Loyalty programmes: more than just a card

As household budgets come under increased pressure, loyalty programmes have become particularly important to help businesses retain customers, increase customer engagement and boost sales.  

 A well-designed loyalty programme can help businesses retain customers even when times are tough by offering rewards and incentives that make them feel valued and appreciated, and most of all, add tangible value to customers that they keep coming back for. 

 Gordon Wilson, a certified loyalty marketing professional and business development director at Achievement Awards Group, points out that in a tough economy, businesses are often competing for a smaller pool of customers.  

 “A loyalty programme can give businesses a competitive advantage by offering a unique value proposition that sets them apart from their competitors, and gives that extra value needed to retain customers, increase engagement and generate revenue. By creating a loyalty programme that is tailored to the needs and preferences of their customers, businesses build stronger relationships and create a loyal customer base that is more likely to stick with them through difficult times,” Wilson explains. 

In a tougher socioeconomic environment, the key trends unfolding in loyalty programmes are brand switching, next-level customer experience and  the rise of intrinsic motivation, gamification, crypto rewards, non-fungible tokens (NFT), data analytics, artificial intelligence and environmental, social and governance (ESG) concerns.  

 Wilson explains that as the cost of living keeps rising, driven by rampant inflation, consumers want better deals and greater value from brands — and the rewards need to be tangible. “Brand owners will be under pressure to retain customers, and so we can expect to see more instant cashback deals and value-driven promotions like ‘three for the price of two’ or ‘buy one, get one free’,” he says.  

He adds that a seamless customer experience is more important than ever, and brands will need to bring their A-game to the front with emerging technologies to enhance their customers’ omnichannel, surround-sound experience of the brand or service. Loyalty programmes are increasingly being integrated with digital channels such as mobile apps, social media and online stores, which gives customers easy access to their rewards and the ability to redeem them online. 

 As far as the rise in intrinsic motivation is concerned, Wilson says that while traditional loyalty programmes have relied on extrinsic motivation in the form of conditional rewards — “do this … get that” — to drive behaviour change and engagement, as time passes and programmes mature, extrinsic rewards lose their appeal and effectiveness, and with that, engagement levels drop.  

 “We are now seeing increasing use of intrinsic motivation to build brand affinity, including through gamification to stimulate curiosity or appeal to a consumer’s personal interest or enjoyment outside of transactional interactions. The loyalty programmes that win in the long term are the brands making use of intrinsic motivation to form an emotional connection with their consumer, resulting in improved engagement, enhanced brand loyalty and customer lifetime value. And best of all, their customers are their greatest advocates.” 

Gamification, Wilson says, is an excellent mechanism to drive engagement. In the past year, big brands like Starbucks started offering NFT rewards as an extension of their existing loyalty programme by leveraging web3 technology.

 Thanks to the incredible advances in artificial Intelligence (AI) and large language models, loyalty programmes are now able to process data faster and more accurately, have better predictive capabilities, reduce costs and, ultimately, boost customer experience. The end goal, explains Wilson, is to get granular customer insights quickly and embed them in the day-to-day operations and decision-making of the organisation, ensuring that the right offer gets to the right person at the right time. 

 As far as sustainability is concerned, loyalty programmes can play a significant role in encouraging behaviour change such as recycling and reusing products, buying ethically sourced products and living a healthier lifestyle. Research conducted by Kearney found that modern loyalty programmes can deliver both business and ESG outcomes by creating a “currency” to recognise and reward customers who make choices that reinforce a company’s [ESG] position. 

 “In South Africa, loyalty programme owners are working hard to meet their customers and members where they are, now. This is evident through the rise in rewards that add value to their members’ lives and help them with essential goods such as grocery vouchers and solar kits,” says Wilson.   “We’re also seeing greater redemption rates of points earned as consumers use their loyalty points to supplement income gaps to cope with the raging cost-of-living crisis. Loyalty programmes have grown tremendously in scope over thepast few years — the challenge for programme owners is to ensure that their programmes meet customer expectations and add value to their core products,” he says.   

 Economic pressures are also seeing brands aim for improved operational efficiencies by better aligning reward offerings to customer needs and fine-tuning the scope of the programme rewards to focus on relevance, which in turn has the benefit of reducing costs and improving loyalty and engagement.  

 “There is a distinct move to loyalty partnerships and eco-systems to increase utility and add greater value to loyalty programme members. We’re  seeing more partnerships across service providers to reach new markets, reduce costs and grow revenue. Loyalty programmes with tiered benefit structures are also likely to undergo changes to those tiers in terms of ‘qualification’ to meet loyalty member demand. As one example, earlier this year Starbucks adjusted its formula to make it easier to earn and redeem rewards for iced coffee, a trend driven by Gen Z consumers, as iced coffee has accounted for at least 60% of Starbucks’ total sales every quarter since early 2021,” explains Wilson.  

The key trend in loyalty programmes, he says, is to create a more granular, personalised and engaging experience for loyal customers, providing them with more value and benefits that talk to their unique needs and circumstances. To this end, data and analytics are key to better understanding loyalty members and tailoring rewards and experiences to their specific needs and preferences. 

 “Data is vital to segment customers based on demographics, behaviour and other factors, and in turn tailor the loyalty programme to diverse groups of customers, with incentives that are most relevant and appealing to each segment. Through data analysis, businesses can identify which rewards are most popular among their customers and which rewards are most effective in driving engagement, behaviour and retention. This helps to optimise reward offerings and maximise programme effectiveness, while reducing programme costs,“ he says.