By Dr. Wan Khatina Nawawi
Loyalty programmes shape decisions and limit mobility in subtle ways. Their impact deserves greater clarity, and their design greater accountability.
This article is the fourth in the Truth and Accountability series, which examines how rules, systems, and market practices align, or fail to align, with how consumers and businesses actually engage with markets.
It explores loyalty programmes in the airline and hospitality sectors. Often framed as marketing tools or consumer rewards, these schemes can shape behaviour in ways that limit transparency, reduce mobility, and affect how markets function. Their design matters not only for customer satisfaction but also for market fairness and choice.
Drawing from both behavioural economics and regulatory practice, this article considers how loyalty creates lock-in, raises switching costs, and shapes competition. It also reflects on how clearer choices and more accountable design can help ensure that loyalty reflects real preference, not restricted choice.
Loyalty programmes shape decisions and limit mobility in subtle ways. Their impact deserves greater clarity, and their design greater accountability.
This article is the fourth in the Truth and Accountability series, which examines how rules, systems, and market practices align, or fail to align, with how consumers and businesses actually engage with markets.
It explores loyalty programmes in the airline and hospitality sectors. Often framed as marketing tools or consumer rewards, these schemes can shape behaviour in ways that limit transparency, reduce mobility, and affect how markets function. Their design matters not only for customer satisfaction but also for market fairness and choice.
Drawing from both behavioural economics and regulatory practice, this article considers how loyalty creates lock-in, raises switching costs, and shapes competition. It also reflects on how clearer choices and more accountable design can help ensure that loyalty reflects real preference, not restricted choice.
What are loyalty programmes, and why do they matter?
Loyalty programmes are structured systems that encourage repeat behaviour through cumulative benefits. In aviation, frequent flyer programmes (FFPs) offer points that can be redeemed for flights, upgrades, or other travel-related rewards. In hospitality, hotel chains offer status tiers that come with benefits such as room upgrades, priority check-in, or late check-out. The basic model is familiar: the more you spend, the more you earn. These schemes are no longer limited to travel. Many are now linked to credit cards, lifestyle partners and digital wallets. As these ecosystems expand, so does the influence of loyalty on how people choose, spend and stay.
Loyalty programmes are often confused with reward programmes. But they are not the same. A reward programme provides an immediate or one-off benefit: for example, a cash voucher or discount after a purchase. A loyalty programme requires sustained engagement, with rewards unlocked over time. The difference is not just structural. It is also psychological. Loyalty relies on habit, accumulation, and the fear of losing benefits already earned.
Yet in practice, businesses often blur this distinction. Consumers are encouraged to view every transaction as progress, even when the terms are unclear or the end goal is constantly shifting. This confusion gives firms room to create complex schemes that feel generous but are hard to evaluate. It is in this gap between perception and reality that issues of accountability arise.
Loyalty programmes are often confused with reward programmes. But they are not the same. A reward programme provides an immediate or one-off benefit: for example, a cash voucher or discount after a purchase. A loyalty programme requires sustained engagement, with rewards unlocked over time. The difference is not just structural. It is also psychological. Loyalty relies on habit, accumulation, and the fear of losing benefits already earned.
Yet in practice, businesses often blur this distinction. Consumers are encouraged to view every transaction as progress, even when the terms are unclear or the end goal is constantly shifting. This confusion gives firms room to create complex schemes that feel generous but are hard to evaluate. It is in this gap between perception and reality that issues of accountability arise.
Loyalty feels like comfort. But is it still a choice?
Loyalty programmes are often presented as a win for both consumers and companies. Customers feel rewarded. Businesses strengthen relationships. But over time, rewards can become anchors. What starts as an incentive can turn into a source of inertia.
Behavioural economics offers useful insights. People tend to avoid losses more than they seek gains. We also overvalue what we already have, and we are less likely to change course once effort has been invested. Loyalty programmes are built on these instincts. Points, tiers and status thresholds encourage ongoing commitment, not always through satisfaction, but through a reluctance to give something up.
Frequent flyer schemes are a clear example. Travellers may choose a more expensive or less convenient flight just to maintain their elite status or to earn enough points to reach the next tier. In hotels, a guest might stay at a participating chain even when a better offer is available elsewhere. These are not irrational choices. They are responses to a system designed to reward continuation and penalise departure.
