#224: What's Next for Loyalty Programs?

You know the answer

I’ve been thinking about what the future of loyalty programs will look like over the past several weeks. I’ve indirectly alluded to this in some of my pieces with Nike’s .SWOOSH platform, a hypothetical exercise with McDonald’s in web3, attending the inaugural NBA Con in Las Vegas, and Starbucks Odyssey’s Community Challenges.

But let’s take a step back and think about loyalty programs as a whole, regardless of what iteration of the web they are built on.

What do the experts have to say about the future of loyalty?

First of all, I’m just a cat profile picture sharing my thoughts and I am not a loyalty program expert. Fortunately, I have some industry expert articles I can lean on to share their thoughts!

FIS (Fidelity National Information Services), a $34 billion fintech company, recently published a piece on how financial institutions will be using loyalty rewards programs in the year 2030. What are some key themes?

• Rewards models will become holistic and relationship-based: Customers will be rewarded for all their behaviors, not just transactional behaviors

• Instant consumer gratification: Once loyalty milestones are reached, they could be redeemable and applied at the point of sale

• Making loyalty programs more inclusive for younger generations: Gen Z’ers don’t trust businesses to act in the best interests of society. As a result, rewards programs have charitable giving options.

What does a member of the Forbes Council have to say about trends shaping the future of loyalty?

• Strategic partnerships

• Card linking to understand purchase behavior

• Supporting ESG causes

No comment about these trends. Can someone get me on this so-called ‘council’? I’m gonna channel my inner Karen and speak to the manager. Jk, I know how that type of editorial works: money, SEO backlinks, and brand name association 😏

What does West Monroe, a management consulting company, have to say about the guiding principles in the future of loyalty?

• Create utility

• Personalization

• Brand transparency

• Technology integration

Ok, not even gonna bold these points anymore. Time to consult for these management consultants.

As painful as it is, this will make my point stronger.

Alright, help a brother out Deloitte, you guys are smart. What do they think the new consumer loyalty landscape looks like?

• Loyalty programs are shifting focus to developing compelling value propositions in support of brand strategy and delivering them in more seamless, integrated ways

• Market leaders are introducing differentiated ways to earn and redeem while creating more moments of recognition, exclusivity, and access for members

• The leading brands are innovating with loyalty programs that build meaning through personalization, extended loyalty ecosystems, and creating community

Probably the best of the bunch. I feel like I just read a bunch of LinkedIn posts 😂

Although I bashed the Forbes Council piece a tad, the company the author is a part of did publish a nice report on loyalty program trends. These 3 points stuck out to me:

• 67.7% of respondents plan to increase their investments in customer retention in the inflation crisis and potential recession.

• 78.6% of respondents with an existing loyalty program are likely to revamp their loyalty program in the next three years. This is a seven percentage point increase over last year.

• 80.0% of companies who measure the ROI of their loyalty program reported a positive ROI, earning 4.9x more revenue than what they spend, on average.

Regardless of what the future of loyalty will look like, it’ll be busy.

What does TPan have to say about the future of loyalty?

There is only one answer.

The best part of this chart/meme is that IMO the left side of the curve is still right, but not thinking large enough.

My gut tells me the above experts and authors are aware of what’s going on in the world of web3 loyalty, at least on the surface level. However, it’s still too controversial, early, and uncertain to publish. If you’re playing the game of corporate politics, it’s risky to put your reputation, $300k salary + stock options + benefits, and title on the line.

This is why I admire what large brands like Starbucks, Nike, and Adidas are doing in web3 and follow them closely, even if it’s more web2.5 (which is where most of the space is realistically headed and that’s ok). There are executives that are putting their professional reputations on the line and know it. These are the people needed to push the space forward toward mass adoption.

Let’s break down two scenarios for companies that have loyalty programs, regardless of size.

The Leaders

Let’s say you’re one of the companies I mentioned above. You have:

• A world-class loyalty program. If you have a physical product, you have a mobile app that connects the physical and digital aspects of your customer base (or if you’re Nike you have the Nike, Nike SNKRS, Nike Run Club, and Nike Training Club apps)

• Omnichannel touchpoints across mobile apps, customer accounts, physical addresses, every major social media platform, SMS, email, etc.

