The Future of LoyaltySmartphone savvyExperiences over pointsGame onPredictive and personalizedFlexibility rather than rules Paying for the privilegeYoyo WalletInstead, enlightened retailers are employing digital innovation to modernize their loyalty programs. Strategies include using artificial intelligence (AI) to tailor the rewards offered to customers; getting creative with rewards, from offering one-of-a-kind experiences to partnerships with other retailers and businesses; turning to games to engage consumers in loyalty programs; and employing new tech such as blockchain to bring diversity and security to loyalty systems. According to research by IRI Worldwide, in 2017 74% of consumers chose a store based on a strong loyalty or discount program. This holds true across the generationsaccording to the same research, 79% of millennials and generation Xers want a “strong loyalty or discount program,” as do 74% of baby boomers. But the rules of the game are changing. In early 2018, British supermarket chain Tesco caused a Loyalty programs are undergoing something of a revolution. For many retailers and customers these are no longer about complex, old-fashioned points and rewards systems, one-size-fits-all incentives, or collecting paper coupons.THE FUTURE OF LOYALTY 2INTRODUCTIONTesco Clubcardconsumer outcry when it announced changes to its Clubcard loyalty program, which the retailer has run since 1995. The supermarket said that it wanted to “simplify” its Clubcard system, by making all the points customers can redeem with its partner retailers worth three times their value; previously, some had been worth four times the value, and some twice the value. When consumers protested, Tesco postponed the changes until later in 2018. UK supermarket chain Waitrose said in February 2018 that it would do away with its “pick your own” offers, which had enabled its MyWaitrose loyalty card holders to receive 20% off 10 chosen products that they bought regularly. Instead, the retailer says it will provide “personalized offers.” According to Deloittes July 2017 Consumer Review, traditional loyalty programs have become “expensive to run and difficult to unwind.” The consultancy notes that “traditional, financially driven loyalty schemes can become a liability for businesses.” Bryan Roberts, insights director at loyalty marketing company TCC Global, says that “particularly when margins are so wafer-thin, retailers, I think, are looking to try and minimize the cost of the rewards theyre giving to shoppers. And weve seen that a number of retailers have dialled back some of the regular rewards theyve been giving out.” In sectors such as airline travel and hotel bookings, many customers are entirely motivated by loyalty and are 74% of consumers chose a store based on a strong loyalty or discount programTHE FUTURE OF LOYALTY 3INTRODUCTIONTesco supermarketdriven to maximize the points and miles they can earn to pay for future trips. The Points Guy, for example, which focuses on travel, flight and card deals, has evolved from a blog into a news and reviews website that attracts five million unique visitors a month. Brian Kelly, the sites founder, told UK Business Insider in March 2018 that “the rush you get from your first redemption will drive you for the rest of your life,” indicating just how important points can be to consumers. The loyalty issue is complicated, however, by consumer wariness over how their data is used by businesses. According to 2017 research by Baringa, companies that suffer a data breach risk losing 55% of their customers. That effect has already been seen in the fallout from the Cambridge Analytica Facebook data breach scandalFacebook reportedly suffered a 28-point drop in consumer favorability from October 2017 to March 2018, according to an Axios poll. The General Data Protection Regulation (GDPR) legislation due to come into force in Europe in May 2018 to protect the data privacy of individuals further highlights concerns about data use. But despite the possible pitfalls, cultivating loyalty among consumers is undoubtedly critical to businessesnot only to retain customers, but also for the insight about those customers that loyalty data gives retailers. Roberts at TCC Global points out how Tesco has used loyalty data to drive its business. Tesco, he says, uses the Companies that suffer a data breach risk losing 55% of their customersTHE FUTURE OF LOYALTY 4INTRODUCTIONdata “to great effect in terms of the assortment it puts into stores.” The companys loyalty scheme, he observes, gives Tesco “huge, granular understanding” of what “different groups of shoppers actually want in terms of range and service.” According to Roberts, the key concept is “emotional” loyalty, rather than “transactional” loyalty. “We get bombarded with so many commercial messages and discounts and coupons and vouchers, so much is about the transactional stuffits about price, or its about location, its about product,” says Roberts, whose firm has implemented in-store loyalty schemes for retailers such