From Predictable to Personalized: Rethinking the Loyalty Experience

Loyalty programs are nothing new : Ancient Egyptians spent time in temple to earn tokens they could trade for beer. In the 1850s a baking soda manufacturer rewarded customers for collecting trademark stamps. Even the punch card coupon has been around since 1890. But times have changed: Today’s shoppers (usually) want more for their loyalty than free beer, and they don’t want to work too hard for those rewards.

How can retailers earn loyalty now? A successful loyalty program creates a personalized, emotional connection between you and your customers, making shoppers feel seen, heard, and appreciated. When customers feel that love, they are more likely to choose your brand even if a competitor offers similar perks or lower prices. Emotional loyalty means consumers identify with, trust, and see a brand as part of who they are.

Retailers need to work a little harder these days to win that loyalty, though. Our research shows the percentage of customers who feel emotional connections to brands has dropped to 54%, down from 62% in 2022. This is likely the result of economic pressures that caused consumers to make more buying decisions based only on price.

How can you win them back? Consumers appreciate brands that provide exclusive, personalized experiences at every touchpoint. Brands like Amazon, Netflix, Target, Starbucks, and Spotify have infused our daily routines with personalized offerings, service, and proactive communication. These types of personalized experiences — often powered by real-time customer data and AI — make it easier for shoppers to do business with you, helping boost acquisition, retention, and lifetime value.

Then why are so many loyalty programs still transaction-focused and impersonal? Because in the past, loyalty programs have taken a lot of time, effort, and resources to set up. Once a retailer has invested heavily in the loyalty program framework and recruited shoppers, it can be a tremendous undertaking to reframe a points-based program by retiring or adjusting the requirements and rewards. We found 54% of retail loyalty programs still offer points-based rewards. Even programs that have evolved beyond points for purchase struggle with true personalization and engagement, which is a cornerstone of loyalty.

That’s why many brands are developing more expansive and individualized loyalty programs that offer more ways to engage with the program, earn and redeem rewards, and build long-term trust. Such programs create a sense of belonging and exclusivity that adds value to the shopping experience and differentiates you from your competitors.

Today, shoppers seek genuine connections, expect personally tailored experiences, and will engage in new and different ways to get them. It’s less about points and spend-based programs and more about human-centered, experiential interactions. Such rewards include things like invites to special events, subscriptions to exclusive brand-centric publications, a special birthday gift, and free services like makeovers or styling appointments. Rather than earning a few dollars off a future purchase, a shopper’s loyalty earns memorable moments.

Your loyalty program should drive engagement across all touchpoints with some unexpected perks. For example:

• Beloved coffee chains offer loyal shoppers a “secret menu” of unique drinks, free birthday beverages, and surprise-and-delight offers on select days.
• Hotel chains make it easy to build and redeem rewards for exclusive perks like early check-in, insider guides to the city, culinary dining experiences, and in-room spa treatments.
• Department stores offer free alterations or gift wrapping and exclusive shopping hours, while online shoppers often receive free, upgraded shipping options and early access to new releases or sales.

These experiential perks cater to personal preferences identified in customer data, allowing program members to choose the experience that is most meaningful to them. When thinking of new ways to reward customers, keep in mind what they want most.

While 64% of customers expect companies to understand their unique needs, the majority still feel like just a number. Thoughtful, personalized retail loyalty programs could be the game changer. People love rewards, but simply offering a loyalty program is not enough. The goal isn't just to get people to sign up, it’s to get them to engage more often with your brand.

Our research has found that close to two-thirds of loyalty members only redeem rewards quarterly or less frequently. Often, this is because programs are hard to use or understand: Consumers told us they would use rewards programs more if retailers automatically applied rewards (61%), made it easier to track rewards (51%), and had simpler terms and conditions (41%).

Additionally, rewards should be personalized and offer some perceived value. Use what you already know about customers – their purchase history, where and when they buy, their birthday, their lifestyle – to send relevant, unique offers and communications when they mean the most.

Today’s loyal shoppers want brands to acknowledge and reward actions beyond a purchase. You can still recognize them for spending with you, but sweeten the pot with rewards for more nuanced levels of engagement.

Research shows shoppers are willing to do things like download an app (64%), check into a store (47%), or write an online review (46%) to earn rewards. And 24% of shoppers will share the brand on social media in exchange for rewards. Consumers who give shoutouts to brands on their personal social media accounts are identifying with and vouching for the brand publicly, helping spread positive word-of-mouth sentiment.

We know people crave more curated experiences, and the majority of shoppers are willing to share personal information like a birthday (70%), phone number (52%), or clothing size (52%) for access to more exclusive benefits. This is a huge opportunity — a brand’s ability to garner zero-party data directly from its consumers can’t be overstated.

First, ask yourself if you would trade your data for the program’s perks. Then be sure the benefits of your program are immediately clear to the customer and your store associates can quickly explain the highlights when they sign up shoppers. Finally, don’t ask consumers to share every detail up front. Ask for the bare minimum of information — just a name and email address, for example — to sign up a new member, then use ongoing engagement to gather more data over time.

