How Innovation Is Reshaping the Digital Loyalty Market

Amazon’s announcement that it would discontinue Whole Foods’ popular in-store loyalty programs as of May 2 left many wondering whether the golden era of retail rewards is over. According to loyalty program expert Dave Andreadakis, chief strategy officer at Kobie Marketing, an industry-wide reinvention is underway as vendors adapt to changes in consumer behavior, but any talk of the end of digital rewards is premature.

Loyalty program memberships in the U.S. reached 3.8 billion last year. While the number of memberships continues to grow, data from the loyalty, customer engagement, and data analytics firm COLLOQUY indicates the market has slowed. Nationwide, loyalty programs saw a 26% growth rate in 2015, compared to just 15% in 2017.

A temporary slowdown in membership growth may be setting the stage for the next big innovation. When modern loyalty programs were introduced in the 1980s, they relied on coupons and paper punch cards. Those paper punch cards gave way to plastic keyfobs and other card-based loyalty programs in the 1990s, and by the 2000s, retailers were scanning shoppers’ smartphones to log points.

Andreadakis believes that the next step in retail loyalty will involve blockchain as an implementation technology. Blockchain would offer greater security for consumers’ data, and it would make it easier for marketers to identify and mitigate fraud and abuse.

“It’s important not to confuse blockchain technology with the use of cryptocurrencies like Bitcoin,” Andreadakis says.

Blockchain allows for a ledger of transactions to be shared across a network of participants, with a unique algorithm created and assigned to each digital transaction. For loyalty programs using blockchain technology, this would mean that an algorithm-generated token would be created each time a loyalty point was issued or redeemed. The process creates a secure and verifiable record of transactions without requiring intermediaries. With blockchain technology in place, consumers would be able to redeem multiple loyalty point “currencies” on a single platform, with a single wallet for all of their points, rather than dozens of retailer-specific mobile apps.

“Some people are speculating about the potential of a universal loyalty currency managed by blockchain technology,” Andreadakis says. “But that could be a scary move for loyalty marketers; if consumers could spend their loyalty currency with a competitive brand, it would be detrimental to individual brand loyalty.”

Andreadakis isn’t the only industry expert making this prediction. A recent analysis from Deloitte found that customer loyalty programs are not reaching their full potential because of low customer retention and redemption rates, and blockchain technology could reduce system management costs and decrease friction by centralizing each customer’s programs.

Of course, change is coming to the loyalty industry with or without blockchain. New channels, new competitors, and new business models are driving forces in the disruption already taking place behind the scenes. Andreadakis says vendors have become much better at adapting quickly to changes in customer behavior. He also sees the development of programs that engage the customer deeply in the brand experience as a strong industry-wide trend.

“Loyalty efforts today are about much more than just points and rewards,” he says. “Finally, smart businesses have come to realize that loyalty isn’t a program; to succeed, loyalty needs to be a business strategy throughout the enterprise.”

Looking forward, Andreadakis sees loyalty programs continuing to place a greater emphasis on the customer journey. He predicts that we’ll see more quick-service restaurants offer mobile ordering, retailers offer exclusive perks, and financial services firms offer greater rewards for loyalty members.

“Today’s consumers still value price, quality, and convenience over all else, but with those being equal, consumers want to shop with brands they feel loyal to,” Andreadakis says. “The best way to do that is to create memorable experiences, make customers feel important, and solve their pain points before they recognize them as problems.”

Stephanie Miles is a senior editor at Street Fight.