INTRODUCTION
‘Buy 2 cups of large coffee, earn 30 points’
We often hear such advertisements and rewards in our lives. ‘Loyalty’ refers to the connection between consumers and the brand.[1] Loyalty rewards are those programs that reward customers who have been loyal to the brand. This helps in retaining as well as attracting customers for the company. However, the reality is much darker than it seems. By offering discounts, redeemable points, cashback and exclusive access, loyalty programs create the perception of significant savings for consumers while simultaneously presenting the company as a socially conscious business.[2]. In reality, loyalty programs present the consumer with a false facade of rewards in order to create a climate of dependency upon the business in an effort to inhibit consumers from leaving. As a result, loyalty programs have evolved to include sophisticated systems using behavioural science, data analysis, ongoing subscriptions and intentional user-interface design.[3]. Therefore, consumers will be attached to the program because of the economic and psychological costs of leaving, not because they intend to remain with the company.
TRICKS AND TRAPS BEHIND LOYALTY REWARDS
While most loyalty programs are designed to foster current consumers’ voluntary participation, they use psychological and economic triggers that can significantly influence consumer decisions and reinforce future consumption. Some of these are:
- Psychological Traps: Loyalty programs are associated with educational psychology, especially in relation to behaviour, with a particular focus on loss aversion. This refers to the idea that a loss is felt more than an equivalent gain[4]. Therefore, as loyalty participants accrue points, cashback to achieve status tiers, or return value (reward) through an exclusive product or service similar to the earned asset, the act of losing that reward by either having that reward expire or leaving the loyalty program has a psychological cost attached to it. This serves to increase possible loss through repeated spending to maintain the perceived value of these earned rewards, hence the lock-in effect[5].
- Subscription Traps: Subscription traps are cleverly deceptive ways for companies to offer loyalty programs quickly and easily while making it hard to cancel. Subscription-based models are promoted as low-cost, cost-effective, and effective through exclusive discounts, rewards and premium benefits. After joining the program, however, consumers encounter many obstacles[6], including convoluted cancellation processes, automatic renewals, and repeated reminders about the benefits they will lose if they stop participating. As time passes, consumers shift from voluntarily participating in a loyalty program to one based on their continued participation due to the inconvenience of cancelling, costs associated with switching to other programs, and fear of losing any benefits already accrued.
- Privacy Concerns and Loyalty Programs: The consumer perception of loyalty programs is that these programs provide discounted prices and rewards, whereas one of their primary functions, data collection, is often unclear. Loyalty programs collect a considerable amount of information, including purchase history, browsing behaviour, location data and previous interactions[7], often using customers’ emails to send payment information, in order to customise products to individual users. Loyalty programs can provide substantial discounts and advantages through data collection, but the lack of engagement with lengthy privacy policies leaves consumers with no true understanding of the magnitude of the data they are sharing for such minimal rewards.[8]. Through the data collected from loyalty programs, companies can predict how consumers will spend their money, tailor their marketing and change how they influence a consumer’s purchase.
The collection of consumer data through loyalty programs is an ongoing function of loyalty programs rather than simply a one-time reward program.
LEGAL FRAMEWORK FOR CONSUMER PROTECTION
Consumer loyalty programs, subscription traps, and manipulative digital interfaces have raised consumer protection issues regarding transparency, informed choice, and fairness. The Consumer Protection Act, 2019[9] India has several provisions designed to prevent such issues. Section 2(47)[10] prohibits unfair trade practices, and Section 2(28)[11] prohibits misleading representations made through advertisements or promotional materials that could be construed as misleading to consumers when making a purchase or entering into an agreement with another party. Section 10[12] Provides for the establishment of a Central Consumer Protection Authority (“CCPA”) to enforce the consumer rights outlined in the Act and to regulate unfair trading actions in the marketplace.
The Consumer Protection (E-Commerce) Rules, 2020[13] require e-commerce companies and online platforms to provide information transparently regarding price, terms and conditions of the service, cancellation policies, and consumer disclosure. Additionally, the Guidelines for Prevention and Regulation of Dark Patterns, 2023[14] recognise that the design of the user interfaces might be utilised to manipulate consumer behaviour and to discourage consumers from making informed purchasing decisions.
The principles of law enacted by the courts also support the direction taken by the Consumer Protection Act and the above-mentioned guidelines. In Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly (1986)[15]The Supreme Court of India ruled that the design of contracts between parties must not use the undue influence of a party with superior bargaining power to the detriment of the party with inferior bargaining power when forming the agreement. Thus, it is becoming increasingly recognised that consumer loyalty should be based upon trust and the ability for consumers to choose an alternative to a supplier, and not based upon economic or psychological barriers to exit.
