The news: Starkly different Q2 results from Chewy and Petco illustrate both the potential benefits and pitfalls of loyalty programs.

Chewy’s Q2 revenues rose 7.3% to $3.33 billion, while profitability expanded, helped by its Autoship program, which accounted for 84.6% of net sales. Autoship sales grew 9.3%, outpacing the company overall. The convenience of automatic replenishment gives customers a reason to consolidate recurring pet-care purchases with Chewy while providing the retailer with a more predictable revenue stream.

Petco had a very different experience. Its late-June relaunch of Petco Perks made points easier to redeem, prompting redemptions to significantly exceed forecasts and reducing Q2 sales by a mid-single-digit-million-dollar amount. Net sales were essentially flat, rising 0.05%, while comparable sales increased 0.6%.

Why it matters: The two companies reflect very different approaches to building loyalty.

• Chewy’s Autoship program builds loyalty around convenience, embedding the retailer into customers’ recurring shopping habits.
• Petco Perks is more transactional, and its relaunch made it easier for customers to extract value from the program without necessarily giving them a reason to spend more.

That distinction is important. Chewy designed Autoship around how consumers already buy pet essentials and, in turn, gives them a reason to consolidate more spending with the retailer. Petco focused on making its loyalty currency easier to use, but higher engagement with a program doesn’t necessarily translate into higher customer value.

Implications for retailers: Collecting loyalty program members is relatively easy. Getting them to change their behavior is much harder.

Loyalty programs are a means to changing shopping behavior, not an end in themselves. That’s why retailers should focus their KPIs on whether a program drives enough incremental spending, frequency, or retention to justify its cost, rather than metrics like enrollment or redemption alone.

Petco learned that lesson the hard way, which is why it is sharpening its focus on personalizing the offers it presents members. There’s consumer appetite for that approach, with 40% of consumers worldwide citing personalized discounts or offers as a preferred loyalty reward, per Dot Digital. But personalization works best when it changes behavior rather than simply subsidizing purchases.

The opportunity is to use customer data to determine who actually needs an incentive, which offer could change their behavior, what category to target, and when to deliver it. Done well, Petco can use personalization to reward the behavior it wants rather than transactions that might have happened anyway.