The average US consumer belongs to at least 16 different loyalty programs — and actively uses less than half of them.
That means the majority of modern loyalty programs are collecting digital dust, buried among other apps. Brands and retailers can better engage their customers and create lifetime value using first-party purchase data.
What does “loyalty” mean to the modern-day consumer? What does it mean to your business?
For retailers and brands, a successful loyalty program is worth its weight in gold. History (and data) proves that. However, as consumer culture becomes more fragmented, coupled with constantly emerging technology, the ability to know, properly engage with, and target customers becomes increasingly difficult.
In this guide, we’ll explore how loyalty has evolved over the years, along with best practices for building and growing a successful program in today’s splintered society.
Read this article to learn how to build an innovative, best-in-class program to foster loyalty and boost sales.
What you’ll learn about:
- How loyalty and rewards programs have evolved over time
- The modern, tech-driven loyalty landscape
- How data will power the future of consumer loyalty
- Best practices for establishing and strengthening loyalty
There exists a 21st century cultural phenomenon that extends to almost every aspect of the consumer landscape, whether it’s media, retail, or other parts of the global economy. You may have heard or read about it (or just participate in it unknowingly), but for these purposes, let’s refer to it as “the splintered society.”
What does that mean exactly? In simple terms, people consume stuff — whether it’s TV, brands, music, etc. — differently nowadays. Whereas there used to be a greater public consensus on the most popular TV show, food brand, or music artist, culture has now fragmented into smaller (yet thriving) pods, with their own respective demographics and consumer personas.
Thanks to this proliferation of unique products and experiences in our increasingly digital world, it’s more crucial than ever to deliver personalization to consumers across communication channels — namely online.
This cultural shift has made the goal of consumer loyalty, whether to a brand or retailer, harder to strategize for and obtain.
While it’s easier than ever to know and engage with consumers thanks to the explosion of data and communication channels, it’s also harder than ever to delight and retain them.
Through this lens, it’s interesting to consider what loyalty means today.
The average US consumer currently belongs to at least 16 different loyalty programs, but is currently using less than half of them – Statista
The above stat translates to several missed opportunities. With consumer habits evolving at such an accelerated rate, traditional rewards programs will need to follow suit and innovate in order to realize long-term, revenue-generating loyalty.
In this report, we’ll discuss: the history of loyalty programs, how they’ve evolved to the next level, and what the future of best-in-class consumer loyalty will look like.
A brief history of loyalty programs
While some historians trace the concept of loyalty and rewards back to ancient Egypt, it’s safe to say the modern consumer interpretation was spearheaded by the S&H Green Stamp program of the late 19th century, in which shoppers would earn stamps for purchases from multiple retailers and collect them in books.
They were then redeemed for rewards (known as premiums) directly from an S&H catalog or location.
The green stamps eventually fostered competing loyalty programs, as consumers sought out stores where they could earn the most stamps — the amount awarded was at the discretion of the retailer — per purchase.
The 20th century saw several pivotal moments in the growth of the modern loyalty program. While retailers were dishing out green stamps left and right, consumer packaged goods (CPG) brands developed their own programs to vie for customer devotion, essentially leading to the creation of coupon cutting. In 1929, Betty Crocker started printing rewards on their packages (known as box tops) that customers could collect and redeem for items like kitchenware.
Arguably the most evolutionary loyalty initiative took flight in 1981, when American Airlines launched its AAdvantage program — credited as the birth of frequent flier miles. Aside from forever changing the airline and credit card industries, and ushering in a new wave of points-based loyalty programs, AAdvantage was transformative as it allowed companies to collect vital first-party data from customers via account creation and user permission.
While it took hundreds of years for loyalty programs to evolve to where they are now, two factors have always remained central:
- The expectation that businesses had to offer something extra to customers beyond the basic exchange of money for goods or services.
- The realization that it was cheaper to engage with, reward, and retain existing customers than it was to attract and convert new ones.
By combining these central truths with first-party data, companies were ready to embark on a new frontier of more personalized customer loyalty, which would change the game forever.
