Loyalty programs, when designed and executed correctly, can work to generate increased visits, spend, brand affinity, advocacy, retention and market share. For this reason, they will continue to attract large amounts of investment and innovation globally which will work to increase their impact and cost-effectiveness.
What does the future for loyalty hold? This article reviews a collection of innovative developments and emerging challenges which are forecast by Loyalty & Reward Co to have a material impact on the future of loyalty program design and execution.
1. Data, machine learning/AI and personalisation
Improvements in data collection methods and the application of machine learning/Al technology will allow more loyalty programs to deliver personalisation of communications, experiences, and offers at scale. This will eventually manifest in Digital EQ;[1] the ability to anticipate and recognise customer sentiment and deliver a digitally enabled response which optimises the customer experience in real time, serving to build a deeper emotional connection.
Personalisation will not just be limited to digital interactions, but will extend into retail outlets via in-store strategies and phone communications via chatbots. Some retailers will provide the opportunity for members to choose whether they are identified or remain anonymous, while others (such as supermarkets and major retailers) will insist on identification as part of their overall shopping experience.
Machine learning/AI will extend further into contact centre operations, utilising extensive personal data profiles to service member needs, with more complex issues handed over to agents. This will reduce reliance on staff (thereby saving on costs) while allowing for 24-hour service support.
2. Data challenges
With personalised member experiences powered by data, the capture, analysis, use, and monetisation of member personal data by loyalty programs will become increasingly topical. This will be led by consumers, who will demand better controls over their data, including the right to insist it is deleted from program databases, and government bodies which will legislate more data protections as a counter to the growing dominance of tech giants.
At the same time, digital marketing will suffer the loss of cookies, disrupting current targeting and remarketing practices to specific individuals with which any brand or advertiser has no direct relationship.
Both these developments will increase demand for the capture of zero-party and first-party data. Zero-party refers to data owned by the consumer that they intentionally and proactively share with a brand that they trust, while first-party data is generated by interactions between the member and the program.[2]
Loyalty programs will be harnessed to play a lead role in the capture of this data, using techniques and tools such as surveys, polls, quizzes, competitions, gamification, and social posts.
This demand will, in turn, stimulate genuine innovation in the loyalty industry, with the added benefit that the importance placed on the member will increase.
3. Loyalty programs as a product and services brand
With the growth in importance of zero-party and first-party data, the value of the engaged member databases controlled by large loyalty programs will grow. This will enable the loyalty program to harness their brand by developing a range of products and services which they can promote directly to their base.
This approach will gain traction as co-branded credit card usage diminishes. Many central banks around the world are working to reduce transaction fees payable by merchants, making it harder for banks to fund bonus points.
For a loyalty program, expanding their offering with bespoke clubs, or branded products and services (such as insurance) will help to grow revenues, or at least offset their decline, while growing attitudinal commitment.
4. Legal trends
It is challenging to predict the approach so many different jurisdictions around the world will take to adjusting regulatory frameworks. That said, loyalty program operators should consider certain trends which point towards a general tightening of consumer protections. Changes to consumer protections could potentially impact program disclosures, communications and operations in the jurisdiction/s in which the program operates.
One area is data collection, use and sharing. This includes expanding member personal data definitions (e.g. to include technical data such as IP addresses, device identifiers, location data and other online identifiers), separating out consents for data collection and use (e.g. such as third-party sharing) and seamless deletion of data on the request of a member. The EU’s introduction of GDPR provides an interesting template for consideration.
Another area is financial licenses. As large coalition loyalty programs continue to grow larger, regulators may consider reversing the exemptions enjoyed by loyalty programs. Most laws applicable to financial products (or non-cash payment facilities) do not currently impact loyalty programs, but this could change. In the future, loyalty programs may be treated as financial products and accordingly will be subject to financial product licensing and other conditions.
The third area is disclosure; regulators may increase pressure on loyalty program operators to ensure terms and conditions (and privacy policies) are concise, transparent, intelligible, easily accessible, and written in clear and plain language.
5. Ever-evolving member expectations
Companies such as Netflix, Amazon, Uber and Spotify have reset what it means to be a service business with a new manifesto;[3] know me, respond quickly, be where I want to be, tell me what you stand for, speak to my pains and passions, give me value for my privacy and reward me for loyalty.
