In the business world, customer retention is a major challenge for every company. To overcome this challenge, companies offer reward points, cashback, or freebies. While this may seem like a gift to customers, it’s actually a way for companies to create customer “habits.” Major companies like McDonald’s, Starbucks, and Tata New operate this way.
Amid growing competition in the marketplace, brands are strengthening their connection with customers. Brands don’t just sell products, they create a comprehensive system to keep customers engaged. When customers repeatedly shop from the same source, companies save on advertising costs to new customers and preserve existing profits.
1. Customers come again and again
If a company accumulates points, customers will often buy from that company instead of going elsewhere. They’ll go there because those points can be redeemed there. This keeps the company’s sales growing. According to a report from McDonald’s April-June 2025 meeting (Q2 2025) published on the website CX Dive, the company’s Chief Executive Officer, Chris Kempczinski, made this point.
He said that those who are not part of the loyalty program visit an average of 10.5 times a year, but after joining the ‘My McDonald’s Rewards’ program, this visit increases to 26 times a year. Starbucks’ Q2 earnings release, published in ‘Hospitality Technology’, reports that its rewards members generate 57 percent of the company’s total revenue in the US alone.
2. Customers shop more at one time
Offers like 500 bonus points on a purchase of ₹5,000 encourage customers to spend more, even if they don’t need that much at the time. Companies call this average order value. According to the “Starbucks Loyalty Program: 2026 Rewards Overhaul” report published on Joy.so, rewards members spend two and a half to three times more than regular customers.
They have 35.5 million active members in the US, generating $13 billion in annual revenue for the company. Loyalty programs aren’t just a way to earn small points, but a massive business model that generates billions of dollars in revenue, with loyalty members spending significantly more than regular customers.
3. The customer starts buying other products as well
Tata Nu’s NewCoins model is a prime example of this. According to ‘How Tata Nu Built the Stickiest Loyalty App’, published on Tata Nu’s official FAQ page and the terms of the NewPass program, as well as ‘Behind the Features’, the NewCoins earned from purchasing electronics from Croma can be used to buy groceries on BigBasket, jewelry at Tanishq, or even book flights on Air India. Once the NewCoins are accumulated in the account, switching to another brand becomes a loss-making proposition. This is called ‘expensive switching’.
4. Customer data reaches the company
With every purchase, the company gains insight into what customers are buying and when. According to the May 2026 article “Do Loyalty Programs Work? Just Ask McDonald’s,” published in “The Loyalty & Rewards Company,” the company has over 210 million active loyalty users. McDonald’s uses this information to integrate all information from drive-thru, mobile app, and delivery orders and provide customers with tailored offers.
5. It is cheaper to retain old customers
Acquiring a new customer through advertising is always expensive. Loyalty programs automatically bring back existing customers, reducing the cost of acquiring new ones. According to “McDonald’s Sees Boost in Loyalty Amid Challenges in Q4 Earnings,” published on Payments.com in February 2025, McDonald’s earned $30 billion from loyalty members in 2024. This was a 30 percent increase from the previous year, while users grew only 15 percent. This means that this revenue was driven by repeat visits and higher spending by existing customers.