Have you ever found yourself shopping on ‘autopilot,’ returning to the same store repeatedly, even when it’s slightly out of your way or priced a bit higher, simply because it feels familiar? Have you ever raved about a specific product to your friends? like a brand of chocolate peanut butter that is ‘the best thing they’ll ever try,’ touting all the benefits of it while thinking to yourself, ‘I should be getting paid to advertise like this!’ Most of us have at least one favorite store or product to which we are loyal customers. 

Acquiring new customers is essential for business growth, but retaining customers is even more valuable. While the age-old saying states that it costs five times more to attract a new customer than to keep existing ones, today's research is a little more nuanced. Regardless of the exact number, to ensure brand success, focusing on keeping your current customers happy can actually help grow your business.¹

 Customer loyalty is more than just repeat business; it’s about building a lasting relationship where customers feel a connection with the brand, trust its products or services, and are willing to advocate for it (aka social proof, or buying that specific peanut butter and forcing all your family and friends to try it). True customer loyalty is emotional and attitudinal, not just transactional. Across industries, different loyalty programs and incentives have been created to reign in customer loyalty's power. 

Social Proof: A psychological phenomenon that describes how the actions and opinions of others influence people. This is based on the aspects of conformity, whereby people tend to want to fit in and follow the crowd to gain acceptance and belonging. In marketing and consumer behavior, social proof influences decision-making through customer testimonials, online reviews, and celebrity endorsements.

Customer Retention: The practice of encouraging customers to continue purchasing from and engaging with your business. High retention is a sign of customer loyalty and is achieved through superior customer service, consistent product quality, and offering discounts and loyalty rewards programs.

Customer Lifetime Value (CLV): This metric estimates the total value a customer brings to a company over the entirety of their relationship. Higher CLV often correlates with stronger customer loyalty, as loyal customers purchase more over time. While more detailed and rigorous predictive analyses exist, a simple CLV estimate would include factors like average purchase value, purchase frequency, and customer lifespan.

Net Promoter Score (NPS): A widely used metric for gauging customer loyalty and satisfaction. It’s measured by asking customers how likely they are to recommend the brand to others, with higher scores indicating stronger loyalty.

Brand Advocacy: When satisfied and loyal customers promote a brand to others through word of mouth or online reviews. Brand advocates often emerge naturally from a base of loyal customers who trust the brand deeply.

Loyalty Programs: Structured marketing strategies designed to reward customers for their continued business. These programs may include discounts, points systems, exclusive deals, or personalized offers aimed at reinforcing repeat purchases and customer retention.

There were loyal customers before major chain stores, the internet, or even credit cards. From the earliest days of trading and bartering communities, people have formed alliances with the people and places they respect and trust. In many places today, local trade and craftsmanship is a big part of the regional economies. 

Before malls or department stores existed, people had to get their goods from a specific individual. They might have a local baker they go to for their loaf of bread every morning, a neighbor who sells eggs from their chickens, and the town’s cobbler who they turn to whenever they need a new pair of shoes. Because communities were often much smaller than the big cities today, people generally knew who they bought from and to whom they sold. 

We know that social norms can have a powerful influence on behavior. When everyone in a community knows each other, there’s little anonymity: business owners face social pressure to supply quality goods at fair prices, and any disagreements between customers and sellers are quickly discovered.² 

As long as the customer was satisfied with what they were getting, there was little incentive to ‘shop around’ for a better deal. Firstly, this is because there were likely far fewer options available than today for every conceivable type of product. Secondly, abandoning the merchant with whom you’d established a relationship would be seen as a betrayal. It would likely be revealed quite quickly in a small community, putting you at risk of social shaming if there wasn’t sufficient reason for your switch.³ Thirdly, trips to the marketplaces and local vendors are integral to daily life for many communities. Some relationships between families and their vendors stretch across generations, with the understanding that each will support the other, particularly through hard times. Even the most minor interactions can be a source of familiarity and comfort to people and an essential part of the social contract integral to life in certain communities.⁴ 

While it’s important to note that these types of local economies are still a huge part of the world today, even in more urban areas (think of the value of local farmers’ markets or co-ops), let’s take a look at the more structured approach to customer loyalty programs. In the 1920s, loyalty programs, as we’re familiar with today, began to take shape. Programs like “Green Stamps” were created, where customers collected stamps from returning to the store that could be exchanged for products.⁵ Over the decades, with the success of these types of stamp collection and points systems, businesses increasingly recognized the importance of customer retention.

