Loyalty is a measure of how much customers choose and stick with a particular brand over others.
The overall loyalty market is expected to grow from $6.47 billion in 2023 to $28.65 billion by 2030. These programs offer incentives, rewards, and exclusive benefits to foster stronger connections with customers.
However, given the increasing competition and the need for better emotional connections with customers, businesses must revisit their loyalty programs to retain existing customers and also attract new ones.
In this article, I’ll briefly categorize loyalty programs into three types based on their core characteristics. Each type has its own unique impact and plays a crucial role in building brand loyalty. Then I’ll outline how AI can be used to enhance how we have engaged customers.
Types of Loyalty Programs
Loyalty programs can be classified broadly by the type of emotional engagement they generate and the time horizon for that engagement – short or long-term.
There are three key types of loyalty programs:
- Instant gratification
Instant Gratification Loyalty Programs
Instant gratification loyalty programs are the most common and provide immediate rewards to customers for their continued patronage.
Customers receive instant benefits such as points, cash discounts, or small gifts with each purchase. These programs aim to encourage repeat purchases.
Here are some examples:
- Supermarket Loyalty Cards: Most supermarkets today offer loyalty or frequent shopper cards that accumulate points with each purchase. These points can be redeemed for discounts on future grocery bills or holiday giveaways. The aim is to encourage customers to shop more frequently.
- Buy X, Get One Free stamps: Many stores such as coffee shops often use cards where customers receive a stamp for each item they purchase. After collecting a certain number of stamps, they receive a free coffee as a reward, incentivizing them to get to the number X, and then return for more.
The primary criticism of these types of programs is that they make the shopper price-conscious rather than building true brand loyalty. So, brands are trying to link these programs to social and other causes to create a better emotional connection.
Experiential Loyalty Programs
Experiential loyalty programs tend to provide exclusive and memorable experiences to loyal customers. These programs aim to create an emotional connection with the brand and foster long-term loyalty through a better customer experience.
- Hotel Loyalty Program: Hotels may offer loyal customers access to exclusive experiential benefits like free valet parking, preferred room locations, and other local services. By treating their most loyal guests like VIPs, hotels build stronger relationships and encourage repeat bookings.
- VIP Event Passes: Companies organizing events may offer VIP passes to their loyal customers, granting them special access to backstage areas, meet-and-greet sessions with performers, and other unique experiences. A famous example of that is American Express offering early concert tickets to their card members.
Aspirational Loyalty Programs
Aspirational loyalty programs focus on creating a strong emotional connection by helping customers achieve long-term goals or aspirations through their loyalty rewards. These programs often involve making progress toward a significant reward of personal significance.
Here are some examples:
- Airline Miles Program: Airlines offer loyalty programs where customers earn frequent flyer miles with each flight. These miles can be accumulated towards a family vacation, encouraging customers to stay loyal to the airline to accumulate miles for their dream vacations.
- Upromise: This popular program has a network of retailers and other businesses. Customers can accumulate points towards their children’s 529 saving plans. This motivates customers and creates an emotional connection.
AI-Driven Strategies for Loyalty Enhancement
By seamlessly integrating AI into loyalty programs, businesses can create more meaningful and engaging experiences for their customers. Whether it’s through more personalized offers or customized content, AI empowers companies to build strong relationships with their customers.
Here are some ways AI can help loyalty programs.
Personalized Offers and Recommendations
One of the common challenges today is that customer experiences at scale are not truly personalized but are seen as intrusions into their privacy.
Now, by harnessing the power of AI, businesses can analyze vast amounts of customer data to understand individual preferences and behaviors.
Take the example of an online retailer that takes the user’s consent to examine their past purchases and secures first party data on their wish-lists. With this knowledge, the retailer can generate personalized offers such as recommending complementary products or providing discounts on items the customer is likely to be interested in – all based on customer request! That is a big shift in how we have seen promotions and it is made much better with the use of AI.
This level of personalization increases the chances of repeat purchases and fosters loyalty by making customers feel valued and understood.
Content Generation and Customization
Generative AI can be put to work in creating custom content that resonates with each customer in real time.
For instance, a travel company can use AI to develop personalized travel itineraries based on a customer’s interests or searches. Further, these itineraries can be enhanced in real time based on user input on their goals, or what we call zero party data. As a result, the company strengthens its emotional connection with the customer. Customers can clearly see how their travel plans align with their detailed needs. This leads to likelihood of booking, and also increased loyalty due to the higher potential for future bookings and recommendations.
Thus, the emerging field of generative AI makes it much easier to offer tailored experiences like these that align with the customer’s desires. We could extend these use cases to retail, banking, professional services, and so on.
Predictive Analytics for Customer Behavior
Predictive analytics has been used in business for a while. It enables businesses to anticipate customer behavior and needs. It’s not new but emerging technology is making this very powerful.
For example, an e-commerce platform can use AI to predict when a customer is likely to run out of a product they frequently purchase. This kind of analytics is different from the traditional and more popular insight into inventory levels or customer churn analysis. Now, armed with this insight, the platform can offer timely reminders or discounts to encourage the customer to make a repeat and complementary purchases. This enhances overall customer satisfaction, and in turn, loyalty.
Thus AI can help transform the experience we offer to be truly customer centric, rather than simply commerce centric.
Strategic AI Needs Cross Industry Collaboration
As we delve deeper into loyalty analytics and AI enabled solutions, we should also try to elevate our loyalty programs from instant gratification to experiential and and ultimately to aspirational levels.
This is not to say that we should forego a certain type of program. All three types of customer engagement are needed to drive results. For example, instant rewards certainly attract and give the customers a sense of achievement. This combined with the emotional connection fostered by experiential and aspirational programs can lead to deeper and more meaningful relationships with customers.
To enhance the effect of this transformation, we should explore two additional strategies.
Creating Strategic Partnerships
Every business can enhance their loyalty program by forming strategic partnerships with other companies.
For instance, a retail brand could collaborate with a luxury hotel chain to offer exclusive travel experiences to its loyal customers. By tapping into each other’s customer bases, these companies can create unique and compelling loyalty offerings.
Airline programs have done this for a while, and co-branded credit cards are another example of this.
Such partnerships not only add value to the loyalty program but also broaden the scope of customer engagement, encouraging customers to remain loyal to the value proposition that the partnership offers.
Acting on Cross-Industry Customer Journeys
Customers are not just buyers of our products. They have diverse needs and complex personas. They also are frequently engagement with complementary brands.
Therefore, in order to gain a solid understanding of their journeys, we need to look beyond the walls of our own enterprise.
For example, a fitness apparel brand can analyze data to identify customers who are also enthusiastic travelers. With this knowledge, we can can craft not just new ways to get people into our doors, but also create aspirational rewards like fitness retreats in exotic destinations.
Building cross-company or cross-industry customer journeys allows us to combine two distinct areas of interest for our mutual customers.
As a result, we can design loyalty programs that align with customers’ holistic aspirations and desires.
By moving beyond immediate rewards and embracing experiential and aspirational loyalty programs, businesses can nurture deeper emotional connections with their customers.
The synergy between loyalty analytics, AI-driven personalization, and strategic partnerships can elevate customer experiences and create a win-win scenario for both businesses and their loyal patrons.
As businesses adapt to these innovative approaches, they will not only witness increased customer retention and advocacy but also solidify their position as customer-centric industry leaders.