Building modern loyalty programs
During the 1990s, stamps were replaced by plastic loyalty cards, which were quickly condensed into keychains. By the turn of the century, it was common to find a handful of barcode-enabled loyalty tags scattered among your keys, which offered convenience to the consumer — the ability to receive discounts or earn cash-back/ points via a quick scan at checkout — but not much in the way of personalization.
However, the impending digital era would soon give way to the loyalty app, as it became nearly impossible for companies to avoid the rise of e-commerce and smartphones.
Brands and retailers needed to create a holistic shopping (and loyalty) experience by converging in-store and online — first through e-commerce websites, and then via the mobile app. This is right around the time “omnichannel” became a household term in consumer marketing, based on the idea that a customer should be able to experience “everything, everywhere, all at once.”
Mobile apps provided the perfect vessel to personalize the shopping experience through automated discounts and rewards, card-linked offers, points systems, and gamification. The last example has been utilized to great success by companies like Starbucks, which uses its star rewards (i.e., points) to incentivize customers with different tiers of freebies they can earn, through a fun, user-friendly app that doubles as a payment method.
Gamification can help a company increase customer interactions by up to 40% – Deloitte
With the emergence of QR codes, social media promotions (e.g., retweeting, hashtags), and other interactive ways to earn points, stars, badges, etc., consumers have various avenues to get mileage for their loyalty beyond standard purchases.
Of course, the loyalty app also builds on the AAdvantage breakthrough of data accessibility.
The more consumers engage with and purchase through an app, the more information (about spending habits and preferences) brands and retailers have to further personalize the customer journey.
By having consumers opt into their services, loyalty apps unlock multiple pathways for companies to collect valuable first-party data, whether it’s through automated purchase logs, receipt scanning software, surveys, or other means.
By combining the power of data with the convenience of apps, companies are equipped with the tools to deliver a personalized, omnichannel customer experience amid an increasingly competitive landscape.
If you’re familiar with the , you know that 80% of a company’s revenue tends to come from the top 20% of customers.
The 20% is basically synonymous with loyalty program members, who spend 67% more on average than new customers. – Zippia
Why and how, though, do loyal customers shop the most frequently and spend the most?
Part of the psyche is emotionally tied to the brand or retailer, which is fostered by the loyalty program. For example, when a consumer advances through the ranks of a tiered program, they feel a sense of accomplishment for the rewards (or exclusive status) they’ve earned. They also become less likely to jump ship for a competitor, as it would result in losing all their hardearned progress.
This emotional factor is what causes the most loyal customers to join premium programs, which are typically defined as fee-based programs. Premium loyalty members enjoy the enhanced perks and treatment they receive, whether transactional or experiential in nature.
The most popular premium loyalty program, Amazon Prime, has been able to attract over 200 million global members thanks almost entirely to offering free, expedited shipping. Amazon is a giant by any standard, but in the US, it is actually dwarfed by the top-selling retailer in Walmart. In fact, the list of largest retailers is littered with other big box and grocery goliaths, due in large part to how frequently consumers shop for food and other essential items.
While many offer no-fee loyalty programs, premium versions like Walmart+ are engaging consumers with free in-store delivery, free online shipping (with no order minimum), and mobile scan & go (contact-free shopping), as well as partner perks to save on gas or get access to free streaming services.
The strength of big-box retailers like Walmart and Costco, as well as supermarket giants like Kroger, proves that premium loyalty programs can deliver a high ROI thanks to larger basket sizes and more frequent purchases.
Loyalty members love to advance through gamified rewards programs and unlock new benefits, and while transactional rewards (e.g., discounts, bonuses) make them feel like savvy shoppers, experiential rewards (e.g., for convenience, exclusive access, presales) make them feel special.
Wegmans, the popular American supermarket chain with 100+ east coast locations, for example, allows members of its Shoppers Club program to create grocery lists in-app (organized by aisle) and even access digital receipts from past trips.
And when consumers feel special and deeply connected to a company, they can morph from being a loyal customer to an evangelist — someone who “spreads the gospel” of their favorite company or product.