One of the most significant developments in customer loyalty was the launch of Texas International Airlines’ frequent flyer program in 1979 (although many miscredit the invention of frequent flyer programs to American Airlines, their initiative didn’t launch until 1981). The frequent flyer concept really took off, which we’ll explore in more detail in the case study sedition. 

In the late 1990s and early 2000s, digital tools enabled businesses to personalize the customer experience more efficiently, leading to a boom in customer loyalty programs. Today, AI and big data allow companies to offer tailored experiences to individual customers. You might notice this when you get emails from your grocery store for coupons for all the products you typically buy every week or when your phone sends you ads for a new set of sweatpants that match the sweatshirt you just bought. The future of customer loyalty will likely include even more advanced personalization, AI-driven insights, and a shift toward creating emotional connections through experiences rather than just transactional rewards. It’s hard to predict exactly what this will look like, but it will undoubtedly keep evolving.

Frederick Reichheld: The creator of the Net Promoter Score (NPS) creator, who transformed how companies measure customer loyalty. Reichheld’s work emphasizes that repeat purchases should measure loyalty and how likely a customer is to recommend a brand to others.

Seth Godin: A renowned marketing expert who has written extensively on the power of tribes and loyalty. Godin is the author of the best-selling business book This is Marketing, where he argues that building a loyal customer base requires companies to foster genuine connections and create something worth talking about.

Robert Passikoff: The founder of Brand Keys, a research consultancy specializing in customer loyalty measurement. His work focuses on understanding the emotional and rational factors that drive customer loyalty and brand engagement.

While developing deep customer loyalty is a daunting task, a solid and effective loyalty program is quickly becoming necessary to keep customers engaged in today's competitive retail market. Unfortunately for many brands, customer loyalty is waning—the average customer retention rate for more than half of all industries is below 50%, and two-thirds of customers are willing to switch brands if a competitor provides a better experience.⁶ When asked what kinds of shopping and loyalty experiences customers seek, 81% said they want active relationships with brands, relevant communication, and benefits that actually mean something to them (not just junk mail). Businesses have thus been tasked with creating creative ways to keep customers returning without spamming their inboxes. 

Effectiveness of Loyalty

Companies with high levels of customer loyalty tend to experience steady revenue growth as loyal customers make more frequent purchases and spend more over time. There’s also the added calculation of Customer Lifetime Value (CLV): By focusing on customer loyalty, businesses increase the CLV of their customers because loyal customers are more likely to stay with the company over a more extended period, and they often help bring in additional customers through referrals or word of mouth, making their impact even higher. Thus, it's no surprise that the loyalty management market is expected to reach $24.44 billion by 2029.⁷

Loyal customers become natural advocates for the brand, sharing their positive experiences via word of mouth with their friends, family, coworkers, or social media presence. Although this organic method can be beneficial, it can be hard to track just how much of an impact word of mouth has, as customers' daily conversations and unofficial reviews of products (good or bad) aren’t recorded. 

Psychological Foundations of Loyalty 

Many customer loyalty programs are deeply intertwined with various behavioral science concepts that explain why they can be so effective. One important principle is the endowment effect, which suggests that people place a higher value on things they feel they "own." When customers are given loyalty points, free trials, or early rewards, they begin to feel ownership over the potential benefits, increasing their psychological attachment to the brand and making them more likely to continue investing in the relationship. 

This ties into loss aversion, where the fear of losing what one has (such as accumulated rewards) becomes a powerful motivator for continued loyalty. Later, we’ll look at how loyalty programs like frequent flyer accounts implement this. 