A BALANCE APPROACH
Loyalty programs or rewards can be a valuable way for businesses to recognise repeat and valuable customers, build customer retention, and provide a foundation for developing long-term customer relationships. Issues arise, however, when businesses use these programs to restrict or increase restrictions on customers and limit their options to make choices.
It is therefore imperative that businesses use a balanced approach toward the implementation and use of these types of programs. Loyalty programs should have clear and understandable terms of agreement, easy-to-understand exit mechanisms and a reward structure that promotes customer engagement without using an urgent message to apply pressure. Countdowns, notifications, and recommendation systems should also be designed to promote ethical behaviour, which includes not manipulating or controlling consumers’ behaviour.
Companies should also restrict their data collection to operational needs and provide customers with reasonable access and control over their data. Loyalty based on trust and transparency is more likely to continue than loyalty that is dependent on psychological manipulation or economiccoercion.
CONCLUSION
Loyalty programs have become a sophisticated system that utilises behavioural insights, subscription models, interface design, and consumer data since their inception, when they served as a way to reward and retain customers. Loyalty programs may seem like they offer economic benefits, but can create hidden costs through ways of compromising privacy, psychological pressure on the consumer, encouraging over-spending and creating barriers to exit the program. The loyalty of a consumer should not be created through expiring rewards, cancellation barriers and incentive structures that depend on a consumer’s dependency, but instead, by using mechanisms based on trust, transparency, informed choice and customer satisfaction.
Author(s) Name: Rashi (Symbiosis Law School, Noida)
References:
[1] R Sathish Kumar and S Ramachandran, ‘E-SATISFACTION AND E-LOYALTY OF CONSUMERS SHOPPING ONLINE’ (2015) 6(3) International Journal of Advanced Research in Management 79 <https://iaeme.com/MasterAdmin/Journal_uploads/IJARM/VOLUME_6_ISSUE_3/10220150603012.pdf> accessed 05 June 2026
[2] Richard L Oliver, ‘Whence Consumer Loyalty?’ (1999) 63(4) Journal of Marketing 33 <https://journals.sagepub.com/doi/10.1177/00222429990634s105?__cf_chl_f_tk=4rV96bmXnZN4n0aO6937rl8TGvjhgPFYyeiNWBZcKWM-1783417634-1.0.1.1-_H2F4DXX4DQ7eNo6C5pE0XVFoQ69rubl9rUbdK_Az1> accessed 05 June 2026
[3]Arunesh Mathur et al., ‘Dark Patterns at Scale: Findings from a Crawl of 11K Shopping Websites’ (2019) 3 Proceedings of the ACM on Human-Computer Interaction <https://dl.acm.org/doi/10.1145/3359183?__cf_chl_f_tk=oaU5J1GCYfjhy.zXE4EkWhZ8jFSxU7dnyem5C8I7Uq4-1783417703-1.0.1.1-v5fpzpVjlWljUfXVeXgXxWithOidMbfuleAECvon7eM> accessed 05 June 2026
[4] Corina Paraschiv and Olivier L’Haridon, ‘Loss Aversion: Origin, Components and Marketing Implications’ (2008) 23(2) Recherche et Applications en Marketing (English Edition) <https://journals.sagepub.com/doi/10.1177/205157070802300204> accessed 05 June 2026
[5] Nitin Kumar and others, ‘Do Frequency Reward Programs Create Switching Costs? A Dynamic Structural Analysis of Demand in a Reward Program’ (2008) 6(2) Quantitative Marketing and Economics 1 <https://ideas.repec.org/a/kap/qmktec/v6y2008i2p109-137.html> accessed 05 June 2026
[6] Guidelines for Prevention and Regulation of Dark Patterns, 2023 (Central Consumer Protection Authority 2023)
[7] Tun-Min (Catherine) Jai and Nancy J King, ‘Privacy versus Reward: Do Loyalty Programs Increase Consumers’ Willingness to Share Personal Information with Third-Party Advertisers and Data Brokers?’ (2016) 28 Journal of Retailing and Consumer Services 296 <https://www.sciencedirect.com/science/article/abs/pii/S0969698915000065> accessed 05 June 2026
[8] Jonathan A Obar and Anne Oeldorf-Hirsch, ‘The biggest lie on the Internet: ignoring the privacy policies and terms of service policies of social networking services’ (2020) 23(1) Information, Communication & Society 128 <https://doi.org/10.1080/1369118X.2018.1486870> accessed 05 June 2026
[9] Consumer Protection Act 2019
[10] Ibid s 2(47)
[11] Ibid s 2(28)
[12] Ibid s 10
[13] Consumer Protection (E-Commerce) Rules 2020
[14] Guidelines for Prevention and Regulation of Dark Patterns, 2023 (n 6)
[15] Central Inland Water Transport Corporation Ltd and Anr v Brojo Nath Ganguly and Anr (1986) 3 SCC 156