Brand evangelists (as they’re typically referred to) are essentially free brand advocates who carry out the that is vital to growing a customer base.
Cultivating these types of customers is crucial for any business’ bottom line, especially in the splintered society where the cost to acquire new customers has increased by more than 50% in recent years.
The data suggests that companies should do more to retain the customers they have through truly differentiated loyalty rewards programs.
It’s also important to realize that while catering to premium, high-value customers is paramount, that doesn’t mean you should neglect those on the opposite end of the loyalty spectrum. For price-sensitive consumers who may be early in their loyalty journey, creating free, non-sale related incentives (e.g., points for daily logins, referrals, filling out surveys) is a strategic way to lay the foundation for customers who graduate to more frequent purchases and bigger basket sizes.
How data will power the future of loyalty
It’s important to recognize that establishing and strengthening loyalty takes time. Through buying incentives, targeted promotions, and other engagement methods, a company will not only nurture the customer relationship, it will also build the data repository needed to deliver best-in-class customer experiences.
Companies, no matter how they pursue loyalty, need to stay at the leading edge of technology that’s reshaping the consumer landscape. From brick & mortar to digital, tech innovations are enabling next-level customer experiences that are increasingly immersive and hyper-personalized.
For one thing, the blending of in-store and online will continue to shape loyalty, as the concept of omnichannel becomes table stakes. Physical stores need to modernize and incorporate tech that has convenience and customer experience top of mind (i.e., it should be as easy to stroll through aisles as it is to scroll through an app).
The modern grocery or big box store, for example, can enhance loyalty with apps that allow shoppers to quickly find exactly what they need and at the best price, while also streamlining the point-of-sale experience through app features like autonomous checkout.
There is also the increasingly popular concept of in-store partnerships, in which a retailer (e.g., Target) allots part of its physical space to an established brand (e.g., Ulta Beauty), allowing each to create value for the other partner’s loyal customers that they could not provide on their own. In most cases, consumers are able to link the programs and earn rewards from shopping at either Target or Ulta across channels.
Meanwhile, retailers and brands are able to collect more first-party data to unlock consumer insights, drive product development, and refine their marketing and loyalty strategies to further benefit the customers who value them the most.
All of this requires a comprehensive understanding of how and where consumers are shopping today, as well as the challenges that exist when it comes to collecting and aggregating clean first-party data and turning it into insights.
With more channels and shopping methods than ever before, organizations need a strong digital infrastructure, capable of capturing first-party data wherever and however customers shop, along with the right personnel and internal know-how (and buy-in) to turn data into insights and action.
So, what are the must-haves to build and sustain loyalty in our current splintered society?
The obvious answer is a , which delivers convenience and personalization in the palm of a customer’s hand. One step further is creating a to help identify your most active and engaged (i.e., highest spending) customers, so that you can better target them with relevant, differentiated benefits and perks.
For an app or premium program to reach its utmost potential, however, your business needs what we refer to as the “third eye” of modern-day consumer loyalty — a first-party data capture solution that supports omnichannel. Data remains critical to deepening the customer (or brand evangelist) relationship, both from a quantity and quality perspective.
While digital-first retailers like Amazon may have a historical advantage when it comes to data (utilizing it for recommendations and developing products & services), there are retail-agnostic technology solutions available today to capture purchase data from both in-store and online transactions. This is good news, whether you’re a traditional CPG looking to market relevant new products, a retailer fighting for market share amid thin margins, or a market research firm/ advertising agency working with both brands and retailers to better engage shoppers.
No matter where you’re targeting customers in their journey, it will take a nuanced approach across the board to drive engagement, deliver relevant loyalty rewards, and enable sales lift.
For most consumers, especially when asked to opt in for services by sharing their PII (personally identifiable information), they’ll expect a certain level of value exchange to justify the relationship.
Collecting insightful, actionable data in an efficient, organized manner is great, but it must be put to use in an instant.
In the end, whether you call it loyalty, advocacy, or evangelism, the goal is to deliver memorable, differentiated customer experiences that build lifetime customer value (LTV), translating into growing sales and market share for decades to come.