Hyperbolic discounting also comes into play, where individuals tend to prefer immediate, smaller rewards over larger, delayed ones. Loyalty programs that offer instant gratification (like immediate points in your app, discounts at the register, or handing over physical coupons) exploit this bias, keeping customers engaged and motivated to continue interacting with the brand. Finally, reciprocity—the human tendency to respond to kind actions with a desire to return the favor—drives loyalty when brands give customers rewards, as customers feel inclined to reciprocate by engaging with their business.

Tech and Loyalty

Emerging technologies like blockchain and the Internet of Things (IoT) are transforming the future of loyalty programs by enhancing personalization, security, and the overall customer experience. Blockchain, for instance, has dramatically improved security and transparency in loyalty management; loyalty points or rewards can be stored as digital tokens, making them easily transferable across different platforms or partner companies without the risk of fraud. This decentralization ensures that customers have complete control over their rewards, reducing concerns about program mismanagement or sudden changes that may otherwise cause dissatisfaction. Blockchain’s inherent traceability adds a layer of accountability, ensuring that every transaction or point exchange is fully auditable, thus increasing trust between businesses and their customers.

On the other hand, the IoT allows brands to interact with customers in real-time based on their behaviors and preferences, which has immense potential for personalization capabilities. IoT devices, like smartwatches, TVs, or refrigerators, can collect data on a user’s habits, providing insights enabling brands to deliver targeted offers. For example, you may be familiar with grocery stores sending you coupons for the products you regularly buy. However, a connected fridge could detect when a customer is running low on groceries, automatically offering loyalty points or discounts for purchase at their preferred store. This seamless, context-aware engagement deepens customer loyalty by making brand interactions more meaningful and convenient.

Both blockchain and IoT improve interoperability across different loyalty programs, as blockchain allows for decentralized loyalty ecosystems where points from multiple programs can be easily combined, and IoT-connected systems can gather data from multiple touchpoints (e.g., a customer’s smart devices, shopping patterns, or app usage) to create a unified loyalty experience. All of this helps create a more customer-centric approach, where new technology can help create rewards that are both meaningful and easily accessible.

Influencer Marketing and Social Media

To more accurately track impact and reach a broader audience, many companies have begun to leverage the power of online reviews and social media. Social media influencers can act as brand reps, promoting specific products, demonstrating their use, and pledging their loyalty in a more public way. For example, you’ve likely seen a TikTok or reel where an influencer creates a new recipe. They might be sponsored by a specific protein powder company, where the brand pays the influencer to promote the product. The video might show the influencer making a smoothie as she talks about the protein powder, saying she “swears by this brand,” talks about how good it tastes, and demonstrates how easy it is to add to a smoothie. Sound familiar? 

Although the concept is simple, seeing those we trust using a product can make us more likely to buy that product. If followers are loyal to their favorite influencer, this loyalty can transfer to the brands or items to which the influencer is ‘loyal,’ leveraging the power of social proof. 

This bias further reinforces loyalty by using cues from others' behavior to shape decision-making. In general, when consumers see others participating in a loyalty program—whether through membership tiers, public rewards, or social media engagement—they are more likely to follow suit due to the desire to conform to perceived social norms. This principle is closely related to herd behavior, where individuals are influenced by the majority's actions, amplifying the effectiveness of loyalty programs when they are widely adopted. The feeling of belonging can be a potent influence, with people becoming more likely to trust the opinion (about a specific brand or product) of those they like or admire more than others.

Unethical Methods of Securing Customer Loyalty

Although marketing through influencers is a more indirect way for brands to engage with customers and allows customers to decide whether or not they want to follow the influencer's advice, there is still plenty of potential to be misleading or even unethical. Influencers, either by the direction of brands or of their own will, may claim to be incredibly loyal to specific companies, telling their followers that they only ever use a specific product. In reality, they might actually be using another brand on the side, or they might not even be using the brand’s product at all, as paid promotions often involve sending influencers free products. Some promotions are less explicit and may simply show the brand in the background—in the smoothie video example, the influencer might not even mention the brand but simply show herself adding the protein powder with the label clearly displayed. If followers (and therefore, potential customers) don’t know that this person is being paid to promote a product, particularly if the influencer themself is falsely portraying their use of a product, is this ethical advertising?

