Last Saturday, I was in the check-in line at the airport with my wife, lugging overweight backpacks for Tenerife. Ahead of us stood a gentleman with that gleaming Lufthansa card—the kind people pull from their wallets just a tad too slowly, ensuring everyone notices. His posture and worn coat screamed one thing: this man spent more time in the air than in his living room. Not a tourist. A business traveler, every mile hard-earned through meetings and airport waits. Then, the agent - out of "kindness" and due to "overbooking" - upgraded the passenger in front of him, a younger guy in a tracksuit who, judging by his questions, was flying for the first time this year. I watched our gleaming gentleman's face change.
He wasn't happy for the stranger. He was deeply offended. It was as if someone had ripped a medal from his chest and pinned it on a random passerby. In that moment, his card lost its weight - not in grams, but in meaning. He saw every mile as proof of his effort, and now he watched someone get the same reward for zero investment. For him, this wasn't luck; it was systemic injustice. And injustice, in loyalty, has a longer memory than any marketing campaign.
Today's loyalty program status quo is often misguided. Programs act like a collection of coupons with prettier graphics. CMOs talk "surprise & delight," program directors calculate "breakage," and finance wants fewer liabilities on the balance sheet. But everyone forgets basic psychology. A loyalty program isn't just a marketing tool; it's a simulated economy of moral inequality. When customers leave, they don't leave because of price. They leave because the system stops being fair.
Let's be honest: a loyalty program is a system of deliberate inequality. It gives some a discount and a fast lane, and others nothing. This isn't a bug; it's the engine of the program. It works as long as each step on the ladder ("Bronze," "Silver," "Gold") has a clear reason and is backed by effort. In meritocratic environments, people accept inequality if it's a result of hard work. But when rewards start looking like a lottery, inequality turns into an insult.
In our practice, I often see teams optimizing solely for "reward value," completely overlooking the "source of the reward." Customers care whether they got a $50 benefit because they spent $5,000 annually with you, or because they were just in the right place at the right time. The first story builds identity and confirms status. The second dismantles it, signaling that the rules are arbitrary.
When you truly listen to elite members for the first time, you're surprised. They don't sound like people asking for perks; they sound like people demanding recognition. Research on self-serving bias shows that high-status individuals attribute their position to hard work far more often than to luck. When you tell a "Gold" member, "we gave you a gift," you're not doing them a favor. You're unknowingly telling them that their 37 flights or $18,000 in annual spending wasn't decisive.
At FrodX, for one B2B industrial components distribution program, we ran a simple test. We changed the rhetoric in communications. Instead of "a gift for you," we used "recognition for your Q2 results." Activation response for benefits jumped from 21% to 34% in six months. No change in the economic value of the reward. The trick was purely moral interpretation: the same benefit became confirmation of their work, not random charity.
Loyal customers have a specific relationship with chance. Research shows highly loyal consumers estimate their probability of winning sweepstakes higher than less loyal ones, even when the odds are objectively the same. Their math isn't wrong; their moral calculation is just different. It says: "I invested more, so I should have a better chance." When such a customer doesn't win, or sees someone who just downloaded the app yesterday win, they perceive it as a breach of a psychological contract.
That's why I always get concerned when I hear the idea in meetings: "Let's do a random draw for all members to make it fair." In a meritocratic segment, that's not fair. That's equating effort with chance, which the elite see as system contamination. If you must use elements of luck, ensure the probability of winning is at least partially weighted by past investment or status.
"Status match" is one of the most widespread acquisition tactics, yet also one of the most underestimated forms of self-sabotage for your own program. If someone gets "Gold" status in 30 seconds by sending a scan of a competitor's card, while your existing member built it over 18 months, you've just devalued the currency of effort. In programs where the top 5% of members bring in up to 60% of revenue, the elite quickly calculate: "If my status is so cheap, why am I paying a premium?"
The solution is boring, but effective: instead of automatic "status match," use a "status challenge." Offer them status retention if they achieve a certain spend (e.g., $1,200) within 90 days. This gives the newcomer a trial experience of privileges, and your veteran gets a signal that the system still respects effort and club entry isn't handed out for free.
When marketing teams discuss points, they often sound like they're talking about a promotional expense to be reduced. Meanwhile, regulators (like the CFPB and DOT in the US) increasingly treat points as a customer's asset. When you overnight shift a reward from 20,000 points to 30,000 for the same flight or product, that's not a "catalog adjustment." That's a retroactive tax on past work.
In our practice, we observe that a 90-day transition period and clear communication reduce complaints by 40–60% compared to sudden changes. An even better solution is a "grandfather" rule, where old rules apply for existing status for a certain period. This isn't just kindness; it's hygiene. It tells the customer: "What you earned yesterday still counts today."
The key shift in thinking happens when you realize you're not running a campaign; you're managing a mini-economy with its own currency, classes, and taxes. When you do "surprise & delight" for everyone, you're not handing out gifts; you're changing the constitution. When you do a "status match" without conditions, you're granting citizenship without contribution. Loyalty programs fail when the team thinks the problem is the rewards, while the actual problem is the perceived fairness of the rules.
If you run a loyalty program, take 20 minutes for a "Fairness Audit." Ask yourself: Can a "Gold" member explain why they have privileges in 30 seconds? Are most benefits tied to investment, not luck? Do you communicate in the language of "you earned" instead of "we gave"? If you're struggling with these questions, you have a bigger challenge than a low CTR.
Start by inventorying all "random" mechanics in your program - draws, instant upgrades, and new-member coupons - and categorize them by whether they build or dismantle meritocracy. Then, consistently replace the word "gift" with "recognition for achievement" in your communications. For elite segments, this often boosts the "earn rate" by a few percentage points at no additional cost.
The third step is to introduce a fairness audit as a mandatory item before every major campaign. If you're interested in what such an audit looks like in practice, email me at igor.pauletic@frodx.com. Send me a description of your tiers, and within 48 hours, I'll send you red flags - no sales pitch, just concrete warnings from experience.
Igor Pauletič