• Built an in-person experiential strategy to make every in-person touchpoint more impactful

So…what’s next?

Seriously.

What’s next?

Yes, it’s what the experts above have mentioned, which includes:

• More personalization based on historical behavior

• Continued optimization across all channel touchpoints (eg: testing copy, incentives, increasing the diversity of rewards)

• Deeper strategic loyalty partnerships. Delta Airlines has partnerships with Starbucks, Lyft, Instacart, and Ticketmaster, which is a departure from the traditional airline alliance model.

These strategies are important and necessary to work on. But will that create a 10% lift on whatever loyalty KPIs and metrics that are being tracked? A/B testing the color of your CTA buttons certainly won’t, personalization and strategic partnerships might.

Will it 2x the efficacy of your loyalty programs? Probably not.

So we go back to the question.

What’s next?

You know the answer.

The Laggards

A few weeks ago, my fiancee and I were at Panda Express, craving that crunchy tasty Orange Chicken that isn’t really a Chinese dish but we didn’t care.

When we entered, we saw signs promoting Panda Rewards, the new Panda Express loyalty program.

When did this loyalty program start? Probably a couple years ago, maybe we just didn’t notice it before.

Nope, Panda Rewards launched on May 30, 2023.

I’m happy that Panda launched their new loyalty program. I’m especially happy for the executive that will put this accomplishment on their quarterly update to the CEO and get that fat bonus. Despite that, this program is several years too late to make a material impact to the business, as every other chain restaurant has launched a loyalty program or app as well. And if it actually does make a material impact, what’s next? Pressure’s on buddy.

So what do the laggards need to do?

You know the answer…sorta.

They need to work double-time:

• Play catchup with the established best practices in the loyalty space

• Leapfrog the first point by incorporating the next generation of loyalty best practices including web3. At minimum, watch the space closely.

It’s wishful thinking that laggards will do both simultaneously. But if they don’t, they will likely continue to play the game of catchup and get on the ‘thing’, whatever it is, years after it is considered a best practice.

Fortunately, Panda Express has a secret weapon.

What’s next?

Alright TPan, I know ‘the answer’. But what’s next in the world of web3 loyalty?

Loyalty programs as a net new business driver

On top of web3 ushering in the next generation of loyalty programs, I believe loyalty programs will actually become revenue-generating lines of business as well.

The clearest example of this is with Starbucks Odyssey. The program incorporates purchase-related activities into their Journeys and also incorporates periodic Stamp sales that are digital collectibles and have a loyalty point value attached to them.

The Stamps are an upsell within the Odyssey ecosystem itself, it’s not related to Starbucks store purchases.

These types of loyalty programs are not only driving incremental sales and ROI, but are creating a new line of business that is familiar (eg: merch sales complimentary to the core coffee business), yet net new.

Nike is doing something similar as well. I wouldn’t call .SWOOSH a pure loyalty program the same way Odyssey is for Starbucks. However, they are building a net new business line as well.

The Our Force 1 sale in May drove almost $2 million in revenue. A drop in the bucket for the skeptic. A promising start for the optimist.

Open Loyalty

I first came across the term open loyalty this week from a company called Smart Layer, a company working with enterprise companies to use tokenization to improve business efficiencies.

For now, Smart Layer is being broad with its vision of Open Loyalty:

What could this mean? I believe it is related to a concept I wrote a year ago when I covered Hang, a web3 loyalty startup (hope you’re doing well Matt!), specifically around interoperability:

What if a brand that is integrated with Hang could create turn-key loyalty partnerships with any other brand integrated with Hang? Could there be a loyalty partnership marketplace? 🤔

If Smart Layer is able to create an Open Loyalty ecosystem I referenced, it will become a trend that will drive the future of loyalty programs.

And in 2025, all the thought leaders will start writing about it 😉

Shoutout to Kairon for encouraging me to write about this topic today. There are a couple of guest podcast episodes releasing in the next several weeks where I mention these points. However, I needed that nudge to actually write about this thought that’s been living rent-free in my head.

See you next week!