The loyalty space is evolving, and it is largely driven by shifting consumer demand. Len Covello, CTO of global loyalty technology company Engage People, explains to Digital Journal about the key factors contributing to brand switching and what retailers can do to fuel long-term loyalty. He also shares his views on where the loyalty space is headed over the coming years.
Digital Journal: In the current environment, what’s driving people to switch loyalty programs?
Len Covello: We recently partnered with The Wise Marketer to conduct a study on loyalty program expectations, and we found that 90% of U.S. consumers are willing to switch brands for better rewards. Almost a quarter of consumers are switching brands frequently, with 65% being motivated by the “right incentive.” Only 12% of respondents identified themselves as truly brand loyal.
Besides pricing, the main factors that contribute to consumers switching brands are loyalty program offerings and benefits, and special promotions and discounts. Our research found that these factors outweigh other considerations, such as product quality, product availability, customer service, referrals, or unique competitor experiences.
DJ: What should retailers consider to combat loyalty program abandonment?
Covello: Customers who interact often and engage in loyalty programs remain highly sensitive to price, which isn’t surprising in today’s environment. The “savvy consumer mindset,” which means being more budget-conscious, has created a more competitive environment. Retailers must keep this in mind, especially as economic uncertainty continues to impact consumer spending habits.
One way to address price concerns is to incorporate “Pay with Points” (PwP) as a loyalty program benefit. This means consumers can leverage their points as currency at the point of sale, online or in-store. Using loyalty points for partial or full balances provides immediate financial relief and can go a long way in fueling loyalty because it creates an emotional connection between the shopper and the brand.
Other considerations are tailoring offerings and promotions to each individual’s specific preferences. This includes how those promotions are communicated. When personalization is done right, the consumer shouldn’t even notice it. Loyalty programs and their benefits are powerful tools. In today’s competitive environment, it’s important for retailers not to underestimate the impact of loyalty programs on brand equity. To maintain loyalty, brands must create a value proposition that addresses consumer expectations across pricing, promotions, and loyalty benefits.
DJ: What is the formula for a successful loyalty or rewards program? How does this impact customer loyalty and engagement?
Covello: The formula for successful loyalty and rewards programs combines value across brand attributes (quality, price and availability) and loyalty program attributes (attainable rewards, clear rules, relevant communications and responsive customer service). When asked to think about their favorite brands and the top three preferred benefits offered to attract and retain their loyalty, American consumers said that price-oriented incentives, loyalty-driven incentives and product quality keep them the most engaged.
Sixty-five percent indicated that they prioritized discounts, promotions and rebates, and more than 60% said that earning points for rewards appealed to them. Additionally, 78% of consumers would be willing to engage more with a loyalty program that provides a PwP option. Overall, the demand for innovative, tangible rewards is rising among loyalty program members. Retailers who make these incentives a priority will have a better chance of fueling long-term engagement and retention.
DJ: What role does ‘Pay with Points’ play in improving loyalty program engagement and reducing churn?
Covello: PwP at the point of sale is preferred by 64% of U.S. consumers, according to our research. PwP has been gaining momentum in the payment and loyalty space over the last few years because it offers more choice to consumers and, in turn, more value from their loyalty programs. By converting loyalty points and rewards into real-time purchasing power at checkout, PwP meets rising expectations for immediacy, flexibility, tangible rewards, and true personalization—positioning first movers to capture long-term market share.
This feature reduces churn by meeting individual consumer needs and combating disengagement, ongoing challenges that threaten the effectiveness of the loyalty program. Retailers who are part of a network have even more opportunity to deepen relationships with consumers by providing them with an open redemption environment.
DJ: How does customer loyalty differ across age demographics? How can brands ensure their rewards programs are personalized to meet the needs of various customers?
Covello: All consumers are looking for value from their loyalty programs, but what they consider valuable varies widely by age group. Younger consumers, especially Gen Z, are more likely to switch brands and are motivated by product innovation, gamified earning, and experiential rewards that align with their lifestyle. For this generation, loyalty is about engagement, not a transaction. Older consumers value easy, straightforward rewards like cashback, discounts, and PwP. They value programs that are reliable with instant rewards.
Generational differences serve as a call for more program personalization from retailers. One-size-fits-all value no longer exists. Instead, programs with tiered rewards, open communication and more options based on specific behavior and preferences will win. What’s beneficial for retailers is that they don’t have to appeal to every member of each generation. Pleasing an entire generation would dilute brand identity. Instead, retailers should focus on core customer segments while ensuring inclusiveness and consider strategies that find that balance.
DJ: Is the traditional concept of brand loyalty becoming obsolete? What does loyalty look like now?
Covello: The traditional notion of loyalty – repeat purchases driven primarily by brand familiarity and standard incentives – has evolved. Consumers today are pragmatic, tech-savvy, and more likely to switch to a competitor for better value and more personalized rewards.
Today, loyalty is less about a transaction and more about value reciprocity. Consumers are being prompted: “What’s in it for me now?” This change is best exemplified through the popularity of redemption activities like paying with points at checkout or cashing out to cash equivalents, which provide immediate, tangible financial rewards.
Loyalty is being reimagined. It’s behavior-driven, dynamic, and emotional. The best programs now distinguish between emotional engagement and functional values.
DJ: To close us out, where is loyalty headed in the next three to five years?
Covello: Over the next few years, loyalty will move even further away from being purely transactional. Consumers will increasingly expect their programs and program features to be embedded in how they shop, pay, and engage with a brand.
We’re keeping an eye on the continued rise of digital wallets and alternative payments. As these alternative options become the standard, loyalty programs will integrate more deeply into consumers’ everyday interactions. This trend will push loyalty currency toward ubiquity, functioning alongside cash and cards. We see this evolution happening already, and we expect it to take hold in 2025.
The future of loyalty is frictionless, flexible, and behavior-based. Programs need to meet consumers where they are, providing meaningful rewards, instant utility, and personalized experiences that improve over time. In this next evolution, loyalty won’t be about accumulation. It’ll be about access, immediacy, and ongoing value exchange.
