Disrupting Flow: How Loyalty Loses Its Rhythm

Ms Chan

Hey everyone, welcome back to Loyalty Unlocked. As always, I’m here with Mark Sage. So, Mark, today’s episode is all about that really tricky balance between making things easy—like, almost too easy—and keeping members genuinely engaged. It’s something we’ve touched on before when we discussed the concept of 'flow' and the need to 'hold the line' to keep members engaged by keeping them in flow. This time though, we’re going deep on what happens when price and margin get in the way of flow.

Mark Sage

You know, the funny thing is, price seems so simple on the surface, right? But, as I’ve seen both professionally and as a customer myself, it’s actually incredibly loaded. Let’s take Tesco and Aldi back in 2015, for instance. For ages, I shopped at Tesco, super loyal. But then Aldi moved in with its—well—ridiculously sharp prices on daily essentials. Suddenly, Tesco was demoted to just my “top-up” store. I mean, technically I wasn’t lost as a customer, but the share of wallet just fell off a cliff.

Ms Chan

And that’s the kicker, right? Because Tesco reacted and tried to compete even more aggressively on price. But the thing is, when you go full price-war, you sometimes end up devaluing your own loyalty rewards, which is basically, uh, cutting off your own nose to spite your face? Sorry, that’s a bit harsh, but you get what I mean.

Mark Sage

No, no, that’s exactly it. That move—Tesco started funding shelf price cuts by devaluing what you actually got from their loyalty program. It’s classic short-term win, long-term problem. Suddenly, my loyalty flow was totally broken. I started splitting my shopping—Aldi for most stuff, Tesco only for what I couldn’t get elsewhere. Price pulls you in quick, but it doesn’t build that sticky connection we always talk about.

Ms Chan

So I guess the thing is, price is kind of a double-edged sword. Like, sure, it gets you conversions and you fill the store, but... the relationship? It’s gone. And, Mark, didn’t we talk in a past episode about how making things too easy—like discounting everything or handing out points just for showing up—actually backfires?

Mark Sage

Absolutely. We covered this research in a previous episode, and what they found still blows my mind. You’d think a lower hurdle—make it easy, right?—would keep people engaged longer. But it doesn’t. When rewards are too easy to get, participation actually collapses. Repurchase rates dropped from more than fifty percent down to eleven.

Mark Sage

Because, I suppose, people just disengage—there’s no challenge, nothing to strive for. The programme just turns into a discount. And when that happens, people churn out even faster.

Ms Chan

It’s so counterintuitive, right? I always think, “If it’s easier, people will love it.” But actually, if it’s too easy, it stops feeling special. There’s no point to the game anymore.

Mark Sage

Exactly. And that’s really the paradox—loyalty works best when there's a bit of a game, a bit of a challenge, but it’s also got to be winnable. Too hard, people give up. Too easy, they get bored and move on. It’s about keeping that sweet spot, and price—not surprisingly—can totally mess with that flow if you’re not careful.

Ms Chan

Yeah, and it’s not just price that can get in the way. Sometimes the actual rules of a programme accidentally break the whole experience. I’m thinking about airline fare classes—like, you book a cheaper ticket and suddenly the points just, poof, disappear, right?

Mark Sage

That’s such a good example. When I flew from Hong Kong to London with Cathay, I realised halfway through booking that I was in this weird loyalty paradox. Same plane, same seat, same dinner tray—and yet three completely different prices depending on how fast I wanted to earn points.

Ms Chan

You mean those “Light,” “Essential,” and “Flex” fares?

Mark Sage

That’s the one. The Light fare was about seven thousand three hunded, Essential around eight thousand, and Flex roughly nine thousand Hong Kong dollars. Nothing changed physically—no extra legroom, no champagne—but the loyalty math changed dramatically. If I picked the cheapest fare, I’d earn one thousand eight hundred Asia Miles and 18 Status Points. Go one tier up and I’d get two thousand eight hundred miles and 28 Status Points. Top tier? three thousand eight hundred miles and 38 Status Points.

Ms Chan

So the miles double, but the seat doesn’t move?

Mark Sage

Yep. You’re paying nearly one thousand seven hundred dollars more for the same experience.And here’s the kicker: when you do the math, you’re effectively buying those extra miles at around seventy-five to ninety cents each—when Cathay actually sells them directly for about thirty.

Ms Chan

So it’s a terrible deal on miles?

Mark Sage

On the miles, yes. But the trap—and the genius—is the Status Points. You can’t buy those anywhere. They’re the gatekeepers: they decide if you’re Silver, Gold, or Diamond. So Cathay’s not really selling you comfort; they’re selling you acceleration.

Mark Sage

The Light fare costs about four-hundred dollars per Status Point. Flex brings that down to roughly half the cost per status point - for the same seat.

Ms Chan

So you’re not buying a flight; you’re buying progress.

Mark Sage

Exactly. It’s loyalty as velocity. They’ve turned fare classes into a kind of status shop. You can’t purchase the trophy, but you can pay to level up faster—like buying XP boosts in a video game.

