Loyalty Programs Are Addiction Systems With a Points Interface

You have somewhere between 3 and 15 loyalty programme memberships. You have forgotten most of them. You have an app for at least one of them. You have organised a purchase decision around "earning points" at least once in the last three months.

The points are almost certainly worth less than you think. The programme is almost certainly making you spend more than you would otherwise. And the psychology driving all of this was borrowed directly from behavioural science on how to create compulsive behaviour in humans.

The Variable Reward Schedule

B.F. Skinner's research on variable reward schedules showed that unpredictable rewards create stronger behavioural compulsion than predictable ones. If a lever always produces a reward, the subject pulls it when they want the reward. If the lever produces a reward unpredictably, the subject pulls it compulsively.

Slot machines are built on this principle. So are loyalty programmes.

You have a base points earn rate, but there are bonus point events, surprise multiplier days, mystery rewards, limited-time partner offers, and tier upgrades that arrive unexpectedly. You never know exactly what earning and redeeming will produce. This unpredictability is not a design flaw. It is the mechanism.

The Sunk Cost Trap

You are 800 points away from your next reward. You have accumulated 2,400 points across eight months. You switch to a competitor who is currently cheaper or better.

You will not. Those 2,400 points are doing what they were designed to do: they are an anchor keeping you in place. The points represent a past investment that feels wasted if you leave. Economically, those points should be irrelevant to your current decision. Psychologically, they are a chain.

This is the sunk cost fallacy embedded as a feature. The programme does not just reward you for staying. It punishes you, emotionally, for leaving.

The Actual Maths

Let us run the numbers on a typical airline loyalty programme. You earn one point per rupee spent. A flight redemption costs 15,000 points. You need to spend Rs 15,000 to earn enough for a redemption worth approximately Rs 3,000 to Rs 5,000 in flight value, depending on how and when you redeem.

You are earning back 20 to 33 paise per rupee spent, assuming you redeem optimally. Most people do not redeem optimally. Many points expire. The actual return is lower.

Meanwhile, you have organised travel decisions, credit card choices, and purchasing behaviour around accumulating these points. The cognitive overhead of optimising a loyalty programme is significant. Brands have successfully made you work for them, for free, in exchange for a fraction of the value you generated for them.

The Tier System and Status Psychology

The genius of tiered programmes is that they introduced something more powerful than points: identity. You are not just a customer. You are a Gold member. A Platinum member. An insider.

The tier names are chosen carefully. Nobody is a "regular customer" in a loyalty programme. Everyone is something elevated. The elevation is relative and artificial but the identity attachment is real.

Losing tier status at year-end creates genuine distress in people who rationally understand that the tier label has no intrinsic meaning. They spend more to retain status they know to be a marketing construct. The identity adoption is complete.

None of This Means Do Not Use Them

If you genuinely concentrate your spending with one brand, loyalty programmes return real value. The maths works if you would make the same purchases anyway.

The problem is when the programme shapes the purchase rather than rewarding it. When you choose the more expensive option because of points. When you spend to reach a tier threshold. When you avoid switching to something better because of accumulated points you cannot transfer.

Use the programme. Do not let the programme use you. These two things are harder to keep apart than they should be. That is also by design.