The Loyalty Industry is Big

The Customer Ecosystem 2019²

...and it's only getting bigger

Not only is the industry big, it’s also growing. There’s growth in Asia-Pacific, with China, India and southwest Asia dialing up their digital platforms. There is also growth in existing programs. In fact, 69% of C-Suite executives in our research reported that their loyalty investments have grown in the past two years, and over half (55%) report that their investments will continue to grow in the next two years.

Amazon Prime is already a behemoth at more than 100M members, with Citi analysts projecting it to grow to 275M members in the next decade.³ Alibaba’s 88 VIP loyalty program is targeting an even larger base in China. But even without considering the scale of a platform play, there are strong retail programs like DSW Rewards with 28M members that drive 90% of sales despite heavy competition from online disruptors.⁴

We asked Aaron:

Is this consistent with your independent findings?

The studies we see suggest that this market is experiencing low double-digit year-over-year growth in the 10-15% range. We believe it will continue at this pace as a greater number of less traditional verticals embrace customer engagement and loyalty programs, such as convenience store retail, government, transportation, e-commerce and co-sharing service verticals.

Aaron Dauphinee

Chief Operating Officer, Wise Marketer Group

Three Key Growth Drivers:

1. Organic Growth

Reasons why companies increased loyalty investment in the past two years:

(42%) Program membership showed growth
(36%) In order to make technical improvements
(35%) Strong program performance supported case for increased investment
(34%)
Leadership placing more strategic importance on loyalty programs /
Strong performance from competitors
(33%)
To increase acquisition efforts through loyalty program /
New competitors in market
(30%) Need to increase value provided to loyalty members

This last stat is the most surprising. Only 30% of companies are increasing their investment with an eye to create more customer value. The fact is, many loyalty operators benchmark against the competition and take their lead from market forces, not realizing that demand is being shaped by their customer. While the tools for uncovering customer needs and identifying potential exist in the data that loyalty programs collect, few are digging in and realizing the benefits.

Question 1

To invest or not? Let us know if you plan on changing your investment in your loyalty program:

I plan to increase my investment I plan to decrease my investment I don’t plan on changing my investment

You chose:

Store and real-estate planning

Our clients have seen a 1-4% increase in sales when they leveraged their loyalty data across pricing, promotions, assortment, and marketing.

2. Data Value Driven Growth

The intrinsic – and often overlooked – value of loyalty data

While there are new and inventive means to identify customers, especially in digital channels, loyalty programs are still the easiest and most effective system for registering customers, delivering opt-in communications and tracking behavior across channels in real-time. Across 25 years of running our loyalty program consulting practice, we see program customer penetration typically exceeding 50% of a company’s base, and sales penetration rates as high as 70-95%, especially in high-frequency categories like grocery. With digital customer engagement still catching up, loyalty programs capture the lion’s share of identified offline and online customer spending. The data from loyalty initiatives is collected and analyzed by marketing, but increasingly, companies are recognizing the value of using customer data for product development, customer insight, pricing, promotional optimization, merchandising, store and real-estate planning, yield management and a host of other operational uses. Jim Donald, former CEO of Albertsons, recently reported at Shoptalk that they send 20B personalized coupons per week!

Here are key stats we uncovered about loyalty data usage:

Loyalty data is primarily being used to optimize member experience (87%), followed by measurement/forecasting (60%) and marketing (48%).

Over half of companies (61%) use loyalty data across at least three different departments in their organization.

Only 2% of practitioners reported that loyalty data is only used by traditional departments like marketing, PR and communications.

3. New Player Growth

There are new kids on the block who see the value in loyalty and are getting in on the action:

New entrant examples:

Internet of Things (IoT), in particular smart home devices
consumer packaged goods (CPG)
health, insurance and government

Digital disrupter examples:

Uber
Lyft
Amazon Moments

We asked Chris and Aaron:

Who are the new entrants, and why?

Loyalty is no longer just frequent flyer programs and hotel rewards programs. Amazon Prime, Costco memberships and others have extended customers’ willingness to loyally attach themselves to certain brands. Customers will always pay for value. The economics of that (when customers are willing to do it) are phenomenal, so it is no surprise that other sectors would try to copy this.

Chris Walton

Former VP, Target Store of the Future

The fundamental principles of loyalty and their importance are experiencing a resurgence of focus in traditional sectors. This is due in part to the emergence of change agents and disruptors within those industries, but also competitive pressures both from within the industry and from encroaching new sectors. We also see growth emerging from new engagement models out of the co-sharing services sector, whether it is for automotive, hospitality, parking, cycling or other. These businesses are shortening the adoption cycle for introducing customer programs to their communities or they are more often launching their businesses embedding loyalty as a cornerstone benefit from the onset.