The Hidden Design of Loyalty

Ms Chan

Hey hey everyone! Welcome back to Loyalty Unlocked! As always, I’m joined by Mark Sage who, like me, is an AI generated host. Fortunately the content itself is real! So—Mark, how’s it going?

Mark Sage

Hi, great to be back and excited to be here! This episode is fun as we're digging into the psychology that underpins loyalty. We’ve talked a lot about coalition structures and program design on previous episodes, but today we’re diving into what really makes loyalty stick. Or, you know, not stick.

Ms Chan

Yeah, and honestly, I love this topic because it's so much messier than people think, right? I mean, how many programs are you part of, Mark? For me, I can maybe list three or four, like yuu, airline, and coffee cards. But then I checked, and apparently for Americans, it’s like—what was it—17 memberships per household on average?

Mark Sage

Yeah, it's wild. The numbers look huge until you ask how many people actually use those programs regularly. That’s the kicker. Only around forty percent are actually engaged, the rest are just, like—eh, forgotten.

Mark Sage

It’s almost seems like everyone’s a member, but hardly anyone’s loyal if that makes sense.

Ms Chan

Right, it's like, we might carry all the cards or apps, but if we're honest, most of them just gather digital dust. And this blew my mind—so, McKinsey found that companies with loyalty programs, on average, actually grew more slowly than those without? I mean, I always thought adding a loyalty program was supposed to turbocharge sales, not slow things down!

Mark Sage

It sounds counterintuitive but totally spot on. That McKinsey study—I think it was back in 2013—showed companies with programs grew at, 4.4% while those without were at 5.5%. So, adding a standard, copycat points system isn’t a magic fix. If everyone does it, it becomes background noise, and the incentive just vanishes.

Ms Chan

I guess it’s like those “me-too” schemes. If you just slap points onto your existing app, thinking that’s enough, you’re missing the point. It’s not about stacking up more offers—it’s about making people want to come back, to actually engage! So Mark, if loyalty can work, but sometimes goes totally flat… what actually separates the winners from the ones that fade away?

Mark Sage

Great question. And the answer isn’t really about partnerships or having the fanciest app features. The real secret’s psychology. It’s how a scheme gets inside your head, not just inside your phone. That’s where yuu Rewards was different.

Mark Sage

We weren’t just building tech. We were trying to build a habit, a mindset. And that, I think, is a lot harder but also where the magic happens.

Ms Chan

Alright, so to really understand how to build true loyalty, we need to sort of forget about the app—or at least, move beyond it. We have to get into the customer’s head! That’s kinda scary but exciting at the same time.

Mark Sage

Yeah, let’s time travel a bit. To get why psychology matters for loyalty, you have to go all the way back to 1938—cold Minnesota snow, and B.F. Skinner publishing “The Behaviour of Organisms”. Really, the backbone for why we do what we do in loyalty. And, I know you love a bit of science, right?

Ms Chan

Haha, absolutely! I mean, we covered collecting behaviour and goal-setting in earlier episodes, but this stuff? It’s like the OG playbook for habit formation. So, Skinner was basically saying, “Hey, people’s behaviours are shaped by rewards,” right?

Mark Sage

Yeah, and the kicker is how those rewards are given — or scheduled. Skinner described three main reinforcement schedules. First, you’ve got continuous reinforcement — every time you do the thing, you get a reward. Like earning base points for every purchase. Simple and predictable.

Mark Sage

Then there’s the ratio schedule — where rewards are tied to the number of actions, but not every time. Think of a coffee stamp card — buy nine, get the tenth free. That’s a fixed ratio. Slot machines? That’s variable ratio — you don’t know when you’ll win, which makes them addictive.

Mark Sage

And finally, the interval schedule — where rewards are based on time. That might be a monthly bonus, or a surprise offer that drops sometime this week. Fixed or random, it’s about timing rather than count.

Ms Chan

Slot machines… and honestly, my phone, too. Like, I check my messages constantly, and most of the time, it’s just spam or nothing at all. But occasionally, I get “the good stuff”—an invite, an unexpected e-transfer maybe. But really, that unpredictability—it totally hooks you. I think, what, the stat was more than 300 times a day we check our phones now? That’s bananas.

Mark Sage

Exactly, and what’s happening with those notifications is our brains get rewired—we’re being hijacked, in a way. Every ping or badge triggers the “orienting response”, that ancient survival thing where we can’t help but react. And the best loyalty programs borrow directly from this by layering in unpredictability. It’s the classic, “Why do I keep swiping when I don’t even care that much about the points?”

Ms Chan

Totally. And I mean, I know I keep checking for those surprise offers in loyalty apps, even if I know 99% of the time, it’s not going to be life-changing. But that one percent, when something awesome shows up, makes the other checks kind of worth it. I gotta admit, it’s a bit of a hack. And it makes so much sense why variable rewards are stickier than just getting the same thing every time.

Mark Sage

Yep, and that’s why some loyalty programs kind of fizzle over time. If it’s just points for every transaction, behaviour quickly becomes passive—“Sure, I’ll swipe my card, but I’m not going out of my way for this.” But when you add in unpredictability, variable offers, surprise bonuses—that’s what keeps people coming back. Your phone is a slot machine, just with push alerts instead of coins.

Ms Chan

And that’s why the science is so cool—it’s not just about buying loyalty, it’s about wiring in habit. I mean, it explains everything from games to phones to, well, why my coffee app makes me eager to stop by every morning even when I had no plans to.

Mark Sage

Absolutely. In fact, some of the best-designed loyalty programs have been using this for decades. Take airline frequent-flyer schemes. They’re a masterclass in reinforcement design.