Ms Chan

That’s wild. It means the programme isn’t rewarding my travel behaviour; it’s rewarding how I play the system.

Mark Sage

Right. It stops being about where you fly and starts being about how you optimise the rules. This is fine for business travellers where there is likely less scrutiny from finance - you bought the fair class you're allowed, so all good. What's missing from your expense receipt, is the extra 2,000 dollars you paid for that status.

Mark Sage

The challenge though is that for families or leisure travellers, that extra two thousand dollars doesn’t buy real benefit—just a faster climb on a leaderboard that resets every year. So progression is slower, loyalty is weaker and flow falls away.

Ms Chan

Loyalty just becomes another layer of yield management—only this time, the yield is emotional.

Mark Sage

Very true. They’re monetising aspiration. You pay more cash today for a feeling of progress tomorrow. It’s rational for the airline— because the cost of those points is almost nothing — but emotionally expensive for the customer.

Ms Chan

It’s kind of brilliant… and kind of manipulative.

Mark Sage

That’s the perfect summary. Loyalty used to reward your choices; now it monetises your motivation. And the only real upgrade left is psychological.

Ms Chan

So next time I see those fare classes, I’ll just imagine a “Buy Now” button that says “Purchase Faster Status.”

Mark Sage

Exactly — and once you see it that way, you can’t unsee it. Each booking just turns into… math. You stop playing for fun. You’re just calculating value, and it becomes mechanical — no magic left at all.

Ms Chan

Oh, totally. Another one that stresses me out is channel exclusions, you know? Like when hotels only reward you if you book direct and not through, say, an OTA. I mean, sometimes you have no choice! It’s like you’re being punished for doing what works for you - and seemingly works for them given they list there - and then it feels like the brand just doesn’t care about your loyalty at all.

Mark Sage

I don't think they do. They don't seem to see a customer and instead just see a booking.

Mark Sage

I’ve had friends book with Marriott through an OTA just because it was easier with their company platform, only to show up and find out—sorry, no points for you. It’s not only a loss of points, it’s a loss of feeling recognised.

Mark Sage

That “I see you” from the brand is just gone. And it doesn’t nudge you into better behaviour, it makes you check out mentally. Even though they had booked Marriot multiple times, that frequency wasn't recognised because they used a Marriott channel, that Marriot didn't like.

Ms Chan

And, hey, remember when American Airlines almost tried to do that? Restricting AAdvantage points based on where you booked? I think their CEO actually said it would just confuse and frustrate the end customer. I mean, if a CEO is saying this is a terrible idea, maybe it’s really a terrible idea.

Mark Sage

Yeah, exactly! They reversed course in the end, because the backlash was immediate. Forcing customers into a more profitable behaviour shouldn’t mean shutting down their options—it should be about, well, signposting where the extra value is, not gatekeeping it.

Ms Chan

It’s funny though, because someone inside the business is choosing to drive sales through the OTA. That’s a distribution decision, right? But loyalty doesn’t seem to have a seat at that table.

Mark Sage

I feel like distribution and loyalty often operate like two different countries sharing the same passport. Distribution teams think in terms of volume, margin, and share of channel. Their KPI is “fill the plane” or “fill the rooms.” Loyalty teams think in terms of recognition, retention, and customer lifetime value.

Mark Sage

So you end up with this internal contradiction:one team is literally paying a commission to push bookings through a third party, while another team is penalising those same customers for using that channel.

Ms Chan

So it’s the brand competing with itself.

Mark Sage

Exactly. And the customer just feels the chaos. From their point of view, they did what the company’s marketing encouraged—book where it’s easiest—and loyalty then says, “wrong door, no points.”

Ms Chan

Which is crazy, because both teams are trying to grow the same number: revenue.

Mark Sage

It is - but this is because companies focus on product value, not customer value. They’re trying to maximise the yield from that flight seat or that hotel room, not maximise the lifetime value of the person in it.

Mark Sage

It’s subtle, but if you looked at customer yield management instead of product, you’d make very different decisions. You might accept lower profit on that one booking if it deepens the relationship—if it makes that person want to come back.

Ms Chan

So, instead of yield-managing the seat, you’d yield-manage the person.

Mark Sage

In a sense, yes. Right now, most loyalty sits on top of yield management. It rewards the outcome of a sale. But in a customer-led model, loyalty informs yield management—it helps decide which customers you value more, not which seats you sell better.

Mark Sage

And it gets even trickier on the redemption side. Sometimes, when you make it too easy, you actually kill engagement. Take Nectar at Sainsbury’s: when they introduced instant redemptions at the till, participation flattened. The programme lost its pull because there was no effort—no anticipation—no reason for a next visit.

Ms Chan

So it’s not about being complicated for the sake of it, but about keeping just enough challenge and feeling of progress. If the rules are too mechanical or too punitive, flow breaks

Mark Sage

True. The best programmes balance friction and flow: easy enough to feel fair, hard enough to feel worth it. Once you see loyalty as a game of progress rather than points, you start designing for psychology, not just yield.

