Retail loyalty schemes rocked by £807m triple whammy

Over half of the UK’s leading retailers are collectively missing out on nearly £807m in gross margin each year through loyalty programmes that fail to convert member engagement into genuine commercial return due to the triple whammy of “redemption friction”, “value erosion” and “app performance”.

That is the damning conclusion of a new study by HyperFinity which reveals that the average retailer is sitting on £15.8m of untapped gross margin opportunity tied up in underperforming loyalty schemes. However, the Loyalty Accelerator report insists this is not a crisis of customer loyalty itself, but a crisis of execution.

In fact, the study shows that 91% of shoppers use their loyalty app or card on every or most retail visits, and 79% want more personalised offers. However, the intelligence to turn that participation into genuine commercial value remains largely untapped.

HyperFinity has identified three main failures that appear most consistently across underperforming programmes.

“Redemption friction”, where personalised rewards cannot actually be used by the customer; “value erosion”, where programmes dilute their value over time and customers no longer feel recognised or personally rewarded; and, finally, “app performance”, where technical issues can undermine the loyalty experience at key moments of engagement.

Between them, these three issues account for the vast majority of loyalty scheme underperformance across the 51% of those retailers whose schemes are failing.

The study highlights that grocery and sports retailers represent the largest sectors of untapped loyalty value in the analysis.

In grocery, where loyalty schemes are near-universal and consumer expectations are high, the gap between promise and delivery is particularly pronounced.

In sports retail, high basket values and strong brand affinity mean the commercial cost of underperformance is further amplified.

Across all retail sectors, however, a consistent and telling pattern emerges. Schemes that score well with consumers on sentiment are still leaking serious commercial value, often because the mechanics of earning and redeeming rewards break down at the point of transaction.

The analysis also surfaces a subtler challenge. Some programmes that perform well on consumer sentiment are still failing to translate that engagement into incremental behaviour. This highlights the need for retailers to use customer intelligence more effectively – turning a strong loyalty proposition into more relevant and valuable customer experiences.

Consumers, meanwhile, have already signalled their readiness for personalised loyalty. Separate HyperFinity research found that over two-thirds (69%) of shoppers are comfortable with retailers using AI to personalise loyalty offers. For retailers, the opportunity is to use that technology to deliver genuinely relevant value – rewarding customers on the products they already love, while introducing them to new products and categories they are likely to value.

Retailers that get this right can turn loyalty into a true competitive advantage, the company insists.

HyperFinity co-founder Thomas Hill said: “The loyalty opportunity in UK retail has never been greater. Customers value loyalty programmes, which is a powerful driver of loyalty in return. But to realise that opportunity, retailers need to recognise customers as individuals and give them offers that make them feel valued and rewarded.

“Our research found that 44% of shoppers say they will stay loyal to a retailer even during periods of economic pressure, if the rewards are genuinely worthwhile.

“At a time when consumers are more price-conscious than ever, loyalty should be about more than simply offering discounts. It should be about using customer insight to understand what people genuinely value and delivering experiences and products that feel relevant to them.”

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