People don’t want to read fine print or chase down rewards. If it takes too long to sign up or they need to do math to redeem benefits, they’re likely to walk away. While your program should feel exclusive, make engagement fast and inclusive by using AI to track shoppers across touchpoints. Tracking interactions in real time lets you make rewards available immediately at online checkout or alert in-store associates at the register. You can also trigger outreach to inactive program members with an exclusive offer to renew their interest.

Embedding loyalty throughout the customer experience helps brands make each touchpoint memorable. But traditional loyalty programs have proven challenging to design, execute, and manage because there are so many moving parts: Customers interact with an average of eight channels — including phone, in-person, mobile app, and online chat — as they browse products, seek advice, and make purchases.

That’s where AI can help. When building your loyalty program, predictive AI can analyze your customer data to create segments based on shoppers’ preferences, needs, and values. Then generative AI can find patterns and connections in the data across your organization and make recommendations for the program’s framework as well as offers, rewards, and communications. Best of all, AI can recommend options that create a balance between perks and profitability so both retailers and loyal shoppers win.

Maintaining the program over time becomes easier because you can automate tasks and processes like data collection, reporting, and communication. That means less work for your employees and your program members. Plus, with your customer data and AI, your program will never get stale. Generative AI can suggest ideas for gamification, seasonal treats, one-time offers, or exclusive holiday promotions that build on the success of past promotions and rewards.

While it can be exciting to brainstorm new perks for your AI-powered loyalty program, there are a few foundational considerations to think through first.

More consistent, personalized journeys create happier, more loyal customers. People have come to expect tailored, personally relevant experiences, customized offers, and enhanced service capabilities. But you can’t create truly great experiences unless your data is in good shape. That’s why the first step in launching an AI-powered loyalty experience should be building an effective data strategy.

How? By connecting all customer data across an organization. Unifying your data creates a complete profile of each customer and offers everyone in the company visibility into how they engage with the brand. Loyalty programs round out these profiles by collecting critical zero- and first-party data through ongoing customer engagement. The insights gained help you further personalize every interaction, better customize offers, and create more relevant customer journeys.

Building customer profiles and making that data available across your company in real time means every employee can act on in-the-moment customer behavior. This allows for a much richer, more intimate shopping experience.

These tools also streamline behind-the-scenes activities. For example, systems like email-send engines, demand-side platforms, and content management systems can use real-time data and AI to refine customer segmentation, execute better targeting, and support suppression efforts. This makes your loyalty program more efficient and cost-effective.

Loyalty hinges on trust. Companies must be vigilant in keeping data secure and be straightforward about how they intend to use it. When using AI to personalize your loyalty program, be sure your customer data remains within your organization. It should be maintained and secured in your systems and not flowing into an open AI system used by the general public. This lets you embed trust in the very core of your AI.

There’s a lot to think through when deploying AI, but these considerations are essential to be secure and successful:

• For better output, be sure your AI understands the context around your questions. Include the type, quality, and scope of the data you want it to analyze in your prompt question.
• Protect customer data by automatically detecting and removing personal identification information and payment data from the prompt.
• Be sure the AI’s large language model forgets both the prompt and the output when you’re done.
• Continuously monitor your AI to identify and remove offensive, disrespectful, abusive, or hateful language that could cause it to generate toxic responses and recommendations.

Shoppers are not only more likely to give their data to companies they trust, they are more likely to remain loyal, make additional purchases, and recommend that company to friends and family. A strong, transparent data (and AI) strategy turns loyalty into a key principle running throughout the organization.

In the past, customized loyalty programs required heavy investment and took years to deploy, often resulting in outdated functionality by the time they hit the market. Today you need to act in the moment, pivot quickly, and continue to evolve. You want to see immediate ROI so you can adjust the program as customer preferences and economic conditions change shopping behaviors and consumer expectations.

With AI you can use A/B and multivariate testing to measure the efficiency and impact of new tactics, then tweak or overhaul as necessary. You can see, early on, what’s working and what’s not so you can:

• Identify the program’s most popular features and expand their scope and reach.
• Retire benefits that customers don’t use.
• Discover what is most important to new members, so you can balance engagement with existing and emerging customers.
• Determine the perfect combination of benefits to make customers happy and drive profitability.

Creating meaningful experiences that keep the customer coming back for more is incredibly valuable when you consider that it costs six to seven times more to acquire a new customer than to retain one you already have. Retailers win when they use their own trusted data and AI to offer consumers relevant and personalized offers, service, and communications at every touchpoint of the shopper journey.

When loyalty is done right, it not only solidifies customer relationships, it also improves the bottom line. This is especially important in today’s economic climate. A well-designed loyalty program can provide cost-effective experiential rewards that improve customer satisfaction. The most important question to ask when evaluating your program is, what is the value to our customers and our business?