As more companies replicate the customer experience practices of these market-leaders, consumer expectations defined by the new manifesto will be reinforced, increasing the likelihood they will demand the same experience from other brands. If their expectations are not met, brands risk rapid rejection and vocal disapproval.
The opportunity for brands is to develop a culture focused on customer experience optimisation and evolution. For some companies, this may start with hiring a customer experience (UX) expert in a senior role in the business to help them commence their journey. Given the accelerating global trends of digital transformation and adoption, the expectations for innovative customer experiences will continue to grow.
6. Games and gamification
Gamification approaches and techniques will continue to improve, and loyalty platform development will make it easier for program operators to execute campaigns which persuade members to engage in specific behaviours.
While gamification will deliver a significant amount of value, the bigger emerging trend is games. Members of loyalty programs can expect increasing innovation in this area, particularly for programs which centre around an app. As the trend gathers momentum, more sophisticated white-label platforms will emerge, supporting the ability for loyalty programs to launch rich gaming experiences at low cost.
7. Convenience
Gary Vaynerchuk stated that convenience is king. ‘In a marketplace of distraction, the company’s (sic), products and services that can save you TIME, are going to win. That is why Amazon is a market leader. That is why Prime Now wins. They have simplified the process of buying and selling. They have saved you enormous amounts of time.’[4] Vaynerchuk also mentions Google Now, Siri, text messages, emojis, spell-check and abbreviations as convenience-generating. In particular, he focuses on machine learning/AI as important technology that can saves users time by learning and automating processes which would have taken much longer.
There are genuine commercial benefits from focusing on convenience. A US Department of Commerce report[5] identified that stores and offerings focused on convenience have been responsible for an estimated 67 per cent of retail growth. A National Retail Federation report[6] found that 90 per cent of consumers surveyed said they were more likely to choose a retailer based on convenience.
A Deloitte report[7] argued that Covid-19 has accelerated the trend towards consumer desire for convenience, ‘with more than 50 per cent of consumers spending more on convenience to get what they need, with ‘convenience’ increasingly being defined by contactless shopping, on-demand fulfillment, and inventory availability. As such, there has been a surge in mobile payment usage, delivery app downloads, and buy-online-pick-up-in-store (BOPIS) adoption.’
Loyalty programs have a clear role to play in the manifestation of convenience. Utilising customer data, marketing channels, machine learning/AI and other opportunities, loyalty program designers and operators will increasingly seek innovative ways to increase the convenience for members in engaging with their brand.
8. Generation Touch-Free
In 2013, Josh Elman coined the term Generation Touch,[8] referring to Millennials who grew up tech and device savvy and with the expectation that everything will work by touch.
Covid-19 will completely reset this expectation, with most consumers set to develop an expectation that everything will work touch free.
Loyalty programs will play a key role in delivering to the expectations of Generation Touch Free. This will include utilising data, technology and psychology to build rich augmented reality experiences (such as virtual try-ons), touch-free payment solutions, and a variety of technological innovations which personalise the remote or stay-at-home experience. Any innovation which removes the need for members to touch something that other people have touched will be rapidly embraced.
9. Payments and convergence
Banks, card schemes and major coalition programs are all investing heavily in converging loyalty and payments. Many start-ups are emerging globally with sophisticated white-label platforms which can enable solutions, allowing a member to link a credit card or bank account to a program which instantly rewards them with cashback, points, or other benefits when they spend. This extends into payment apps which are merging multiple loyalty programs into their offering, allowing them to access valuable member personal data, as well as global players that now offer payments capabilities.
Social media is rushing into this space to ensure they do not miss the opportunity. WhatsApp users can now send and receive money by way of its messaging app, using Facebook Pay, the payments service WhatsApp owner Facebook launched in 2019.[9]
With so much investment in this area, and significant potential in delivering a seamless, instantly rewarding experience, the merging of payments and loyalty is likely to be a mega trend over the next decade.
10. Security and fraud incidents
With loyalty program operators globally continuing to under-invest in mitigation strategies, one unfortunate trend which is likely to continue is security breaches and fraudulent behaviour. This may be as small as a fraudster exploiting a birthday reward offer to receive it every day, or as big as a database hack accessing the personal data of hundreds of millions of members.
The continuing global proliferation (and digitalisation) of loyalty programs will require loyalty program operators to keep pace with rising loyalty fraud, and related risks and preventative solutions.
