Apart from adapting to mobile apps and ditching plastic cards, the typical loyalty programs in 2020 still operate pretty much the same as they did at the turn of the century. And there are many, many more of these lookalike programs. If companies want their programs to generate profit in five years, they should start adapting these six characteristics now.

The customer experience has evolved. Why hasn’t loyalty?

The integral design of a loyalty program and the value it delivers customers has not changed much in the past 20 years, largely because the supporting infrastructure has remained the same. Yet in that same time, millions of new loyalty programs launched globally, flooding the market with homogenous offerings that, rather than provide a competitive edge, have diminished overall loyalty value due to extended fragmentation. To make matters worse, those old, costly and clunky infrastructures were tasked with managing additional features, mostly just bolted on, in hopes of standing apart from the competition. The result has been impediments to managing customer data efficiently and making it actionable.

Many of these add-on features overburdened their systems, complicated the programs and confused members. The result is few loyalty initiatives have kept pace with the dramatic changes of customers and their behaviors. Only 22% of loyalty members think their programs use the right messages to interact with them, according to a report by Bond[i].

Source: ‘The Loyalty Report’, Bond Brand Loyalty 2019

This is likely why consumers are active in less than half of the loyalty programs in which they are enrolled – 6.7 of 14.8, according to the study.

If companies keep operating their loyalty programs like they did in 2000, then by 2025 it’s likely they’ll be investing a lot of money in programs that their customers use only once, and quickly recognize it could be a decade before they reach interesting rewards.

A brand wouldn’t build hotels that are visited only once, or stores that are shopped only once. Why should investing in loyalty be different?

The rate of loyalty engagement is unsustainable under the traditional model. In five years, the industry will have recognized this and migrated to ‘open loyalty’ schemes that partner hundreds or more compatible brands under one fluid operating system that delivers swifter, more diverse and more relevant reward options at lower costs to all.

After all, marketplaces are evolving into broad commercial ecosystems and brands will need their loyalty programs to be present in the places frequented by their target customers.

Winning loyalty programs in 2025

Open-loyalty models will only be as good as the mix of their partners. In five years’ time, the companies growing and retaining reasonable profit margins will be:

  1. Dynamic enterprises. These organizations will have evolved their omnichannel strategies to accommodate personalized fulfillment, and be able to respond to any customer request or expectation in real-time.
  2. Multi-serviced. Because consumers are shifting their spending from products to experiences, these companies will respond by offering value-added services.
  3. IT-free. The functionality of the loyalty programs, such as data gathering and partner integration, will be transferred to the cloud as a necessity to put power back in the hands of marketers.
  4. Customer singular. Profitable companies will capture insight from their loyalty partners, and build a single view of the customer based on many new dimensions of data collected in a transparent network.
  5. All-around AI. Artificial intelligence capabilities will be deployed in the front and back offices of the most forward-thinking companies, to respond to market opportunities in real-time.
  6. Privacy-conscious. Some requirements will not change. As expected today, the organizations that earn member trust and spending will treat their members with the respect they demand and adequately protect their data.

This means loyalty programs will need each other more

We’ll walk through each of these six characteristics, but first it’s essential to point out they will be more effective if companies recognize this: customers have the capacity to embrace only a few lifestyle brands in their lives. This implies that only a few hundred companies might achieve ‘lifestyle brand status’ with millions of customers.

Companies that do not achieve that status can still maintain relevance, however, by aligning their programs with those of complementary organizations that stand out with similar lifestyle characteristics. In time, they can expand into entire ecosystems of brands that represent a tailored and relevant experience to the customer, but behind the scenes comprise hundreds, even thousands, of working partnerships.

What is not so clear is what kind of liquidity will power these ecosystems. It could be that there will be only one loyalty currency within an ecosystem of partners, or a few, interchangeable loyalty currencies that customers want to collect. Alternatively, customers may become able to shift value from many programs, to the one program where they perceive the greatest utility. Ultimately it will be the customer who decides which is the winning model. The brands that enable the customer´s preference will retain the privilege of collecting customer data, growing sales, issuing targeted marketing with permission, and of keeping score.

Now, let’s walk through each of the six characteristics.

Dynamic enterprises: omnichannel evolving towards personal fulfillment.

All the discussions about being ‘omnichannel’ will disappear, because shoppers are already channel-agnostic. Just as we no longer talk about the types of online networks that connect the world, or whether to use the fax, shoppers will no longer weigh the choices of how to purchase things. The moment they need something, they will simply access the immediate option for fulfilling it, regardless of where they are.

In short, the shoppers will be their own channels, focused on immediacy. Companies, through the shared data of open-loyalty programs, will be able to see how their customers spend outside their brand and use those insights to anticipate coming needs.

In short, the open-loyalty structure could poise its partners to get ahead of fulfillment, by providing them the insights to operate virtual, individual warehouses, each personalized for that loyalty member and ready to go. The customer insight from a partner network will come in especially handy when companies seek to unload overstocked consumer goods, hotel rooms or airplane seats.

Multi-serviced brands that capture share of wallet with emotion, not ‘stuff’

More shoppers are choosing spa days, hotel getaways and splurge meals over discretionary clothing, household items and luxury grooming products. If companies want to retain share of wallet through their loyalty programs, those programs will need to offer more services.

Identifying those services is a matter of examining the many ways customers use their programs and singling out other complementary products or services. These might include logistics services to get the product into the hands of the customer faster, or other products that can be used with the company’s goods or recombined to create incremental value.