Privacy and Data Concerns

As companies continue to collect more and more of our data, privacy and the ethical use of sensitive data have become a central concern for many people. In order to personalize customer loyalty programs, companies often collect more information about customers than they realize. When shoppers sign up, they usually knowingly submit their names, phone numbers, email, and home addresses, but some programs also keep demographic information, shopping habits, or even credit card information on file. 

The more information companies collect, the higher the risks are to customers if their information is sold or leaked. Besides a need for maintaining data security, businesses are also under an obligation to use responsible marketing strategies. However, “responsible” is subjective, and as customers are becoming more aware of how their data is used, many questions arise when we ask what’s appropriate. For example, is it ethical to collect and use data when consumers may not fully understand or consent to the practices? Is it ethical to use personal data to influence consumers’ behavior in ways that might not be in their best interest (like encouraging excessive spending or targeting vulnerable populations)? What about vulnerable populations? How can companies ensure that data tracking and marketing practices don’t perpetuate discrimination or reinforce harmful biases? All of these questions and more must be tackled by regulators to ensure customers have appropriate protection, regardless of whether or not they are a part of a given loyalty program. 

Building Emotional Connection

Another controversy among business leaders is that some argue that loyalty programs may not always be effective if they focus too much on discounts and rewards rather than building emotional connections with customers.⁸ Many customers crave a brand that feels “real” and “familiar,” and overemphasizing rewards can turn loyalty into a purely transactional relationship. When businesses rely only on transactional relationships, customers will be prompted to go where the best deal is. Striking the right balance between monetary-related rewards and fostering an emotional connection leads to more resilient customer loyalty. Although the consumer transaction is, of course, a financial one, brands have the power to convince us otherwise, and many people are swayed by the “in-group” sensation formed by aligning themselves with specific brands. 

As an increasing number of companies offer loyalty or points systems, some businesses struggle to differentiate themselves. Many customers, for example, end up (ironically) with different loyalty cards for each of the many grocery stores they frequent, applying their discounts whenever they shop but choosing where they shop only based on what’s most convenient for them.

Frequent Flyer Programs

Back before frequent flyer programs were commonplace, American Airlines’ 1981 AAdvantage program fundamentally reshaped the airline industry’s approach to customer loyalty. The program rewarded customers with miles for repeat flights, which could be redeemed for free flights or upgrades, a model which quickly spread to other airlines and industries, creating a new era of loyalty marketing.

This type of rewards program leveraged many of the behavioral science concepts used in other marketing strategies, like the concept of reciprocity: when a company offers rewards or perks, customers feel an obligation to reciprocate by continuing to engage with the brand. In frequent flyer programs, customers perceive the miles or points they earn as a gesture of goodwill from the airline, making them more likely to book future flights with the same airline to reciprocate.

Customers are also motivated by loss aversion, where they fear losing something they value (in this case, points or miles). Once customers start accumulating miles, they’re less likely to switch airlines because they don't want to lose the opportunity to redeem their miles, even if there might be a cheaper or more convenient option with another airline. This taps into the idea that people prefer avoiding losses over acquiring equivalent gains. People also tend to value what they already own more highly than what they don't (a phenomenon known as the endowment effect). As customers accumulate miles, these points feel like a personal possession, increasing the perceived value of staying loyal to the program to "cash in" on those miles.

Many frequent flyer programs also include tiered status levels (e.g., Silver, Gold, Platinum) that offer exclusive benefits like priority boarding, lounge access, or free upgrades. These tiers leverage the power of scarcity and exclusivity bias, as airlines encourage flyers to maintain or improve their status, keeping them loyal in pursuit of these high-value, exclusive perks. Because these types of frequent-flyer programs have been so effective, many other industries, from hotels to retail, have adopted similar programs. 

Amazon Prime

Another prime example of customer loyalty initiatives is Amazon Prime, which has become a benchmark for customer loyalty programs in the retail space. If you’re not already familiar, Amazon prime offers customers exclusive benefits like free shipping, access to entertainment content (like movies and music), and faster delivery options.