11. The rise of B2B programs
B2B industries have typically been laggards in the loyalty industry, both in implementing programs and in embracing innovative design. B2B programs contain some natural advantages over consumer programs (a more manageable member base with higher spend levels to support more valuable rewards), but also some unique challenges.
As more companies launch attractive programs for their business customers, and the body of knowledge expands regarding what constitutes an effective program, B2B loyalty is already gaining momentum as a significant trend.
12. Welcome to the Metaverse
The Metaverse is a future iteration of the internet, made up of persistent, shared, 3D virtual spaces linked into a perceived virtual universe. According to a Forbes article,[10] ‘Currently, you can only experience the internet when you go to it, but with new connectivity, devices and technologies, we’ll be able to experience it all around every single day.’ This include virtual reality and augmented reality merging seamlessly with the real world, and embracing day-to-day social and transactional interactions.
With the evolution of the Metaverse will come promotions, offers, virtual and real goods, and the opportunity to interact with loyalty programs. Virtual currencies as rewards for desired behaviours are a natural fit for this space, including points, miles, cryptocurrencies and tokenised assets.
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Generating sustained, meaningful engagement with members requires a deep understanding of member behaviour and expectations to effectively respond to their needs at each stage of their journey. Loyalty psychology, technology, design frameworks, commercial models, legal requirements, security and fraud risks, and future trends all need to be considered and incorporated for the program to operate as best practice.
With so much innovation happening in this incredibly lucrative industry, loyalty programs have a very bright future.
Philip Shelper, CEO of Loyalty & Reward Co, has many years experience within the loyalty industry, including roles at Qantas Frequent Flyer and Vodafone. Loyalty & Reward have consulted to over 50 major brands in the past seven years.
Phil is a member of several hundred loyalty programs, and a researcher of loyalty psychology and loyalty history, all of which he uses to understand the essential dynamics of what makes a successful loyalty program.
Let’s connect!
LinkedIn: https://au.linkedin.com/in/philipshelper
Twitter: @phil_shelper
[1] Savransky, M., 2020, ‘The Power of Digital EQ’, Loyalty & Reward Co, https://www.rewardco.com.au/the-power-of-digital-eq/ accessed 24 June 2020.
[2] Vision Critical, ‘What Is Zero-Party Data’, https://www.visioncritical.com/zero-party-data, accessed 6 April 2020.
[3] Sawhney, M., n.d., ‘Applications of AI in Marketing and Customer Experience Management; Identify use cases in Marketing, Sales and Customer Service – Course 5’, accessed 23rd May 2020.
[4] Vaynerchuk, G., 2017, ‘What start-ups really sell’, https://www.garyvaynerchuk.com/startups-really-sell/, accessed 24 June 2020.
[5] US Department of Commerce, ‘Monthly Retail Trade’, https://www.census.gov/retail/index.html, accessed 3 April 2020.
[6] National Retail Federation, 2020, ‘Consumer View Winter 2020’, https://nrf.com/research/consumer-view-winter-2020 accessed 24 June 2020.
[7] Lobaugh, K. M., Stephens, B. &Reynolds, C., 2020, ‘The future is coming … but still one day at a time’, Deloitte Insights, https://www2.deloitte.com/us/en/insights/industry/retail-distribution/retail-and-consumer-products-predictions.html?id=us:2el:3pr:4di6513:5awa:6di:MMDDYY:&pkid=1006899#endnote-sup-4, accessed 24 June 2020.
[8] Elman, J., Sept 2013, ‘Generation Touch Will Redraw Consumer Tech’, TechCrunch, https://techcrunch.com/2013/09/29/generation-touch-will-redraw-consumer-tech/, accessed 20 July 2020.
[9] Singh, M. & Lunden, I., 2020, ‘WhatsApp finally launches payments, starting in Brazil’, https://techcrunch.com/2020/06/15/whatsapp-finally-launches-payments-starting-in-brazil/?guccounter=1, accessed 24 June 2020.
[10] Hackl, C. July 2020, ‘The Metaverse is coming and it’s a very big deal’, Forbes, https://www.forbes.com/sites/cathyhackl/2020/07/05/the-metaverse-is-coming–its-a-very-big-deal/#5588c8f9440f accessed 18 August 2020.