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Loyalty Marketing 3.0: Transformative Ideas Defining NextGen Loyalty Programs

Wrtten by Chitra Iyer

A tour of next-gen loyalty programs, such as subscriptions, experiential rewards, gamification & more.

The Gist

Loyalty programs need an overhaul. Customers and technology have evolved so much that loyalty programs need to make a transformative leap to keep up.
It’s not about more points. Think subscriptions, experiences, collaboration and the metaverse instead.
But there’s a twist. Customers expect “brand loyalty” as much as brands want “customer loyalty.” Can next-gen loyalty programs deliver that balance?

Loyalty programs are a proven way to drive retention and boost customer lifetime value (CLV). Even in 2023, despite digital-age distractions, the lifetime value (LTV) of loyalty program members is still 6.3 times more than other customers.

But next-gen loyalty programs look nothing like the tier-based plastic cards and reward statements of yore. Both customers and technology have evolved so much that the design, deliver and rewards of loyalty programs are primed for a complete overhaul.

As a result, not only do 68% of businesses plan to increase their investment in retention, but 70% of loyalty program owners also plan a major revamp of their loyalty programs in 2023.

What direction will those revamps and overhauls take? Loyalty experts Paula Thomas, aka the “Oprah of Loyalty” and host of the “LetsTalkLoyalty” podcast, and Julio Lopez, senior director of strategy, retail practice lead of Movable Ink, a content personalization provider, weighed in.

Here are the eight exciting areas that emerged.

1. Subscription-Based Loyalty Programs

Members of paid loyalty programs are 60% more likely to spend more on the brand after subscribing while free loyalty programs only increase that likelihood by 30%.

Subscription-based loyalty programs are a huge trend, said Thomas. For instance, Panera Bread in the US, which chose subscription over a point or tier-based program, has seen incredible success with MyPanera, it’s $8.99 per month unlimited coffee subscription. The program is one of the largest in the US, with a 45-million-strong subscriber base, and has increased member store visits from an average of 4 to 10 per month, as well as the “attachment sale” of food products.

Younger consumers value convenience and prefer to pay for services on a recurring basis in exchange for an elevated experience and a deeper value exchange between the brand and the customer, said Lopez. The key to getting subscription-based loyalty programs right is the pricing model and providing ongoing and differentiated value in the form of new benefits, experiences or partner rewards.

2. ‘Experiential Loyalty Programs’ for Distinct ‘Member Experiences’

Experience economy expert Max Lenderman calls “member experience” (MX) a “fundamental disruptive force” shaping loyalty because it brings customer experience (CX) and loyalty together to create new value.

Traditional transaction-based loyalty programs incentivize customers with discounts, points or other vanilla rewards, he said. Experiential loyalty programs use engagement, exclusivity, access and community-led experiences to build an emotional connection.

Customers spend more to earn exclusive experiences rather than to earn more points.

For example, instead of the standard earn-and-burn, a sports store can give customers free pro lessons or game tickets, or a clothing brand can offer members exclusive in-store showings or style consults.

A Motista study found that customers with a higher brand affinity or emotional connection with the brand spend up to two times or more, have a 306% higher lifetime value, stay with a brand for an average of 5.1 years versus. 3.4 years, and recommend brands at much higher rates: 30.2% versus 7.6%.

As a result, 65.2% of companies with a loyalty program plan to add experiential rewards to their offering because of the exponentially higher ROI of experience-based loyalty, and 77% plan to reward nontransactional behavior.

3. Gamified Experiences

While gamification has been around for a while (and has not had spectacular results), new-age loyalty programs are making games customer-centric rather than putting customers on a hamster wheel of chasing rewards that glorify the brand.

Lopez said incorporating game-like elements can include badges, levels and rewards for completing certain actions or reaching certain milestones — but they don’t necessarily have to be milestones related to spending. The gamified execution makes the experience fun and engaging, not transactional.

One legacy brand that has totally modernized its loyalty proposition to include gamification as a core mechanic is Kentucky Fried Chicken in the UK and Ireland markets. The “Rewards Arcade” program, which replaced the outdated Colonel Club program, plays on the nostalgia and history of arcade games in the UK, said Thomas, and allows KFC a way to celebrate the fun factor and engage diners with a fabulous range of games over time.

4. Demographic Trends Impacting Loyalty Program Design

With age as the demographic, baby boomers were ideal loyalty program customers. But with each generation, notions of loyalty are declining. Only 37% of Gen Zers are ‘loyalists’, i.e., bought a product from the same brand they were considering at the start of the shopping journey, compared to 56% of boomers.

Loyalty programs for younger shoppers need to deliver flawless, friction-free, omnichannel execution of the program both online and in-store and across social media, partner sites and possibly the metaverse.