Instead of a points system, Amazon Prime is a paid membership program where users have to pay a monthly fee to get access to all the ‘perks.’ Because users pay into the system, they often feel obligated to make as much use of their payment as possible; now that they’ve already paid, most deliveries are now “free,” and the power of free can have a huge impact on consumer decision-making. Each additional purchase, through the ‘free’ delivery or return, essentially increases a customer’s rate of return on their purchase of the service, increasing their use of the membership and rate of purchasing. Once customers get in the habit of ordering things online (and from Amazon specifically), it becomes second nature, and they resort to the status-quo bias, continuing to do what they’ve always done. 

Apple Products

One company you may be very familiar with (and maybe even interacting with) right now is Apple. Apple’s loyal customer base is known for its brand advocacy and commitment to the product and its upgrades (although, is this always by choice?) Although Apple has created an ecosystem of products that work seamlessly together, creating a high level of customer satisfaction, they’ve also been accused of trapping customers into a world of planned obsolescence⁹ and a network of products that only work with other Apple products. 

Many people have a freight relationship with the world of Apple gadgets, often frustrated with the constant updates needed or the feeling of being manipulated in customer loyalty, as it can be incredibly difficult to switch back to non-Apple products. Regardless of whether or not all people are loyal Apple-product users by choice, Apple has created a culture where many customers are incredibly loyal, defending the brand, following the latest gadget releases, and willing to pay a premium for their products.

Creating a Superfan: The Behavioral Power of Online Communities

If you visit the websites of many brands, you will likely find a “community” section where users can talk and connect with each other. This article explores how online brands and websites foster customer loyalty by creating close-knit, engaging environments that connect users with shared interests. Behavioral insights like social identity theory and social exchange theory are used by brands to increase participation, trust, and advocacy, encouraging users to become "superfans" who actively promote the brand on these sites, and these communities help brands build long-term customer loyalty by providing personalized interactions.

7 Behavioral Tips for Designing the Ideal Customer Experience

Understanding the customer experience from start to finish is a crucial part of fostering customer loyalty and creating an environment they want to return to. This article outlines seven behavioral strategies to enhance customer experience (CX), focusing on making interactions intuitive and enjoyable. Read about how to reduce cognitive overload, provide a sense of control, and condense negative experiences while spreading out positive ones. By using behavioral insights to optimize customer touchpoints, businesses can foster stronger customer loyalty, creating an experience that customers are eager to (loyally) repeat.

1. Indeed Editorial Team. (July, 2024.). Happy customers: Definition and tips to improve customer satisfaction. Indeed. https://ca.indeed.com/career-advice/career-development/happy-customers
2. Unicef. (2024). Social norms: Understanding, leveraging and addressing unwritten rules. Social and Behavioral Change Communication Guidance. https://www.sbcguidance.org/do/social-norms 
3. Barr, Abigail. (2001). Social Dilemmas and Shame-based Sanctions: Experimental results from rural Zimbabwe. The Centre for the Study of African Economies Working Paper Series. 
4. Project for Public Spaces. (March, 2014.). Healthy hubs: How markets create a new sense of community. Project for Public Spaces. https://www.pps.org/article/healthy-hubs-how-markets-create-a-new-sense-of-community
5. Hagberg, J., Kjellberg, H., & Cochoy, F. (2020). The Role of Market Devices for Price and Loyalty Strategies in 20th Century U.S. Grocery Stores. Journal of Macromarketing, 40(2), 201-220. https://doi-org.gate3.library.lse.ac.uk/10.1177/0276146719897366
6. Mitic, I.D (July 2023). Brand loyalty statistics. Survey Sparrow. https://fortunly.com/statistics/brand-loyalty-statistics
7. McKinsey & Company. (2021). Next in loyalty: Eight levers to turn customers into fans. McKinsey & Company. https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/next-in-loyalty-eight-levers-to-turn-customers-into-fans
8. IB. (2021, July 20). The myth of customer loyalty. IB. https://www.weareib.co/blog/the-myth-of-customer-loyalty
9. Adams, K. (2023, September 7). Trendy updates lure Apple customers into the trap of planned obsolescence. ISSH International.https://isshinternational.org/9509/lifestyle/trendy-updates-lure-apple-customers-into-the-trap-of-planned-obsolescence/