Ms Chan

How so?

Mark Sage

Start with continuous reinforcement — every time you fly, you earn miles. That’s the basic “action-equals-reward” loop. Then you’ve got fixed-ratio rewards, like earning a free flight or upgrade once you hit a certain threshold. Those are clear, goal-based milestones.

Ms Chan

Right — the silver, gold, platinum tiers.

Mark Sage

Exactly. Those tiers layer in another schedule — fixed-interval rewards. You keep your status for a year, so you’re constantly pacing yourself to maintain it before the clock resets. That drives recurring behaviour.

Mark Sage

But the real magic happens when you mix in variable rewards — the unpredictable bits. Flash seat upgrades at check-in, random double-mile promotions, the surprise email saying “you’ve been upgraded.” That unpredictability taps the same dopamine loop as checking your phone.

Ms Chan

So even when you’re not flying, you’re thinking about it — waiting for the next little hit of recognition or reward.

Mark Sage

Yep. That’s why the best loyalty schemes feel alive — they have both predictability and surprise. Members trust the structure but stay excited by the randomness. It’s a compound schedule that resists extinction.

Mark Sage

When we built yuu Rewards, we borrowed that same logic, but we made it a lot more relevant and a lot more real-time!

Ms Chan

Oh yes - real-time is the missing piece! It always takes so long for my miles and tier status to update when I fly!

Mark Sage

Thats true. With yuu Rewards we wanted the reaction to be tightly linked to the action - to really drive home that reinforcement.

Mark Sage

We also aimed to layer reinforcement types for maximum engagement—so not just base points, but interval and variable ratio things over the top.

Ms Chan

Right, so can you give us an example of those layers in yuu Rewards? Like, continuous reinforcement would be just earning points for every purchase. But what comes next?

Mark Sage

Yeah, so after base earn, we integrated instant push notifications—so you spend, the app pings you immediately with how many points you got. Closing that loop between the action and the reward, making it felt, not just abstract.

Ms Chan

Oh! That’s the “power of the ping”, right? I totally noticed it when I used yuu rewards out shopping—my phone buzzes, and suddenly those points feel real. It’s almost like a mini dopamine hit every time. My friends would joke that I get too excited, but hey—it totally works.

Mark Sage

It really does. Then we layered in daily and rotating offers, plus flash deals. So, instead of just predictable rewards, you’d get random high-value offers appearing and disappearing—sometimes only available for a few hours. That adds the fear of missing out, makes people want to check in regularly “just in case.”

Ms Chan

That’s me, I admit it. I didn’t want to miss the best stuff, so I was opening the app all the time. But wasn’t there some behind-the-scenes debate? Like, retailers wanted to stick to weekly deals because that’s easier for them, right?

Mark Sage

Oh, absolutely. The banners were used to weekly schedules—so for them to create new, daily-specific offers was a headache. We had to compromise: instead of every brand doing new promos daily, we’d allocate a day of the week for each. That way, members still got a sense of daily freshness, but the teams could still plan in weekly cycles. So, structure, but with enough unpredictability to keep it engaging.

Ms Chan

I love that you’re honest about the behind-the-scenes messiness, because it’s not always possible to have perfect theory in practice. I think it’s cool that even with constraints, you managed to preserve that “something wonderful might appear” effect for users. That’s where all the psychology stuff pays off in the real world, I guess.

Mark Sage

Exactly. We were trying to resist extinction—make the program sticky enough that members kept coming back, even if the tech or retail calendar wasn’t always perfect. The results spoke for themselves: above-market active rates and a real sense of daily engagement in the app. That’s what happens when you blend theory and practical design.

Ms Chan

So, if I’m hearing everything right, base points are kind of a double-edged sword. They’re predictable, which is great for forming habits but maybe not enough if you want people to go, like, that extra mile. They help make loyalty part of the routine, but not necessarily make it interesting, right?

Mark Sage

Exactly, and it’s almost more like Pavlov’s bell than Skinner’s reinforcement. Members swipe or scan as almost a reflex—not because they’re actively chasing something—so you get reach, but maybe not “stretch.” That’s why layering on surprises and challenges is so important: it nudges people from routine into excitement.

Ms Chan

And it kind of goes against the idea that different people need totally different things. Honestly, research says good design usually beats out demographics—the right mechanic can motivate nearly anyone, whether they’re into luxury, groceries, or just free coffee! I always thought my older relatives wouldn’t care about this stuff, but they totally do once the mechanics are right.

Mark Sage

That’s it, and maybe the most underrated point is that motivation is everyone’s job. It’s not a marketing gimmick—it influences product, user experience, partnerships, operations… the works. If you don’t build that strategic psychology into every part of the programme, you’re missing half the puzzle.

Ms Chan

So if there’s a big takeaway, it’s not about signing more partners or adding random features—it's about better mechanics. You want a program people can trust to reward them, but that’s still surprising enough to be exciting. Predictable enough to build a habit, unpredictable enough to keep people curious. That’s how you make sure that what you’ve built resists extinction—and doesn’t just become noise!

Mark Sage

Exactly—strong mechanics, informed by psychology, are what keep loyalty alive. And that’s just the start; keeping programs fresh is a whole other battle we’ll definitely keep talking about. As always, a pleasure chatting. Thanks for the fun today.

Ms Chan

Thanks Mark—it’s awesome to geek out on this stuff with you. Thanks to everyone for tuning in. Don’t forget to subscribe for more Loyalty Unlocked and we’ll catch you on the next episode!