How Digital Technology is Transforming Loyalty in Retail

Loyalty /ˈloi(-ə)l-tē/, noun: the quality of being loyal; a strong feeling of support or allegiance.

Loyalty programs have been around for hundreds of years. The concept dates back to ancient Egypt, where workers were given beer-and-bread “tokens”—similar to loyalty points—in exchange for their labor. Similarly, merchants in the 1800s gave customers copper tokens to encourage repeat visits. Years later, people would cut out “trade marks” from packages and redeem them for merchandise. Then along came checks, certificates, “green stamps”, coupons, and much more, as documented in “The True History of Loyalty Programs,” by Philip Shelper.

In the retail industry, loyalty programs have been tested, trialed, and successfully deployed for many years, and they have taken a variety of forms—from card and point programs to coupons, cashbacks, and more. Now, with the arrival of new technology for managing customer data, understanding shopper behaviors and preferences, and acting on insights, forward-thinking retailers are once again redefining the loyalty program.

Trends in customer loyalty programs

Amazon Web Services (AWS) works with the vast majority of retailers worldwide, and our teams have observed many emerging trends in loyalty programs toward improving customer satisfaction. For example, retailers are using customer data to personalize the loyalty program experience, with special offers, discounts, and rewards tailored to individual shopping habits and preferences.

Recently, loyalty programs have become more digitally integrated, with mobile apps and online channels playing a central role. Technology has helped customers more quickly access their loyalty accounts, check rewards, and make transactions.

Many retailers have adopted tiered loyalty programs that offer different types of rewards based on a customer’s engagement and spending level. Higher tiers typically come with more exclusive perks and benefits. Gamification elements, such as points, badges, and challenges, can make loyalty programs even more engaging and encourage greater participation.

Additionally, a growing number of retailers are experimenting with programs in which customers pay a monthly or annual fee to access premium rewards and benefits. Alongside their benefits to customers, subscriptions are good for retailers because they generate steady revenue streams.

Loyalty programs that emphasize social responsibility and sustainability are also gaining popularity; such initiatives reward customers for making eco-friendly choices. Moreover, retailers can direct their charitable giving based on customer choices.

Data privacy, channel integration, and AI-driven engagement

Data privacy is a top concern for retailers and shoppers alike. With data breaches and other cyberattacks on the rise, retailers are focusing more on compliance with data-protection regulations so that they can keep customer data secure.

More retailers are integrating loyalty programs across channels so that customers can earn and redeem rewards both online and in physical stores. The integration approach enhances the customer experience by harnessing a complete profile of customers and their spending habits to serve their needs.

With a wealth of data to draw upon, it’s no surprise that retailers are turning to artificial intelligence (AI) to analyze customer behavior and predict preferences. Generative AI empowers companies to understand and act on customer data by serving up relevant offers and promotions, thereby strengthening loyalty programs.

Some programs are shifting from traditional discounts to experiential rewards, such as exclusive events, early product access, and personalized shopping experiences. Meanwhile, mobile wallet apps like Apple Wallet and Google Pay make it convenient for customers to access and use their rewards.

To provide more value to customers, retailers are also forming partnerships with other businesses to expand the range of rewards that they can offer. The majority of loyalty programs deliver instant benefits, as customers increasingly expect immediate gratification for their choices and purchases.

Critical success factors

The success of a retail loyalty program depends on factors related to customer engagement, retention, and spending. By keeping the following traits in mind, you can more effectively build loyalty and drive growth:

• Design your program with the customer in mind. Understand your target audience and tailor rewards and offers to their particular interests—what AWS calls “working backwards” from the customer’s needs.
• Offer clear and tangible benefits to shoppers. Whether it’s discounts, rewards, exclusive access, or personalized experiences, your value proposition should be compelling and simple to understand.
• Make the program easy to join and use. Complicated registration processes or confusing rewards structures can discourage participation and make it hard to acquire new members.
• Continuously collect and analyze customer data. Understanding customer behavior helps you offer more relevant rewards. With the explosion of customer data platforms and new AI capabilities, you have a unique opportunity to digitally engage with customers where and when they shop and connect with them across multiple touchpoints.
• Prioritize data privacy in your operations. Comply with all relevant data-protection regulations and communicate your program’s commitment to customer privacy.
• Integrate with both online and offline shopping. Your customers should be able to earn and redeem rewards across a range of channels. To keep them informed in regard to rewards, special offers, and upcoming events, stay in touch regularly through email, text, mobile apps, and other channels.
• Go mobile. If your loyalty program doesn’t have a mobile app or a mobile-friendly website, acquiring and retaining customers will be much more challenging.
• Be transparent. Make sure that your customers understand your program’s terms and conditions, including how rewards are earned and redeemed. Your staff should also fully understand the rules so that they can quickly answer any questions.
• Define key performance indicators. Data such as customer retention rates, average transaction value, and customer lifetime value can help you track your program’s success.

Why do some loyalty programs fail?

While many loyalty programs have been successful, more than a few have failed or underperformed. Here are a few reasons why these initiatives may fall short:

• Lack of clear value for the customer. If your rewards are unattractive, customers are less likely to participate. Also, complicated sign-up processes, confusing rewards structures, and poor integration with the customer experience will often result in low engagement.
• Absence of personalized experiences and rewards. If you don’t effectively use customer data to create attractive offers and rewards, your program may struggle to engage shoppers and drive repeat sales.
• Inconsistent rewards experiences across channels. If the quality and delivery of rewards vary between online and in-store interactions, customers can become frustrated and disengaged.
• High redemption thresholds and oversaturation of loyalty programs. Customers may already be members of multiple programs and may not see the value in yet another one—or may not want to wait to accumulate enough value for their rewards to pay off.

The most successful loyalty programs evolve to meet changing customer needs and market dynamics. Remember to evaluate your programs, gather feedback from customers, and make necessary adjustments to address these challenges.

Want to learn more?

Create meaningful retail customer engagement by using insights to reach, serve, and reward your ideal customers. Check out our digital commerce offerings on the Customer Engagement Solutions on AWS page.