Ms Chan

Which, ironically, is exactly what Cathay are doing—just flipped the other way round.

Mark Sage

Right. They’ve designed the psychology to serve the product yield, not the customer. The structure is brilliant: progress, acceleration, status— but the motivation points upward, not inward. That’s the fine line every loyalty designer walks. You can build a game that makes people want to come back, or one that makes them pay to move forward.

Ms Chan

So the question isn’t whether loyalty should feel like a game — it’s whether you’re the player, or the product.

Mark Sage

Love that! And it's where every programme either wins loyalty… or loses it - as being the player, or being played, has a direct impact on flow.

Ms Chan

And speaking of systems that depend on balance… let’s pivot into one of my favourite topics—coalition loyalty. I know, Mark, you’ve got a ton of firsthand stories from yuu Rewards and stuff, but, like, let’s talk about why trying to let everyone do their own thing — like partners asking for their own app features — actually risks breaking the whole system.

Mark Sage

Oh yeah. This comes up so often in coalitions. Partners argue, “Well, our customer already has our app, why not just let them earn or burn directly in our space?” On paper, it sounds logical—but it’s actually a subtle way of eroding engagement. Every time a member does something in a partner’s app, they’re not in the coalition app, so the ecosystem as a whole becomes weaker. And in reality, those using the partner app are usually your high-loyal customers already.

Ms Chan

So, it’s like you end up cannibalising yourself! The more you push them into siloed experiences, the less they see the network benefits. And, honestly, your high-loyals start missing out, too, because they’re locked into a narrow lane instead of opening up bigger rewards or new partners.

Mark Sage

Completely. And there’s this fascinating counter-example in the market—AB InBev’s BEES programme. They expanded the app to include not only their own brands, but also third-party products. It actually gave retailers a real reason to open it more, which meant more exposure—and more sales—for everyone, including AB InBev. When you keep the ecosystem unified, you build momentum for all, not just one player.

Ms Chan

That’s such a great point. And, you know, sometimes you can protect recognition without diluting the ‘specialness’. Take your old DFS programme, for example. Weren’t there luxury brands that didn’t allow points, yet you still managed to find a way to recognise those spends for status?

Mark Sage

Exactly! We couldn’t always award points based on how some brands set their rules, but we could still count that spend towards tier progression. The customer sees they’re moving up, even if points weren’t available. That kept people engaged—it kept their flow intact—while respecting partner restrictions. It’s about keeping the underlying psychology of progress and recognition going, even if the “currency” changes.

Ms Chan

And, you know, designing those kinds of mechanics just feels like walking a tightrope sometimes. You can’t just say yes to every partner who wants something ‘easier’; otherwise, no one gets the true network value. Kinda like, you have to see the bigger picture.

Mark Sage

Yep. The easy road is to let each brand build their own little walled garden—but every time you do, you lose another reason for members to play in the wider ecosystem. It’s always tempting to make separate recognition easier for a big partner, but as a loyalty leader, you’ve got to hold the line and keep the system working for everyone.

Ms Chan

So that actually brings us to the real heart of it, which is the role of the loyalty leader. It’s making the hard calls, right? Not just taking every request as gospel, but thinking, “Does this help keep our members in flow, or does it break the rhythm?”

Mark Sage

Yeah, this is where “order-maker, not order-taker” really means something. I’ve had so many meetings where a partner or exec wants to make the programme a little easier, or “just add this quick feature”—but sometimes, the best thing for the programme is to gently say no, or at least push back and ask, “How does this affect the bigger picture?”

Ms Chan

It’s kind of funny, because on paper it might look like you’re just being difficult. But what you’re actually doing is protecting the experience. You’re making sure people stay challenged—motivated—but not thrown off balance. That’s, I guess, why you have to signpost value. Show customers what’s possible, instead of blocking the path or handing out everything with no effort required.

Mark Sage

It’s about creating momentum, not roadblocks—and definitely not just opening floodgates. I think about it like this: true loyalty design means looking at every rule, every mechanic, and asking, “Does this keep the right tension between skill and challenge?”

Mark Sage

Are we providing enough recognition, enough reward, and still letting them play? Or have we just turned it all into a transaction? I keep coming back to what we said at the start—holding the line means keeping members in flow. Sometimes you have to resist the easy answers to do what’s right for the long run.

Ms Chan

That’s such a good wrap-up, Mark. Keeping challenge, recognition, and reward in harmony is what makes loyalty really work—which isn’t always easy, but it’s definitely worth it. Anyway, thanks for hanging out and sharing your stories. I always learn a ton!

Mark Sage

Thank you—and thanks, everyone, for tuning in to Loyalty Unlocked. If you enjoyed today’s conversation, hit follow or subscribe—it helps more people find us and keeps the series going.We’ve got more coming up next time on the psychology, tech, and big ideas shaping how loyalty really works. See you soon.

Ms Chan

Bye, Mark! See you next time, everyone!