not always easy to hold the line when a big partner, like a grocer, asks for their own customer experience. But the loyalty marketer’s job is to see beyond the request — to weigh the impact on customer flow and the psychology of participation.
Ultimately, the loyalty marketer needs to be an order maker, not an order taker. Crafting a scheme where customers are increasing sales, not one where customers are increasingly sold.
Holding the line in loyalty then is really about keeping members in flow. It means resisting requests that may dilute attention and weaken engagement.
Signposting value but not blocking participation and exposing the rules of the game.
Using variability and uncertainty to keep people interested, whilst ensuring rewards remain just within reach.
Price will always be a fickle friend. Channels will always create cost tension. Redemption will always invite pressure to “loosen the taps.”
The loyalty leader’s job is to hold the line — to keep members playing, progressing, and believing that the next action takes them closer to something worth achieving. Making them feel ‘smart’ whilst ensuring they always feel capable.
In the end, this is where psychology comes back in. Skinner showed us the levers that shape behaviour; Csikszentmihalyi taught us how hard to pull them. Holding the line is about applying both — using the right reinforcements to spark action, then calibrating challenge and skill to sustain it.
Ultimately, our aim should be to facilitate that pleasant experience through moments that provide something wonderful — keeping members in flow.