This behaviour is not theoretical. In the frequent flyer world, it even has a name: the mileage run. Some travellers book and take flights not because they need to go anywhere, but simply to accumulate enough miles or segments to reach or maintain elite status. A more targeted version, known as a status run, is done specifically to qualify for or retain tier benefits before the deadline resets. These decisions reflect how loyalty schemes can lead consumers to optimise for rewards over relevance, and to value retention more than real choice.
This creates switching costs. These may not be monetary, but they are real. The fear of losing points, forfeiting benefits or starting over is enough to keep many customers from exploring alternatives. As the perceived cost of leaving grows, the value of competing offers fades. The result is not always loyalty by preference, but loyalty by design.
Behavioural economics offers useful insights. People tend to avoid losses more than they seek gains. We also overvalue what we already have, and we are less likely to change course once effort has been invested. Loyalty programmes are built on these instincts. Points, tiers and status thresholds encourage ongoing commitment, not always through satisfaction, but through a reluctance to give something up.
Frequent flyer schemes are a clear example. Travellers may choose a more expensive or less convenient flight just to maintain their elite status or to earn enough points to reach the next tier. In hotels, a guest might stay at a participating chain even when a better offer is available elsewhere. These are not irrational choices. They are responses to a system designed to reward continuation and penalise departure.
This behaviour is not theoretical. In the frequent flyer world, it even has a name: the mileage run. Some travellers book and take flights not because they need to go anywhere, but simply to accumulate enough miles or segments to reach or maintain elite status. A more targeted version, known as a status run, is done specifically to qualify for or retain tier benefits before the deadline resets. These decisions reflect how loyalty schemes can lead consumers to optimise for rewards over relevance, and to value retention more than real choice.
This creates switching costs. These may not be monetary, but they are real. The fear of losing points, forfeiting benefits or starting over is enough to keep many customers from exploring alternatives. As the perceived cost of leaving grows, the value of competing offers fades. The result is not always loyalty by preference, but loyalty by design.
The problem of obscured value
Many loyalty programmes promise benefits that are difficult to quantify. The value of a point is rarely fixed. Redemption rates vary by route, season or availability. Blackout dates, minimum thresholds and added fees can all affect how much a “free” flight or room night actually costs.
Some airlines and hotels use dynamic pricing for both fares and redemptions, making it harder to assess whether loyalty points are delivering meaningful value. A flight that requires 20,000 points today may require 30,000 next week, even if the cash price remains unchanged. In hotels, member-only rates may appear discounted, but the terms attached may reduce flexibility or cancellation rights.
For consumers, this creates confusion. The promised reward becomes difficult to evaluate. Price transparency weakens. And because most programmes do not offer side-by-side comparisons, customers may continue to participate in schemes that no longer offer competitive value.
Businesses benefit from this lack of clarity in the short term, but the long-term cost is trust. When customers discover that points are worth less than expected or that redemption is more restrictive than advertised, the sense of reward erodes. Responsible loyalty depends on more than just points. It requires clarity in value and honesty in experience.
Some airlines and hotels use dynamic pricing for both fares and redemptions, making it harder to assess whether loyalty points are delivering meaningful value. A flight that requires 20,000 points today may require 30,000 next week, even if the cash price remains unchanged. In hotels, member-only rates may appear discounted, but the terms attached may reduce flexibility or cancellation rights.
For consumers, this creates confusion. The promised reward becomes difficult to evaluate. Price transparency weakens. And because most programmes do not offer side-by-side comparisons, customers may continue to participate in schemes that no longer offer competitive value.
Businesses benefit from this lack of clarity in the short term, but the long-term cost is trust. When customers discover that points are worth less than expected or that redemption is more restrictive than advertised, the sense of reward erodes. Responsible loyalty depends on more than just points. It requires clarity in value and honesty in experience.
When loyalty becomes a barrier to entry
From a business strategy perspective, loyalty programmes do more than retain customers. They also shape the conditions under which competitors must operate. Large companies with established loyalty schemes can create ecosystems that are difficult for others to match.
A new airline or hotel chain may offer lower prices or better service, but it will struggle to match the pull of an established programme with thousands of members already committed. The same applies in digital platforms, where ride-hailing or payments apps offer cross-sector points accumulation. These schemes link unrelated transactions into one behavioural loop. Customers stay because the system rewards continuation. New entrants must work harder just to be seen.
