You buy your coffee, book a flight, pay a bill, or shop at a store, and then a message appears: “You’ve earned points.”

To the customer, points look like a simple gift. But from the company’s perspective, a different question arises: why offer you additional value for a purchase that has already been made?

The answer is that the company is not only rewarding the current purchase; it is trying to influence the next purchase.

This is where the economics of loyalty programs begins.

A Small Point Can Change a Bigger Decision

Suppose you need to buy a product sold by two stores at roughly the same price, but you have accumulated points with one of them. Suddenly, the comparison is no longer just between the two prices; buying from the other store means you will not earn new points or benefit from your existing balance.

In this way, loyalty programs create something like a small switching cost. There is no penalty preventing the customer from going to a competitor, but there is value they will leave behind if they do.

This is the economic core of the model: the company gives up some value in the form of points or rewards in exchange for the possibility that the customer will return more often or spend a larger share of their budget with the company.

McKinsey indicates that high-performing loyalty programs can increase annual revenue from customers who redeem points by 15% to 25%, through increased purchase frequency, larger baskets, or both. At the same time, it reports that roughly two-thirds of the loyalty programs it studied do not create value, and some may even erode it.

This paradox is important: the existence of a points program does not automatically mean there is loyalty.

Points Aren’t Free for the Company

If a company gives you points that you can later redeem for a product or service, it has not given you a valueless virtual number.

Even from an accounting perspective, loyalty points can represent an obligation to the customer. The international revenue standard IFRS 15 explains that an option giving a customer a material right to obtain future goods or services can be treated as a performance obligation; in other words, part of the consideration paid by the customer is tied to the benefit they will receive in the future.

This reveals an important economic dimension: the company does not want the reward to be so generous that it consumes its profit margin, nor so weak that the customer does not care about it.

Designing a loyalty program is therefore essentially a balance between the cost of the reward and the behavior the reward can change.

If a company gives a discount to a customer who would have bought from it anyway, it may have given up part of its revenue without gaining any new behavior. But if the reward causes the customer to return one extra time or increase their purchases, the cost may become an investment in the relationship.

The Other Value the Company Gains: Data

Something else happens every time you use your membership number or account.

Without a loyalty program, a store may know that a particular product was sold at six o’clock in the evening. But when the transaction is linked to a customer account, it becomes possible—depending on the data collected by the program and what the systems and consents permit—to build a better picture of purchasing patterns over time.

What does the customer usually buy? How often do they return? Which offers do they respond to? Do they buy from one category or several?

That is why loyalty programs do not function only as reward tools; they can also become a foundation for first-party data that helps the company understand its customer base better. McKinsey indicates that expanding participation in loyalty programs can build a data base that supports data-driven marketing and improves the customer experience.

Here, the point the customer receives becomes part of a broader exchange: value and rewards for the customer, and in return, a relationship that is more measurable for the company.

From “Earn and Redeem” to a Complete Ecosystem

This evolution can be seen clearly in the Saudi market.

stc’s Qitaf program, for example, is not limited to awarding points for paying for some of the company’s services; the points can be redeemed for rewards within stc services or through external partners.

Economically, this step is significant. When rewards expand beyond the company itself, the program gradually shifts from a loyalty card tied to a single product into an ecosystem of partners.

This increases the places where customers can earn or use value, potentially making the points themselves more useful in their eyes.

The idea extends across many sectors in the Kingdom, from aviation and telecommunications to banking and retail. Competition is no longer always limited to the product and price; it can also extend to who owns the most enduring relationship with the customer, and who can make their different interactions part of a single ecosystem.

But Do Points Create Genuine Loyalty?

This is where the model’s weakness becomes apparent.

A customer may return because they want the reward, not because they prefer the brand itself. If a competitor introduces an easier program or better rewards, the customer may switch.

That is why there is a difference between behavioral loyalty—the customer repeatedly making purchases—and a genuine attachment to the brand.

The program also loses its power if rewards become difficult to understand or redeem, or if the customer has to spend a great deal before feeling their value. Conversely, if rewards are too generous, their cost to the company rises.

This explains why not all loyalty programs succeed despite the simplicity of the idea. Success does not lie in distributing the greatest number of points, but in giving the customer enough value to change their behavior, without making the cost of that change greater than its benefit to the company.

Points Are a Small Currency Within a Larger Relationship

Loyalty programs seem simple because we see them from the customer’s perspective: buy, earn, then redeem.

But behind this cycle lies a larger economic equation. The company uses the reward to encourage repeat purchases, tries to understand its customers better, and may build a network of partners around the program that increases its usefulness.

That is why the real question is not: How many points did the company give me?

It is: What will these points change about my next decision?

If they change nothing, they are an additional cost for the company. But if they make the customer return, spend more, and choose the brand over a competitor, the small point is no longer a gift; it has become an economic tool for building customer value over the long term.