How AI Can Reinvent Loyalty Programs—and Rebuild Customer Trust

In a price-pressured market, personalization—not points—is the new currency of loyalty.

As competitive pressures mount across Australia’s retail sector, many organizations are turning to loyalty programs to protect their most valuable asset: their existing customer base. With global entrants like Amazon and Kaufland reshaping the competitive landscape, traditional retailers are increasingly challenged by deflationary pricing, thinner margins, and volatile customer loyalty.

According to Roy Morgan, more than 82% of Australian adults are enrolled in at least one loyalty program—averaging nearly four memberships per person. Loyalty initiatives have become a defensive strategy for retailers seeking to reduce churn, build engagement, and retain share of wallet.

Yet for all the investment, many loyalty programs are failing to deliver real value—to customers or to the business.

When Loyalty Fails: A Crisis of Trust

A growing number of Australians view loyalty schemes with skepticism. As reported by The Sydney Morning Herald, many programs are perceived as self-serving tactics aimed at extracting more value from high-spending customers, rather than genuinely rewarding repeat business.

Too often, loyalty programs focus on the company’s commercial goals rather than the needs and behaviors of the customer. The result: poorly designed programs that frustrate users, devalue the brand, and dilute margins. Common complaints include:

• Points that take too long to accumulate

• Rewards that feel trivial or irrelevant

• Early expiration of unused points

• Inability to transfer or redeem points across retail partners

A flawed loyalty strategy can do more harm than good. It disengages loyal customers, erodes price trust, and diminishes brand equity.

A New Frontier: Loyalty, Reimagined with AI

The good news? Artificial intelligence is offering a path forward.

Leading retailers are now using AI-driven insights to reshape loyalty programs around customer needs. Instead of offering blanket discounts or arbitrary point systems, these organizations are applying machine learning to understand what each customer values, when they buy, how often, and what influences their decisions.

This approach enables truly personalized offers—tailored in real time and delivered through preferred channels. More importantly, it shifts the conversation from transactional loyalty to emotional relevance.

The Strategic Benefits of AI-Augmented Loyalty:

• Increased price resilience: Personalized offers reduce reliance on across-the-board price cuts

• Stronger customer advocacy: Relevant rewards enhance satisfaction and foster trust

• Higher share of wallet: Customers are more likely to purchase complementary or premium products

• Improved promotional effectiveness: Targeted offers outperform mass campaigns

Case in Point: Two Retailers, Two Outcomes

Over the past year, I studied several leading loyalty programs in Australia. Two retailers, in particular, stood out—one for all the right reasons, the other for what not to do.

Retailer A: Points Without Purpose

Customers reported difficulty in earning meaningful rewards. Communication was sporadic, and value was rarely evident. The program lacked personalization, and many users allowed their points to expire without redeeming them.

Retailer B: Loyalty That Feels Personal

In contrast, Retailer B delivered timely, relevant offers based on individual shopping behavior. Customers received early access to new products, surprise discounts, and regular rebates. The onboarding experience was seamless, and engagement was consistently high.

“My loyalty program gives me peace of mind. I know I’m getting value for my favorite products—and sometimes I’m rewarded just for showing up.” — Tim Jordan, Longtime Customer

The Building Blocks of High-Performing Loyalty Programs

Market-leading programs are designed around customer insight, not corporate incentive. They apply five critical principles:

1. Seamless onboarding: Make it easy to join, understand, and engage

2. Early wins: Reward customers quickly to build momentum

3. Achievable targets: Enable redemption without frustration

4. Personalized engagement: Use AI to tailor offers and timing

5. Value-focused communication: Remind customers of benefits regularly

Retailers that execute on these dimensions consistently outperform peers—not just in retention, but in profitability.

Final Thought: From Points to Purpose

Loyalty in the 21st century isn’t about collecting stamps or hoarding points. It’s about making customers feel known, valued, and rewarded for their continued relationship.

By leveraging AI and human-centered design, retailers can transform loyalty programs from cost centers into strategic assets that drive revenue, brand affinity, and sustainable growth.

Which loyalty programs do you admire—and why? Join the conversation in the comments below.

About the Author: Jo Chidwala is a data and digital strategy leader with deep expertise in AI and enterprise transformation. He works at the intersection of business strategy, data innovation and operational excellence