Loyalty Programs Are Moving Away from Discounts. What’s Replacing Them?

Loyalty programs have long been solely about discounts – buy something, earn points; perform an action – earn a discount; fly abroad, get miles to use for another flight. Simple, right? Well, not anymore. 

Today’s consumers sign up for multiple programs – 9 on average in Europe, 15 in the US – but rarely engage with more than a handful. Why? 

Because discounts have become expected, no longer driving genuine loyalty but rather becoming table stakes. Worse yet, heavy reliance on discounting quickly eats into profit margins. Brands bear the cost of these discounts, shrinking profitability without securing meaningful long-term engagement. To truly stand out and drive profitability, brands must move beyond simply discounting their products.

Why Discount-Based Loyalty Isn’t Cutting It

Loyalty managers today face an uphill battle. Traditional points-for-purchases models rely heavily on discounts. While effective initially, these strategies soon hit a wall. Customers grow accustomed to constant discounts, diluting perceived value and reducing long-term customer retention. Worse, constantly creating points or miles isn’t cheap – airlines, for instance, spend around 0.5 cents per mile generated. Customer loyalty programs become costly rather than profitable.

Research highlights another key issue: consumer fatigue. Younger generations (18–34) are increasingly disillusioned with standard, transactional loyalty programs. They prefer personalized, meaningful interactions. Older demographics, meanwhile, prioritize direct monetary value. Even once successful loyalty programs struggle to cater to these varied preferences, resulting in declining engagement: 95% of users completely drop out before hitting 90 days.

It’s Time for Engagement-Based Loyalty

All things considered, we’re entering engagement-based loyalty – rewarding consumers for actions rather than purchases. This model has already made waves across sectors. Major retail and media brands now reward activities like content consumption, social sharing, and product reviews. Why? Because genuine interaction creates deeper brand affinity than standardized spending.

According to Segment, 75% of surveyed Gen Zers would stop using a brand if their experience isn’t personalized, compared to 66% across all consumers.

In fact, 81% of consumers say rewards programs that focus on customer engagement beyond purchases enhance their brand relationship. This shift signifies a powerful trend: loyalty is becoming less about immediate transactions and discounts and more about long-term relationships built on genuine interactions.

Business Wins: Loyalty Points Without the Price Tag

For businesses, the big advantage of non-transactional loyalty is clear: it removes the financial strain of constant discounts. Discounts cost real money; someone always pays, and usually, it’s the brand itself. However, by adopting advertiser-sponsored engagement, brands eliminate discount-related costs while simultaneously creating a whole new revenue stream.

Take mobile gaming rewards as an example. Users earn loyalty points by playing advertiser-sponsored games, which the brand doesn’t pay for. Instead, advertisers fund these engagements. Brands get loyalty points for free, plus additional revenue from advertisers. 

Besides keeping CFOs satisfied, non-transactional loyalty creates differentiation. While competitors still rely on discount-heavy strategies, engagement-based programs offer fresh, interactive experiences the modern consumer is longing for.

For instance, brands’ integration of mobile gaming into loyalty addresses both short-term revenue targets – by keeping users active – and long-term retention goals, ensuring users remain engaged well beyond initial sign-up and make repeat purchases. By integrating Arcade, a rewarded mobile game interface, into their apps, America’s rewards app Fetch saw a free 5% increase in app open rates and 10% jump in customer lifetime value, while the health-app Macadam pushed its ARPDAU by 30%. All by simply rewarding users for playing popular mobile games tailored to their interests.

User Wins: Earning Points Without Spending a Cent

Users also win big. In traditional programs, earning meaningful rewards often requires significant spending – frustrating for many consumers. Non-transactional loyalty flips this around, allowing users to gain points without opening their wallets. Games, quizzes, and personalized experiences let users accumulate points simply by engaging in activities they already enjoy.

Moreover, consumers value the choice this approach offers. Instead of standardized, often irrelevant discounts, users select activities aligned with their interests. Gamified loyalty, for instance, allows them to engage at their own pace, choosing games or content matching their preferences. 

How to Shift to Engagement-Based Rewards

Transitioning to non-transactional, engagement-based loyalty isn’t as challenging as it seems. Here’s a quick roadmap:

• Identify relevant engagement activities: Focus on experiences your target audience genuinely values – games (enjoyed by 2 billion people worldwide), exclusive content, or community interactions.
• Leverage advertising partnerships: Offset the cost of point creation by partnering with advertisers seeking user attention. The easiest way to do it is by integrating specialized rewarded solutions, like Arcade. This not only makes your loyalty points effectively free, but also activates a completely new and scalable revenue stream. 
• Optimize and personalize: Use customer data and its insights on user preferences and behaviors to regularly adjust offerings. Personalization keeps engagement fresh.

This strategic pivot isn’t theory, as it’s rapidly becoming industry best practice. Starbucks, Sephora, and major media outlets have already adopted engagement-driven models, reaping rewards in brand loyalty and customer satisfaction.

Future-Proof Loyalty

The shift from discount-based rewards is easy to explain. Discounts are costly, shrink profit margins, and users quickly grow tired of them, minimizing the effectiveness of these programs.

Non-transactional loyalty models funded by advertiser engagement aren’t just smarter. They drive genuine user engagement, lasting customer loyalty, and higher profitability. If loyalty and profitability matters, shifting away from discounts toward non-transactional rewards is a clear, strategic move.

Thinking of integrating this approach to your business? Stay here and learn more about loyalty beyond the discounts.