Loyalty programs can be game-changers for customer retention, and South African brands are investing heavily in loyalty strategies that keep customers coming back. But one question is often asked: who actually pays for all those points and rewards? Where does the money come from to run the program?
It’s a fair concern. These initiatives represent significant investment. Yet many businesses still hesitate, viewing loyalty programs as pure cost centres rather than strategic growth drivers.
The reality is that loyalty programs aren’t just expenses waiting to drain your budget. They’re carefully structured financial ecosystems that, when designed properly, generate measurable returns while keeping costs sustainable. And there are several smart funding models that make loyalty programs profitable, not painful.
At its core, loyalty program funding is about balancing reward appeal with financial sustainability. Think of it as a three-way value exchange between your business, your customers, and often your partners or suppliers.
South Africa’s loyalty market is projected to grow from R4.5 billion in 2024 to R9.2 billion by 2029, and companies won’t be throwing money at rewards and hoping for the best. They’ll need to crack the code on funding models that work.
The beauty of modern loyalty programs is that costs don’t necessarily have to come from a single source. South African businesses have become increasingly sophisticated in how they distribute and manage these expenses.
At its simplest, loyalty programs can be funded by the company running the program, and/or by partner suppliers who benefit from participation in a shared-cost arrangement.
Different approaches come with different advantages and implications for profitability and scalability.
In this, the traditional model, the brand covers all program costs as part of its marketing or retention budget, treating the costs as customer acquisition and retention spend. It’s straightforward and gives you complete control over program design and member experience.
This model is best for large enterprises with established margins, businesses prioritising brand building, and companies with high customer lifetime values where retention investment pays dividends.
Pros:
Cons:
Here, rather than shouldering all costs alone, businesses share the financial burden with suppliers, partners, or participating brands who benefit from increased visibility and sales, as well as shared data.
For example, suppliers whose products are featured might contribute toward the additional points earned, effectively subsidising part of the reward cost in exchange for preferential promotion and accelerated sales.
Partners can contribute cash, rewards or services in exchange for access to your customer base, promotional opportunities, or sales uplift. The cost distribution is typically negotiated based on expected value exchange.
This collaborative approach creates joint accountability for program success.
Pros:
Cons:
Every issued point is technically a liability on a company’s balance sheet until it’s redeemed. However, not all points get redeemed. This is called breakage. Perhaps surprisingly, loyalty programs with breakage rates between 25-35% are considered healthy, meaning a quarter to a third of issued points never convert to rewards.
Breakage, therefore, offsets some of the liability.
This financial dynamic is a core part of making loyalty programs sustainable. Smart liability management equals more predictable budgets.
However, before you see this as a windfall, understand that breakage is a double-edged sword. While it reduces your liability and reward costs, excessive breakage signals disengagement. The smart approach is to factor realistic breakage into your financial projections, but never design for high breakage. A customer with unredeemed points isn’t necessarily a loyal customer — they might simply be a disengaged one looking for the exit.
Some executives assume loyalty programs simply “give money away.” In reality, they generate measurable returns through behaviour change and better data.
Here’s how the investment pays off:
Even with evidence, myths persist. Let’s bust a few of the most common ones:
This misconception stems from looking at gross costs rather than net costs and returns. Yes, if you only look at the reward liability on your balance sheet, loyalty programs appear expensive. But that view ignores:
The real question isn’t “how much will this cost?” but rather “what will this generate?”
There’s a persistent belief that loyalty programs simply create discount-dependent customers with no real brand allegiance. The South African market tells a different story.
While consumers may, at times, prefer programs instant gratification over long-term benefits, reflecting economic pressure, the growing usage of loyalty programs suggests customers see value beyond simple price reduction.
The most effective programs focus not just on financial reward, but on relevance, recognition, and emotional connection. Programs that offer only discounts tend to create more transactional relationships, but those that combine tangible rewards with experiential benefits and personalised relevance build genuine loyalty.
This might have been true a decade ago, but modern analytics have made loyalty program ROI remarkably transparent. Today’s platforms provide clear visibility into:
The challenge isn’t measuring return — it’s knowing which metrics matter for your business model.
Building a loyalty program that funds itself requires strategic planning.
Before launching, model your program economics thoroughly:
This isn’t guesswork. Historical data from similar programs, pilot testing and statistical modeling can provide reliable projections. The key is being honest about assumptions and building in sensitivity analysis for different scenarios.
Your reward economics directly impact funding requirements.
The more precisely you target rewards, the less you need to spend to drive behaviour change. Data-driven personalisation means you’re not offering everyone the same promotions, you’re giving each customer exactly what motivates them.
Your program economics will evolve. Consumer preferences shift, competitive dynamics change, and your own business mix develops. Schedule quarterly reviews of:
This ongoing evaluation allows you to adjust reward structures, funding allocations, and program design before small issues become expensive problems.
Here’s where we get transparent: designing financially sustainable loyalty programs requires specialised expertise. You need to balance financial modeling, consumer psychology, technology capabilities, and operational execution.
Achievement Awards Group has helped organisations across retail, financial services, telecoms, and FMCG to design loyalty programs that deliver measurable returns while staying within budget constraints. Our approach combines:
We understand that every rand spent on loyalty must justify itself through returns. That’s why our programs are built on data, and refined based on results.
Loyalty programs are neither unaffordable luxuries nor automatic profit generators. They’re strategic investments that deliver returns when properly designed, funded, and managed.
As the growth of the South African loyalty market shows, loyalty programs aren’t just cost centres — they’re revenue engines that reduce churn, increase wallet share, and generate valuable customer insights. The businesses winning customer loyalty are those investing strategically in programs that deliver mutual value.
The funding question isn’t “can we afford this?” but rather “can we afford not to have this?”
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