Organizations that provide complementary items are natural partners in a broader, interconnected loyalty system. For example, imagine that you sell travel, insurance, clothing, household goods or food. What you pitch to the customer depends greatly on whether the customer is living alone, was just married, has a white-collar or blue-collar job, owns a car, is about to start a family, has teenagers, is buying a new home or is changing jobs.

If just 5% of customers are in any one of these buckets at any point in time, and they are all treated the same, the company is likely to deliver the wrong message 95% of the time.

The big shift to the cloud to rebalance IT dependencies

IT departments are tasked with keeping dozens (or hundreds) of legacy systems operating. And when any one piece in the architecture changes, it can have exponential implications on other components. Not surprising then that in the context of loyalty, IT departments can’t allocate the resources to respond quickly to loyalty enhancements – meaning integrations with partners get low priority, and when they do occur, these integrations add to architecture complexity and maintenance burden.

Companies that instead embrace a SaaS marketplace to collaborate with partners can, with a single connection, provide their loyalty teams access to hundreds of potential partners, automated workflows, consistent reporting, reconciliation and settlement. This creates exponential value for every stakeholder in the organization by freeing up a great deal of time and reducing cost – so more value can go to the customer.

As organizations migrate these functions to the cloud, companies will realize they have much broader capabilities that include an expanding universe of affordable, low-maintenance partnerships that spin off insightful data. With each partner they can affordably generate unique, verified data that helps build insightful profiles about the lifecycle stage of each customer.

The new single-customer view, through many eyes

Microservices are rapidly becoming to technology what plastics were to manufacturing in the ’60s. Winning companies will integrate and manage the loyalty program as the orchestrating, customer-facing ‘service’ that binds all touchpoints in a consistent manner.

Microservices are collections of small dedicated-function applications that have been broken down from traditional (expensive and complicated) applications that delivered comprehensive services. Their cafeteria-like access frees individuals to achieve specific goals much faster and allows the organization to adapt quickly as the market changes.

In the realm of loyalty, microservices permit scores of independent brands to affordably and easily operate as a single union (at least in the eyes of the customer). One of those microservices could, for example, be a robust points bank to keep track of all loyalty transactions. Another would be loyalty rules engine to determine how to treat each customer to build more emotional loyalty, based on the context of transactions or non-purchase touchpoints.

Breaking up the traditional loyalty program management system into microservices affords companies much greater control, significantly reduced license and operating costs, and the agility to move with changing market conditions.

You can read about loyalty microservices in more detail here.

Gaining all-around intelligence from artificial intelligence (AI)

AI technology will loom throughout those companies that want to respond to market opportunities in real-time. Indeed, AI is already assisting in some of the other visions detailed here; medium and larger companies use it now to power many of their customer touchpoints.

However, knowing what to say in the right context is still hard for AI-based systems – mostly because they don’t have enough clean data to refine the algorithms. Open-loyalty networks provide that clean data, to train AI systems to really understand the customer’s context and likely next-best-action.

When applied wisely with a more efficient, open-loyalty model, AI could be used behind the scenes to maximize the shared data and services of partner brands. For example, for an added fee, the AI system could identify members of partner programs whose behavior patterns suggest they would pay extra for a particular service the program offers.

Honor privacy, always – that won’t change

No need to overstate the importance of protecting customer data. Companies should continue to treat customers in the way they want to be treated. That means at every single step of the customer journey, privacy considerations have to be in the bedrock of all efforts.

Participating in an open loyalty network introduces changes to the brand-customer relationship. The practice of sharing customer data must be approached with the loyalty member’s understanding – of what data is collected, why, how it is used, and the ways in which it is protected. Of course, customers also should regularly experience the benefits of sharing their data, and for decades they have demonstrated that they are willing to share their data for better experiences and value.

All of this information should be clear, easy to understand, and demonstrated in a company’s every interaction with each customer.

What does this fundamental shift mean for you?

In most cases, people don’t think about loyalty programs as being separate from the company. They view them as devices that enable them to gain more value from a brand through primary communications and incentives. This strictly functional perception of loyalty is due to the inability of programs to keep pace with consumer evolution and too much focus on transactional loyalty.

This situation really calls for the leaders of loyalty marketing to rethink and in most cases revamp their program approach: to become an integral part of creating the type of value for customers that keeps them coming back. If each touchpoint is not coordinated, the customer notices and becomes frustrated.

The loyalty program should be an instrument, orchestrating how the company demonstrates its loyalty to the customer and how the brand wants the customer to engage to meet the objectives of all parties. Open-loyalty models accomplish this much faster, more efficiently and more affordably than individual companies can do on their own. And there’s better profit in it.

It’s time to reimagine loyalty

The characteristics of winning loyalty programs in the future are already evident, but there is work still to be done. To build a loyal following in this world, companies need to change their attitudes about hording data, and they must stop permitting their IT department or vendors to hold them hostage to legacy cost and practices. They must also consider how to be present in the commercial ecosystems where customers will spend an increasing amount of their time.

The time of operating in silos, each controlled by one organization, is passing. It’s time for companies to embrace the marketplaces that allow them to reach customers wherever they are.

And it is necessary now, because the shift of power to the customer is unstoppable.

Get in touch

Currency Alliance makes it quick and easy to extend your loyalty capabilities to drive deeper engagement from your frequent, as well as less frequent customers.

Our low-cost, API-based software integrates seamlessly with your existing loyalty platform and/or martech systems in a matter of days.

Click here to find out more.

References

https://cdn2.hubspot.net/hubfs/352767/TLR%202019/Bond_US%20TLR19%20Exec%20Summary%20Launch%20Edition.pdf