Editorial
The Gist
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Heightened expectations backfire. Loyalty members expect better service and react more strongly when brands fall short. Unmet expectations can harm brand equity.
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Perks can backfire. Loyalty rewards often fail to offset bad experiences. In some cases, they actually make things worse by amplifying frustration.
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Loyalty must align. True loyalty comes from operational consistency. Cross-functional alignment is critical for lasting customer relationships.
Customer loyalty programs are ubiquitous. U.S. households hold an average of 18 memberships each. Across industries, these programs are designed to increase revenue, deepen customer engagement and grow market share. But what happens when things go wrong? What happens when service fails or expectations aren’t met?
While customer loyalty programs are intended to provide insulation from dissatisfaction, research shows they can actually accelerate brand damage. This is a phenomenon known as the Boomerang Effect.
Table of Contents
Loyalty Creates Higher Stakes
Every company creates friction for its customers. Research conducted between 2011 and 2024 with over 100,000 customers across industries found that most customers encounter problems during their interactions with brands, according to the Verde Group Customer Pulse Database. And customers’ tolerance for these issues is shrinking, especially among loyalty program members.
That’s because loyalty members hold brands to a higher standard. In one study of 5,000 consumers across 10 retail brands before the pandemic (and 2,500 again post-pandemic), researchers found that negative experiences felt more severe for loyalty members. These customers were less likely to have a positive experience when seeking support and often faced longer resolution times than non-members.
Loyalty members had to contact the company more frequently to resolve their issues, and when problems weren’t resolved to their satisfaction, they were significantly less likely to recommend the brand. In fact, they were 2.5 times more likely to reach out about a problem than non-members. In short, high engagement combined with unresolved friction can erode loyalty, revenue and brand equity.
But not all friction is equal. While out-of-stock items and pickup issues were the most frequent problems reported, they weren’t the most damaging. Instead, returns-related issues (i.e., being required to pay for a return or needing an original receipt) proved to be far more destructive to future purchase intent and customer loyalty.
Related Article: What Causes Customer Rage Today?
Customer Loyalty Programs: What Works, What Backfires
This table outlines the benefits and risks of customer loyalty programs — and what CX leaders can do to ensure their programs drive genuine long-term value.
| What Works | What Backfires | CX Leader Actions |
|---|---|---|
| Personalized offers based on real customer data | Generic perks that feel irrelevant or hard to redeem | Use behavioral and transactional data to tailor rewards to individual preferences |
| Cross-functional alignment to deliver consistent CX | Marketing-led programs siloed from operations and service teams | Involve product, support, and fulfillment teams in loyalty program design and response workflows |
| Timely, frictionless benefits that reward key behaviors | Delayed, complicated, or poorly communicated rewards | Audit redemption flows to ensure ease and immediacy; highlight benefits clearly in the customer journey |
| Recognition of high-value customers during service recovery | Loyalty members treated the same (or worse) than non-members when problems arise | Train agents to identify loyalty members and prioritize personalized recovery strategies |
| Programs that reinforce positive emotional connections | Perks that feel transactional and fail to build true affinity | Design experiences that deepen brand identity and make customers feel seen and appreciated |
| Insights that improve retention strategy and lifecycle marketing | Failure to act on customer signals, leading to disengagement | Use loyalty data to detect churn signals early and trigger proactive engagement campaigns |
| Operational consistency that meets heightened expectations | Mismatch between loyalty messaging and actual service quality | Align loyalty promises with fulfillment capabilities to avoid brand trust erosion |
| Clear segmentation between casual customers and brand advocates | One-size-fits-all programs that dilute rewards for top-tier members | Develop tiered programs that elevate your best customers and incentivize others to grow |
When Perks Can Make Things Worse
Can loyalty program perks offset the damage caused by these high-impact problems? The answer is surprising. The study found that benefits offered through customer loyalty programs do not consistently mitigate the negative effects of serious customer issues. In fact, in many cases, they make things worse. They may amplify customer frustration and accelerate the loss of trust. This counterintuitive outcome is what has been termed the Boomerang Effect of Loyalty Programs.
This insight should raise red flags for companies who continue to pour resources into loyalty schemes. While these programs offer some strategic benefits (i.e., customer identification, behavioral insights and the ability to tailor pricing and promotions), they often fail to improve operational outcomes. Worse, they may actually undermine long-term customer experience goals.
Why does this happen? As noted, loyalty members expect better treatment, especially when problems occur. They assume their value to the business will be acknowledged through faster, more effective service recovery. Unfortunately, most customer loyalty programs remain siloed within marketing departments and disconnected from operational teams. Without integration across the organization, programs may have high-risk, unintended consequences.
The good news is that companies can reverse the Boomerang Effect and achieve genuine loyalty by rethinking how benefits are defined and delivered. By taking a cross-functional approach and making sure all departments act on the needs of high-value customers, brands can realize lasting value and build stronger, more resilient relationships.
Related Article: The Evolution of Customer Loyalty Programs in an Always-on World
Implications for Practitioners
Differentiate Between Frequent and Damaging Problems
Not all issues are equally harmful. Even low-incidence problems can inflict disproportionate damage on brand reputation and revenue if they negatively affect key customer segments or trigger harmful word of mouth.
Don’t Expect Customer Loyalty Programs to Compensate for Poor CX
A subpar experience can't be offset with points or perks. In fact, offering benefits in the face of unresolved problems often magnifies dissatisfaction.
For Brands With Strong CX Performance, Loyalty Programs Add Strategic Value
When grounded in data and used to enhance personalization, pricing or product mix, these programs can reinforce positive experiences, especially when benefits are timely, tangible and relevant.
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View Loyalty as a Company-Wide Initiative
Loyalty shouldn’t be a marketing function alone. True loyalty is earned through consistent, value-driven experiences delivered across every touchpoint. This requires cross-functional collaboration and operational alignment to proactively prevent or recover from customer experience friction when it inevitably occurs.
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