As the ‘Big Data’ era has progressed, tracking individual consumer purchases over long periods has become more feasible for retailers. In fact, it’s not unfeasible that future generations will have a digital record of every transaction they’ve ever been involved in.
On top of this, advances in data collection and predictive analytics, along with the mainstreaming of technologies such as consumer data platforms (CDPs), have ‘disrupted’ the application of customer lifetime value (CLV). Artificial intelligence and machine learning (AI/ML), in particular, have impacted how today’s businesses prioritise, calculate and seek to leverage CLV.
AI-driven loyalty platforms giving retailers winning results
As an example, Wendy’s recently launched an ‘AI-Driven Loyalty Platform to Deliver Customised Rewards’.
Wendy’s has started using AI to analyse data such as a customer’s purchase history to create ‘bespoke’ incentives that will, all going well, resonate more strongly than off-the-shelf rewards. That will presumably mean, for example, the Wendy’s customer who buys a coffee on their way to work will be offered a different reward to one who semi-regularly stops in to buy a hamburger for lunch.
Jean-Matthieu Schertzer, Eagle Eye Group‘s first chief AI officer, went straight to AI-enabled ‘mass personalisation’ when asked to comment on Wendy’s initiative. He noted, “Consumers understand that loyalty programs reward them for desired behaviour, which creates an expectation of personalisation.”
Loyalty programs for retailers in the modern age
If you’ve forgotten your uni lectures or need to convince your organisation’s CFO to sign off on a substantial investment to launch or reinvigorate one, here are some noteworthy facts about loyalty programs from leading loyalty expert Philip Shelper, CEO of Loyalty & Reward Co.
This global consulting firm has helped create or improve loyalty programs for some of the world’s best-known brands such as McDonald’s, Hugo Boss, Klarna, Rip Curl, Schneider Electric, Penfolds. Shelper literally wrote the book on loyalty programs with Loyalty Programs: The Complete Guide. He makes these three points to loyalty program sceptics:
- Loyalty programs make money: “Loyalty programs have evolved from marketing cost centres to valuable business units driving significant long-term profit outcomes for companies in almost all categories globally.”
- Loyalty programs make money in many ways: “Loyalty programs can deliver value for companies in the following ways: driving profitability from behavioural changes; cost saving and operational efficiencies; improving strategic decision-making; as well as unlocking third-party data and other monetisation opportunities.”
- Default to a currency rather than discounts/cashback offers: “Loyalty programs are a potent antidote to heavy discounting addictions. Providing retailers with an alternative value offering for high-value customers can help boost margins and focus customers on their next visit.”
Shelper also has one final piece of advice on the vexed issue of calculating CLV. He notes that simple CLV calculations assume average purchase value and frequency remain unchanged over a member’s active period. As is often the case with marketing-related calculations, this makes the arithmetic more straightforward but doesn’t necessarily reflect what is happening in the real world.
“In practice, member behaviour changes, just as prices and margins change for businesses,” he says. “If a loyalty program is working, the assumption should be that purchase value, frequency, and, ideally, margin would increase yearly. As such, the calculation should be broken down into years, with assumptions changing and the total value summed to determine CLV.”
The future of loyalty programs is AI-driven
In mid-2024, retailers are confronting both discombobulating disruption and the eternal challenge of convincing consumers to consume. Understandably, that means there’s a lot of focus on shiny new martech tools. But given the worsening cost-of-living crisis, perhaps there should be a little more on loyalty programs.
Loyalty program members outspend non-loyalty members by a wide margin, providing a source of long-term recurring revenue to businesses. Loyalty programs create a strong bond between the customer and the brand, driven by affinity, convenience and value.
They increase the number of touchpoints a customer has with a brand and yield valuable first-party data related to purchase history and preferences. This means these programs can supercharge personalisation and engagement strategies and make a retail brand more prominent in a consumer’s daily life.
Jonathan Reeve is vice president for APAC at Eagle Eye.