As loyalty programs become increasingly widespread, businesses are beginning to understand that consumer loyalty isn’t always driven by a deep affinity for the products themselves. Instead, loyalty has become a marketable asset—something that can be cultivated through incentives and experiences.
In the prepaid card space, where loyalty is a critical driver of growth, gift cards have proven to be a powerful entry point. In fact, research shows that nearly a third of consumers who receive a gift card from their employer as an incentive go on to sign up for that company’s loyalty rewards program.
“It goes from ‘Hey, my employer cares about me,’ to ‘Now I’m choosing a new company that also cares about me,” said Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research. “It’s all about each of these little steps that make the consumer feel better about the different organizations in that chain. They’re more loyal to their employees, and then they’re more loyal to the brand that they’ve been rewarded with.”
Loyalty programs are everywhere these days, from local grocery stores to airlines. But their evolution is far from over. Technology continues to transform these programs, making them more personalized in ways that don’t feel overtly driven by machine learning.
“One vision we have is to create the concept of dynamic rewards, which allows our issuers to have more flexibility in differentiating rewards based on the individual,” said Rahul Shah, Chief Product and Engineering Officer at Marqeta.
And it’s moving beyond just rewards points. The next wave of loyalty could mean a hotel room automatically adjusting to a guest’s preferred temperature upon arrival, or Starbucks preparing a latte—just the way someone likes it—the moment they walk through the door.
Key Industries
Evolving for a New Generation
Most people first encountered loyalty programs in the travel industry. Ever since American Airlines launched AAdvantage in the 1980s, airlines and hotel chains have offered frequent users points toward free rides, stays, and other perks. But the industry has become so saturated that further growth may be difficult.
“They can’t hyper-grow anymore,” said Hirschfield. “There’s a finite amount of travel that people can do. For hotels and airlines, that’s going to limit their potential growth. They’re the masters of the programs, but at the same time, they’ve already captured so much of their audience. The challenge for these industries will be ensuring that their offerings are relevant to the behaviors of newer generations that are just getting to the point where they have significant disposable income.”
Marriott’s Bonvoy, in some ways the paragon of hotel rewards programs, has long had a strong market across different categories that cater to baby boomers and Gen X consumers. But can it do the same with Gen Z and Gen Alpha? Doing so will require staying relevant to its core customers while adapting its programs to meet the needs of younger generations, who have already demonstrated very different spending habits.
Extra Convenience
One industry that still appears to have plenty of room for growth is convenience stores and gas stations. As their services expand—and with many locations now incorporating retail outlets—the opportunities for loyalty programs are opening up.
“Gas stations have been very late to the game on the loyalty play,” Hirschfield said. “It’s no longer a mom and pop operating an Amoco station the way it used to be. These are corporate functions with big convenience store businesses that are essentially small, quick serve restaurants themselves. That’s where their money comes in.”
Take the example of QuikTrip, a chain with more than 1,000 convenience stores, primarily located in the southern U.S. The stores encourage customers to pay through the QuikTrip app, which can be directly linked to a shopper’s bank account. This significantly reduces the interchange and transaction fees the stores incur.
As an incentive, drivers can receive a sizable discount of 25 cents per gallon of gasoline.
“I’m going to go out of my way to go to QuikTrip for 25 cents a gallon,” Hirschfield said. “I don’t think I would for five cents a gallon.”
Going to the Show
Another industry that underuses loyalty programs is arenas that host concerts and sporting events. These venues already offer a form of loyalty program through season tickets for their most loyal patrons. However, the benefits are often limited to sitting in the same seat for each event.
The amount of money people spend at these venues creates opportunities for more diverse and meaningful rewards. For example, a basketball fan might value close parking privileges, while another might prefer discounts on concessions or merchandise. With so many different vendors operating within a single arena, it’s a challenging but potentially lucrative market to tap into.
“A few teams are starting to have a better digital experience, including a loyalty program and a stored value wallet,” said Hirschfield. “To spend your money, you have to load it in advance, and maybe you get rewarded for that.”
Loyalty to the Neighborhood Store
Small and medium-sized enterprises generally need help offering loyalty programs. These businesses used to rely on simple systems like punch cards—buy ten sandwiches, get one free. A mom-and-pop restaurant or retail store cannot run a full-fledged loyalty program on its own, but many already have tools that can help them get started.
Even without the economies of scale that large corporations enjoy, these smaller establishments still have access to cookie-cutter loyalty programs delivered through their point-of-sale systems. The POS system collects a great deal of consumer data. It’s easy to envision a loyalty program offered as an off-the-shelf product, supported by the infrastructure they’re already using.
“They really have to harvest the data, and some companies are already doing it,” said Brian Riley, Director of Credit at Javelin Strategy & Research. “There’s a high-end clothing store in Atlanta that has done it right. I got an introductory 15% off when I joined, and they follow that up with constant offers. It’s an automated process that works.”
Hirschfield added: “That’s a really big underserved market for loyalty because it’s by nature absolutely, emotionally tied to loyal behavior. Those are the people sponsoring your Little League teams and your school plays. They need to be able to add loyalty on top of that.”
