How Businesses Can Rethink Their Rewards Programs in the Age of Inflation

Loyalty programs greet us at every turn, from online and in-store retail to delivery apps and services, restaurants and even the credit cards we use to make purchases. It’s quite possible to participate in several programs every time we spend money. They play a role in attracting new customers but primarily seek to hook in return shoppers. These programs have become much more sophisticated and effective as mobile technology, the power of data analytics and the digitalization of commerce have given immense insight into consumer needs and desires. Being able to tap into these insights to deliver personalized offerings is key to meeting consumer expectations, as a recent PwC survey found 82% of respondents are willing to share personal information for improved experiences. Historically, loyalty programs have been simple incentives of reciprocity—buy one, get one free, earn currency for using a specific payment type. However, loyalty is also an opportunity for a brand to create an impression and tell its story to customers. We are in the midst of a tectonic market shift, where the loyalty industry has a tremendous opportunity to reinvent itself and continue to influence consumer behavior while increasing brand awareness. While economic headwinds may make businesses reevaluate the return on investment of their loyalty programs, investing in them can level up sales despite macro trends in the market. Loyalty Programs Could Be the Golden Ticket for Brands in a Down Economy Engaging through loyalty Inflation remains high across the U.S. and the rest of the world, and we’re already seeing headlines about businesses modifying their loyalty programs to save money or invest it elsewhere. It’s common to see loyalty programs follow what’s happening in the economy: When times are hard, businesses, like consumers, tighten their belts where they can. However, this is precisely the moment when businesses should think carefully about the true value of their rewards program—just as customers are looking to stretch their dollars more than ever, the companies that can help them do that stand to grow their share of spend with that customer. This is perfect timing to focus on new customer acquisition using loyalty tools. Rather than scaling back or sunsetting a loyalty program, businesses should evaluate new models for loyalty. Engagement does not have to be a cash-back or points-based scheme and deliver monetary, tangible value for every engagement. Instead, providing financial literacy or convenience can be enough to keep customers engaged with your brand. Spending that money to create unique experiences or special early access events for loyalty members will only build buzz and brand reputation and attract new consumers. Henry Ford once said, “Stopping advertising to save money is like stopping your watch to save time.” Investing your precious advertising funds wisely is key. Savvy shoppers yearn for next-level loyalty With the wealth of data now available to retailers, restaurateurs and credit card companies, coupled with advancements in the digitalization of financial services, now is the time to rethink loyalty. These tools make it easier than ever for business owners and managers to create highly specific, targeted and customized rewards programs, which capitalize on a new, uber-savvy class of consumers. Where classic incentives, like a fifth cup of coffee for free, can still work, there's an opportunity to reimagine programs that surprise and delight customers who were already going to buy a fifth, sixth or 100th cup. For example, by creating a rotating list of different engagements throughout the week, the rewards can stay fresh and surprising to new customers and loyal patrons alike. By creating a constant feedback loop for customers to engage and promote their experience with brands using different social media and marketing tactics, brands can create a community of followers that can strongly influence brand awareness. For card issuers, innovation in loyalty programs will mean using transaction data more effectively to understand consumer behaviors and create specific offers for customers to meet their financial needs. For financial institutions, successful loyalty programs can build trust and long-term customer relationships by providing “payment holidays” for loyal customers to help them manage a significant financial burden that may arise. This natural evolution of loyalty will generate more personalized rewards based on meaningful customer data insights. Focusing on holistic customer relationships with emphasis on emotional versus transactional loyalty is the new frontier for organizations, especially financial institutions as they navigate the rise of competition from fin-tech firms and increased deposit outflow. Technology continues to reshape loyalty Through the use of advanced apps on their smartphones, today’s consumer has a new level of consciousness about their spending—how much, where and when. With this savviness, loyalty programs must meet their expectations, or they will never be used. While cash back and points are always fan favorites, breakthrough innovations in embedded finance technology have given customers new ways to use and spend reward points. Embedded finance is when consumers have unique, tailored financial service experiences delivered to them at the point of need by non-financial companies. Most commonly, consumers encounter these new financial service experiences in the form of in-app payments, like on social media platforms where a purchase is completed without leaving the platform. Through embedded finance technology, consumers can now donate loyalty points to a charitable cause at the point of sale, invest them in stocks and shares, or even use them to buy cryptocurrency. The recent emergence of generative AI also brings a new set of tools and technologies with the potential to usher in a new wave of growth and savings, as well as some risk along the way. Niantic’s New Ad Format Uses Augmented Reality to Reward Mobile Users Building relationships with consumers with loyalty In the near future, loyalty programs will further revolve around consumer habits and desires—accounting for behaviors, habits, interests and even financial goals—as opposed to leading with wide-net benefits for everyone. More holistic, relationship-based models that reward consumer behaviors outside of transactional spend can deepen engagement and make a loyalty program feel like a real connection between people and their favorite businesses. While personalization is the Holy Grail in the quest to create next-gen loyalty solutions, many of the necessary tools already exist to target audiences more accurately. Adopting technology that can enable a more sophisticated and customer-centric approach to loyalty will allow retailers and financial institutions to create, build and retain stronger relationships with consumers, especially as competition for consumer dollars heats up amid economic uncertainty.