For much of the past two decades, the mandate for loyalty programs was to sign up as many customers as possible.

By that measure, the industry has been spectacularly successful. The average American belongs to roughly 17 loyalty programs and actively uses only about half of them.¹ Companies have accumulated enormous databases of people who at one point in time entered their contact information and accepted a welcome offer.

Over time, companies began treating enrollment as evidence of loyalty, when a signup really only marks the beginning of the relationship.

That distinction matters because many companies are now confronting an uncomfortable reality. On paper, their programs have never been larger, yet the commercial return is becoming increasingly hard to prove. What is commonly viewed internally as an activation problem is often a deeper management issue rooted in how the program has been measured and run.

We Measure Interest and Call It Loyalty

Ask an experienced marketer what loyalty means and the answer will usually involve some mention of emotional connection. You’ll hear about recognition, access, shared values and the feeling that a company knows who you are.

All of that matters, and the strongest programs influence how customers feel about a brand as well as how they spend with it. However, a customer can admire your company, follow every social account and even open the app several times a week without buying more frequently or choosing you over a competitor. They may be engaged with the brand and economically irrelevant to the program, a distinction that traditional loyalty metrics often fail to capture.

The same is true of enrollment and participation. Both can make a program appear healthy while revealing very little about its commercial impact.

The company everyone points to is Starbucks, and the lesson is usually misread as a story about a good app. The more useful lesson is that Starbucks came to treat loyalty as an operating system for the customer relationship. The app and rewards mechanics became powerful because they were embedded in how the company serves customers and drives repeat behavior.

That is the standard loyalty programs should be measured against – whether they change customer behavior in a way that creates incremental profit.

The Numbers Can Reward Failure

Roughly $10 billion in loyalty rewards goes unredeemed in the United States each year.² Within the industry, that unused value is known as breakage. It can improve reported results even when it reflects a reward that failed to bring the customer back.

The reason lies in how those rewards are accounted for. When a company issues points, it estimates how many will ultimately be redeemed. The portion expected to expire unused affects how the underlying revenue and liability are recognized, so lower-than-expected redemption can make the program appear more profitable.

That creates a genuinely perverse outcome. A program may disappoint more customers than anticipated and look more profitable because of it.

No sensible executive deliberately designs a loyalty program to frustrate or dissuade customers from participating. Yet financial reporting can make disengagement look like efficiency and an unused reward appears to be a cost avoided rather than a relationship left undeveloped.

Breakage is not inherently bad as some rewards will always expire. But unusually high breakage should provoke questions as it may signal that the program is difficult to understand, that the rewards are not compelling or that the customer has stopped caring enough to return.

A Dormant Database Cannot Support a Growth Strategy

The pressure to prove the value of loyalty has pushed many companies toward additional sources of growth, specifically paid membership and retail media.

Both can be powerful and both are regularly presented compelling margin projections. Their economics, however, depend on having a customer base that is active enough to support them.

A paid tier works when customers already receive enough value from the core program that they are willing to pay for more. If half the membership has not transacted in a year, the company does not have the foundation for a subscription business; rather it has a large collection of people who likely already declined the free version.

Retail media creates a similar problem. Advertisers pay for access to active, identifiable customers whose behavior can be observed and influenced. A database containing 20 million names may still represent a significant commercial asset. But its value depends on how many of those customers remain active and open to influence. The stronger the underlying participation, the more valuable the retail media business can become.

That is why the work of improving participation cannot be separated from the more ambitious growth strategies being presented.

Four Optimizations Enterprises Need to Make

The greater opportunity lies in directing more of the existing investment toward the members already on file, where the company has an established relationship and a clearer path to incremental value.

Measure the movement that matters. Total membership, app downloads and program penetration provide useful context, but they do not signal economic impact. Companies can gain a clearer view by tracking active members by cohort, movement between engagement states, incremental visits, incremental spend and incremental profit. The central question is whether customers spend more because of the program or simply happen to be higher-value customers.

Reward the behavior that can still be influenced. Companies can examine where promotional dollars are landing and distinguish between customers who used an offer and those whose behavior changed because of it. Redirecting incentives toward the next visit, purchase or category choice can unlock significant value from the existing budget without requiring additional spend.

Focus reactivation where it can make a difference. Not every dormant member represents the same opportunity. A customer beginning to drift may be far more responsive than someone who registered for a one-time promotion several years ago and never returned. More precise prioritization allows companies to invest where the relationship can still be salvaged or strengthened.

Build lifecycle management around the customer. Effective loyalty requires more than a welcome email, a birthday offer and light personalization. Some customers respond to recognition rather than discounts. Some can be encouraged to visit more frequently, while others need a compelling reason to reconsider an established preference. The opportunity is to understand what meaningfully moves each customer and align the investment accordingly.

Loyalty programs can improve the customer experience and give companies a clearer understanding of the people they serve. Their real value, however, comes from using that knowledge to strengthen the relationship and influence behavior.

The companies that get this right will move beyond measuring the size of the program and begin managing the value within it. They will know where investment can make a difference and focus their resources on customer relationships with real potential.

Done well, loyalty becomes a source of sustained growth, built on a deeper understanding of the customer and a more disciplined approach to earning their business.