Making Each Customer Special
Personalized Rewards
If there’s one overriding trend in loyalty programs, it’s toward greater personalization. The more personalized the rewards become, the more the customer feels like a valued individual and less like an anonymous source of revenue. Starbucks is one corporation that has done a great job of engendering loyalty among its patrons by keeping things personal.
“It always starts with the product itself,” said Marqeta’s Shah. “That’s step one in the context of providing a good customer experience. On top of that they have an amazing app, which makes it extremely easy for consumers like us to be able to access their product. But even the small things, like writing names on the cups, make the experience more fulfilling for the consumer.”
Loyalty programs collect so much information about their customers that the opportunity exists to present truly personal rewards.
“When a retailer presents an offer to redeem your points for a favorite item, it makes them seem like they’re they care about you,” said Hirschfield. “Even if what it really means is that they take notice of the data you provide them.”
In the realm of gift cards, we’re beginning to see options for buyers to personalize their cards—whether with specific styles, colors, and fonts, or even custom verbiage on the cards.
“A card’s going to be a card, regardless of what you put on the front of that plastic or metal,” said Shah. “It speaks to the fact that consumers are looking for a non-generic experience that allows them to express themselves better.”
The irony is that improved technology is essential for providing people with experiences that make them feel valued. “We are in the people business more than anything else,” said Shah. “You can’t lose sight of that. I have seen a tremendous shift over the last several decades in how technology is disrupting the traditional experiences to offer more in hyper-personalization. That is at the core of where we want to take the market.”
Going Beyond Money
There have also been several recent initiatives to move beyond cash rewards or points and use loyalty programs simply to enhance the user’s experience with a product. For example, members of Delta’s Sky Miles program can watch the first part of a movie on an outbound flight. Then, when they board their return flight, they can log back on and have the movie pick up right where it left off.
“Target also does a great job with this,” said Hirschfield. “If I’m looking for dishwasher detergent, I can open the app and it will literally pinpoint it to the shelf. It’s a personal experience for me because the app has taught me where to go in an unfamiliar store, and then I get my rewards from it. That makes me feel like the app is worth my time.
“If it’s just an app you can scan, but it does nothing else, you will get left behind. But if you make the app worth someone’s time and make it an experience into itself, that engenders more loyalty.”
The Technology Driving Loyalty
Get the App
The technological future of loyalty programs lies in the apps download onto customers’ mobile phones. Target, Starbucks, and Dunkin have all moved the most important features of their loyalty programs to their apps.
The practical benefits for retailers are easy to see. Customers who pay through an app provide a great deal of valuable data to the retailer.
“When you scan your app at McDonald’s, they’ve connected your purchase to your behavior,” said Hirschfield. “If you don’t scan your app, it’s an anonymous purchase. Your credit or debit card issuer might know that you bought something at McDonald’s, but they won’t know what you bought. But now McDonald’s will know how you paid and what you bought, so they can then tailor your next experience.”
The Promise of AI
Artificial intelligence has the potential to unlock loyalty programs in several ways. The merchant can analyze a consumer’s purchase behavior and then tailor promotions that align with that individual’s actions, requiring minimal human intervention.
When a credit card company and airline collaborate, both parties have insight into the consumer’s travel plans and preferences. For example, if a cruise is booked, the program might offer ancillary promotions that benefit the cruise experience while also encouraging loyalty to the credit card brand, the airline, and the cruise line.
“The more specific data we have, the more we can create personalized rewards,” said Shah. “Suppose I like sports activities, and you like music activities. If a program wants to increase your spend with them, they might be able to offer you a reward that says, ‘Hey, if you want to spend on this concert, you’ll get more loyalty points.’ If I want to spend more on sports programs. I might get more loyalty points.
“Right now, there’s no infrastructure that thinks about that and allows that differentiation. We want to move towards a world where the more we understand what people want, the more we are able to help our customers.”
The Challenge of Biometrics
Biometrics also shows great promise for enhancing loyalty programs, allowing merchants to recognize consumers without the need for physical credentials.
“The fact that biometric is a digital recognition means that it enables customized loyalty in a way that a previous generation of programs simply didn’t,” said Christopher Miller, Lead Analyst of Emerging Payments at Javelin Strategy & Research. “It is not that much different than handing everybody a little plastic card that you would scan when you checked out, but you identified them with the card at the end of their experience, not at the beginning of their experience.”
While the technology is evolving and widespread adoption may take time, its potential to create a seamless experience is compelling.
“It’s not that people are worried that the technology won’t recognize your face,” Miller said. “It is the operational side. If you switch to a system that is primarily facial recognition based, what happens when the power goes out? What happens when the reader in a particular area stops working? What happens when the sun shines in such a way that it the glare renders one of the cameras useless? It’s the difference between ‘This works’ and ‘This works at scale.’”
If successful, biometrics could tailor loyalty interactions every time a customer enters a store—rewarding them in ways that feel individualized and meaningful. This level of personalization fosters deeper loyalty, especially when consumers feel acknowledged and appreciated.
“It shouldn’t be out of the ordinary to walk into a Starbucks, and they just start making your drink based on your facial recognition,” said Hirschfield. “It’s just like on ‘Cheers’: Norm walks in the bar and Sam starts pouring the beer. There’s no ask.”
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