This is not inherently anti-competitive, but it is a form of structural advantage. The ability to offer loyalty rewards becomes part of the market entry cost. Smaller firms or newer players without access to similar networks may be excluded not by regulation, but by habit. Over time, the rewards that keep consumers loyal can also prevent them from accessing better options elsewhere.
A new airline or hotel chain may offer lower prices or better service, but it will struggle to match the pull of an established programme with thousands of members already committed. The same applies in digital platforms, where ride-hailing or payments apps offer cross-sector points accumulation. These schemes link unrelated transactions into one behavioural loop. Customers stay because the system rewards continuation. New entrants must work harder just to be seen.
This is not inherently anti-competitive, but it is a form of structural advantage. The ability to offer loyalty rewards becomes part of the market entry cost. Smaller firms or newer players without access to similar networks may be excluded not by regulation, but by habit. Over time, the rewards that keep consumers loyal can also prevent them from accessing better options elsewhere.
When decisions are not aligned with value
Loyalty can also affect how choices are made inside firms. In business travel, for example, the person booking a flight or hotel may not be the one paying for it. Points are earned by employees, not employers. The result is a gap in incentives. A traveller may choose a more expensive fare to maintain status, even if a cheaper option is available. A company pays more, and a competitor offering better value is passed over.
This is known as a principal–agent problem. The person with the power to choose acts in their own interest, not the organisation’s. Loyalty schemes that reward individuals rather than accounts can reinforce this disconnect. While this may not be intentional, it can lead to inefficient outcomes and additional costs, especially when multiplied across large firms and frequent travellers.
Businesses offering loyalty schemes should consider who benefits, who pays and how choices are shaped. Aligning programme rewards with actual value creation, rather than mere repetition, can reduce inefficiencies and improve outcomes for all parties involved.
This is known as a principal–agent problem. The person with the power to choose acts in their own interest, not the organisation’s. Loyalty schemes that reward individuals rather than accounts can reinforce this disconnect. While this may not be intentional, it can lead to inefficient outcomes and additional costs, especially when multiplied across large firms and frequent travellers.
Businesses offering loyalty schemes should consider who benefits, who pays and how choices are shaped. Aligning programme rewards with actual value creation, rather than mere repetition, can reduce inefficiencies and improve outcomes for all parties involved.
From design to responsibility
Loyalty is not inherently harmful. For many consumers, these programmes offer real value: priority queues, free nights or a sense of recognition. And for businesses, loyalty remains a powerful way to build long-term relationships in a competitive market.
But loyalty is not neutral. Design choices matter. A scheme that encourages informed engagement is different from one that trades on complexity or fear of loss. If a customer stays because they want to, that is loyalty. If they stay because switching feels impossible, that is lock-in.
Businesses have more control over this distinction than they often acknowledge. They decide how transparent points are, how attainable redemptions can be and how much friction is built into exit. Responsible loyalty does not mean giving away more. It means making the terms clear, the benefits real and the option to leave a genuine one.
Consumers, too, benefit from greater clarity. Not all customers are points optimisers. Many rely on default settings and assumptions. Helping them understand how programmes work and what their choices really mean is part of building a more accountable relationship.
But loyalty is not neutral. Design choices matter. A scheme that encourages informed engagement is different from one that trades on complexity or fear of loss. If a customer stays because they want to, that is loyalty. If they stay because switching feels impossible, that is lock-in.
Businesses have more control over this distinction than they often acknowledge. They decide how transparent points are, how attainable redemptions can be and how much friction is built into exit. Responsible loyalty does not mean giving away more. It means making the terms clear, the benefits real and the option to leave a genuine one.
Consumers, too, benefit from greater clarity. Not all customers are points optimisers. Many rely on default settings and assumptions. Helping them understand how programmes work and what their choices really mean is part of building a more accountable relationship.
Conclusion: loyalty without friction
Loyalty should reward, not restrict. When designed with care, loyalty programmes can strengthen trust, promote repeat engagement and offer meaningful benefits. But when built on obscured value, high switching costs or behavioural lock-in, they risk undermining the very relationships they aim to sustain.
The real test of loyalty is not how many stay, but why they do.
The real test of loyalty is not how many stay, but why they do.