as Lidl and Co-op in Europe. He adds that, when shoppers are asked about what drives emotional loyalty, they respond that the two big drivers are “the in-store experienceis it nice, is it better, is it friendlier? And how much the retailer cares. Not just about the individuals as shoppers, but also do they care about healthy eating, do they care about the environment, do they care about suppliers, about employees? So there is a real emotional driver to loyalty.” Here, we look at how to navigate the loyalty maze and point up the businesses already showing the way forward. The key concept is “emotional“ loyaltyTHE FUTURE OF LOYALTY 5INTRODUCTIONStarbucks RewardsSmartphone savvy“Its the final stages of loyalty cards, but not of loyalty schemes,” Martin Lewis, founder of the Money Saving Expert website, told the BBC in January 2018. “The idea that its a piece of plastic, and that you get points back and vouchers, is going to go.”Instead, the smartphone is rapidly becoming the focal point of retailers loyalty programs. Starbucks says that in the first quarter of 2018, active membership in its Starbucks Rewards program in the United States grew 11% over the previous year to 14.2 million, with member spend representing 37% of US company-operated sales. Many customers use the reward system via a mobile app on their smartphone, which allows them to order and pay for coffee before arriving at the store. Starbucks notes that its Mobile Order and Pay represents 11% of all its US company-operated transactions.Writing on Forbes, customer service expert Shep Hyken notes that what sets the Starbucks rewards program and app apart is that customers can stream music using the app and redeem their rewards in real time, alongside the convenience of ordering and paying ahead of time. “The app reinforces the Starbucks brand as a lifestyle enhancement,” says Hyken. Stocard is also making the smartphone central to the loyalty experience. This mobile wallet system, which has 15 million The evolution of loyaltyTHE FUTURE OF LOYALTYTHE EVOLUTION OF LOYALTY 6Starbucks Rewardsregistered users, allows customers to put all their loyalty cards in one place on their smartphone. Stocard says that it uses geolocation to send push messages to customers when they might be near a store for which they hold a loyalty card, helping to drive footfall into those stores. The Yoyo mobile wallet, which launched in Europe in 2013, also combines mobile payments with a loyalty program. Its mobile app technology combines secure contactless payments with automated loyalty points and digital receipt collection. Yoyo also rewards users with its own points system. Yoyo can work with retailers to build their own branded app or power their existing app, or they can join the Yoyo app. The smart-phone is rapidly becoming the focal point of retailers loyalty programs. THE FUTURE OF LOYALTYTHE EVOLUTION OF LOYALTY 7Yoyo WalletReferring to a payment and loyalty app for British coffee chain Caffè Nero, Yoyo says that 90% of the transactions that take place via the app are processed in under two seconds, and it is projected to attract 200,000 active users. The app also pushes particular offers to customers depending on their past purchases. “What were trying to do is get closer to the customer and build better, longer-term relationships,” says James Flett, partnerships manager at Caffè Nero, in a film on Yoyos site. “The only way we can do that as a brand is to actually connect with that customer and recognize them at the point of sale. Brands who dont do that and continue to treat their customers anonymously. will unfortunately fall behind.” In 2017, the digitalization and investment arm of German wholesaler Metro led a £12 million Series B round of investment into Yoyo. According to Hansjörg Sage, general manager at the digital unit of Metro, “with its strong track record of deploying digital technology at the customer interface, Yoyos solution can have a meaningful, positive impact on a wide spectrum of retail businesses, in particular in the food and beverage segment.”90% of transactions via the app are processed in under two seconds THE FUTURE OF LOYALTYTHE EVOLUTION OF LOYALTY 8Marriott's activations at CoachellaExperiences over pointsMillennial customers are known for being motivated by the prospect of one-off experiences. According to 2017 research from Eventbrite, 75% of millennials value experiences over things. Businesses are responding by innovating in terms of the loyalty rewards theyre offering, especially to younger consumers. In 2017, Marriott International created an immersive experience at the Coachella festival in Palm Springs, installing eight luxurious safari tents in the festivals groundseach “designed to embody the ethos of Marriotts lifestyle brands,” according to the company. Members of the Marriott Rewards loyalty program could use their points to bid to sleep in the tents, one of which THE FUTURE OF LOYALTYTHE EVOLUTION OF LOYALTY 9Marriott's activations at CoachellaTHE FUTURE OF LOYALTYTHE EVOLUTION OF LOYALTY 10