That little keychain card promising you discounts at the grocery store? It’s not doing you a favor. It’s doing something far more valuable for the retailer, and the uncomfortable truth is that most people building companies today still think loyalty programs are about customer retention.
They’re not.
For decades, we’ve been trained like Pavlov’s dogs. Swipe here, save a dollar. Enter your phone number, get points. Buy ten, get one free. The whole system felt transactional and fair. You gave them repeat business, they gave you savings.
But that’s the surface story, the one designed to make everyone comfortable while something much bigger happens beneath.
The Collateral You Didn’t Know Existed
Airlines figured out the real game years ago. When American Airlines needed a government loan, they didn’t put up planes or airport gates as collateral. They put up their loyalty program. The valuation wasn’t based on miles or customer goodwill. It was based on data.
Pure, refined behavioral data worth billions.
Retailers watched and learned. Today’s loyalty programs are balance sheet assets that generate revenue streams completely disconnected from the products on shelves. Your grocery store isn’t just selling cereal anymore. It’s selling the fact that you buy cereal every Tuesday morning, that you switched to almond milk three months ago, and that your recent purchases suggest you might be expecting a child.
That last one isn’t speculation. Target famously figured out a teenage girl was pregnant before her father did, all through purchase pattern analysis. That was over a decade ago. The systems are exponentially more sophisticated now.
When Merchants Became Media Companies
Walk into any major retailer’s investor presentation and you’ll see something interesting. The growth isn’t coming primarily from selling more stuff. It’s coming from retail media networks.
Walmart, Amazon, Kroger, Target. They’ve all built advertising platforms that rival traditional media companies. Brands pay enormous sums for access to customer insights and the ability to target shoppers with surgical precision.
The margins on this data business often exceed the margins on physical products. Think about that. The side hustle became the main hustle, and most customers have no idea it happened.
This transformation didn’t require permission or announcement. It just required everyone to keep swiping those loyalty cards while assuming the relationship stayed the same.
The Personalization Trap
Entrepreneurs building technology platforms today are told that personalization is everything. Know your customer. Meet them where they are. Deliver relevance at scale.
Nobody mentions that personalization is a two-way mirror.
On one side, customers see convenience and recommendations that feel almost magical. On the other side, companies see behavioral exhaust that travels much farther than anyone imagines. Your smart TV talks to your fitness tracker talks to your grocery app talks to your credit card company. They’re stitched together through identity graphs that reconstruct your entire life.
The really uncomfortable part? This isn’t happening in some dystopian future. It’s happening right now, and clicking “I agree” on a terms of service document doesn’t constitute informed consent. It constitutes compliance.
Most people would be horrified if they understood how complete their digital portrait has become. But the systems are designed to be invisible, and outrage requires awareness.
The Line Nobody Talks About
There’s a difference between using cameras to prevent shoplifting and following someone home digitally into their private life. One is reasonable security. The other is surveillance capitalism.
The problem is that line keeps moving, and it always moves in one direction.
I’ve spent years inside the data economy, designing systems and advising enterprises on how to extract maximum value from customer information. The things I’ve seen companies consider normal would shock most consumers. Not because the companies are evil, but because the incentives only point one way.
More data equals more insights equals more revenue equals more investor interest. There’s no natural brake in that system.
When I talk to founders about this, I usually hear three responses. Some say they don’t care about privacy because they have nothing to hide. Others insist customers don’t really care, pointing to survey data showing people will trade privacy for convenience. A third group acknowledges the problem but feels powerless to compete without playing the same game.
All three responses miss something critical.
Privacy Isn’t About Secrets
Saying you don’t care about privacy because you have nothing to hide is like saying you don’t care about free speech because you have nothing to say. It fundamentally misunderstands what’s at stake.
Privacy isn’t about hiding secrets. It’s about autonomy. It’s about having control over your own information and how it moves through the world. That autonomy is foundational to innovation, to experimentation, to being able to change your mind without a permanent record following you around.
When every purchase, every click, every pause on a streaming service gets recorded and analyzed and sold, you don’t just lose privacy. You lose the freedom to be inconsistent, to explore, to become someone different than your data profile predicts.
That loss is hard to measure until it’s gone, and then it’s nearly impossible to get back.
The Model Nobody’s Building Yet
Here’s what keeps me up at night. Every founder building a consumer business today faces a choice, even if they don’t realize it.
You can follow the incumbent model and quietly extract as much data as possible, hiding behind legal terms that nobody reads. Or you can intentionally redesign the relationship and build something fundamentally different.
What if customers could actually see how their data gets used? Not in some 47-page privacy policy, but in plain language that respects their intelligence. What if participation was genuinely optional, with real functional alternatives for people who opt out? What if customers benefited financially when their data generated revenue?
This isn’t radical. It’s just honest.
Markets work best when participants are informed, empowered, and free to choose. We’ve somehow decided that principle doesn’t apply to data, and the result is a system where customers are treated as silent laborers generating value they never see.
When customers feel extracted from, resentment accumulates quietly until it doesn’t. When they’re treated as genuine partners, trust compounds over time. And trust, unlike data, cannot be reverse-engineered once it evaporates.
The Questions Worth Asking
Before launching another loyalty program or personalization layer or data partnership, founders should pause on a few uncomfortable questions.
Would customers knowingly agree to this if they truly understood it? Could you explain it in plain language to your grandmother without legal cover? If the roles were reversed, would it feel respectful or extractive?
Most importantly: are you building something that requires customers to stay ignorant in order to succeed?
Because the companies that thrive over the next decade won’t simply be the ones with the most data. In an economy where everyone has access to sophisticated analytics and identity resolution, data becomes a commodity. The differentiator will be permission, and permission requires trust that most companies have already spent.
The real competitive advantage might just be treating people like people instead of data points, but that would require admitting that loyalty programs were never really about loyalty at all.
