Loyalty programs, once unique market differentiators, have evolved into essential tools for brands to drive customer engagement, deepen their understanding of consumer preferences, and fuel business growth. With an increasing number of brands either launching or redesigning their loyalty programs to meet rising customer expectations for rewards and recognition, the loyalty landscape is rapidly evolving. In response to this shift, the EY organization initiated a comprehensive market survey in the winter of 2023, targeting both consumers and corporations. Collecting qualitative and quantitative data from 1,500 consumers and 300+ corporate employees with responsibility for loyalty programs, the study explored the perceptions, needs and challenges associated with loyalty programs from both perspectives.

Our research indicates that overall, loyalty programs positively influence a consumer’s opinion of a brand (67% with a generally to far more positive opinion) and increase consumer spending with that brand (58% from a moderate to great extent). We also clearly saw that while consumers still absolutely expect to be rewarded with savings and discounts (68% rated these as the most valuable program aspects), there is a desire for deeper connectivity with brands, valuing more experiential rewards like access to partnership brands/products (36%), exclusive content and services (28%), sweepstakes entry (19%), early product access (19%), and exclusive events/experiences (18%).

Contrasting data between the consumer and corporate responses reveals an interesting disconnect between what the loyalty programs’ brands currently offer or intend to offer and the actual desires and needs of consumers. This discrepancy unveils opportunities for businesses to develop loyalty programs that truly resonate with and fully engage consumers, a win-win for both the consumer and the brand.

In addition, it was indicated that consumers’ perspectives on loyalty programs are highly nuanced with clear generational differences, informing companies on how best to target these specific audiences with program and reward design. Future articles will delve into the fascinating generational differences revealed by our research. Based on this, identifying and capitalizing on the following four opportunities is critical for companies to harness the full potential of their loyalty programs and offerings.

1. There is an opportunity for companies to differentiate and expand rewards.

Loyalty programs are crucial for companies as they build long-term relationships with their customers, and there is a need to reimagine the loyalty experience to stand out to the consumer who may be a part of multiple programs with similar product offerings. Seventy-six percent of the 25 to 44 age group reported being a part of loyalty programs of two different brands in the same product type (66% for 18 to 24, 65% for 45 to 54, and 47% for 55+).​ In addition, many programs offer the same features (discounts, reward points like cash, exclusive content, and special sales), as well as limited rewards, posing challenges specifically with the 18 to 24 age group (42% selected “limited/undesirable rewards” as a challenge vs. the average of 35% from other age groups). This poses a juxtaposition: the most commonly planned investments for loyalty programs in the next year are increasing rewards value and marketing of the program vs. adding experiential rewards or creating a rewards ecosystem.

2. There is a disconnect between consumer expectations and corporate plans for investment in personalization and data capturing for loyalty programs.

Personalization is important to consumers across their rewards journey. This includes being able to select their own rewards (73% reported as moderately/very important), having rewards tailored to them (72%), being able to select channel preferences (68%), and being able to select types of products (65%). Additionally, consumers are generally comfortable sharing data (87% at least somewhat comfortable) in exchange for greater personalization. Organizations collecting this data must show how it is clearly benefiting the customer, incorporating data-driven personalization into their loyalty models to build trust and engagement through customer communications and tailored reward redemption options. This demonstrates an opportunity as less than half of companies are planning investments to add personalization (42%) and build data capturing (38%) in the next year, according to the surveys conducted. In terms of which loyalty program features are offered by companies, 52% reported having customer profile development, but less than half (42%) reported having “personalized recommendations” as a feature.​ As consumer expectations evolve, organizations will need to reevaluate investments made to focus on consumers’ wishes individually, leverage the data that customers provide, and communicate the benefits provided by this data.

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3. One-size-fits-all really fits none.    

Loyalty programs are no longer confined to a one-size-fits-all model. Our research indicates that there are clear generational differences when it comes to consumer loyalty behaviors and attitudes. Because of this, as organizations design their loyalty programs, they need to actively work to understand their customers and create programs that will connect deeply with their target segments. For example, in terms of enrollment, “on a mobile app” was selected the most by the 18 to 24 age group (48%) compared with 24% “through a company website”; the opposite was true for those 45 to 55 (35% via website and 14% via app). Additionally, those 25 to 44 are more likely to be enrolled in a paid subscription (~60%-65%), compared with those in the 18 to 24 age group (51%) and 55+ age group (29-35%). In terms of participation, 78% of those 25 to 44 generally to almost always make the conscious choice to shop for products within the loyalty programs they are enrolled in (vs. an average of 67% for all other age groups).​ While these are just a few examples of how age groups vary in how they behave in the loyalty space, companies need to design their loyalty programs with these behaviors and attitudes in mind.

4. KPI tracking and measurement for loyalty programs needs to be further invested in and reexamined.

Yes, loyalty programs have a positive impact on various aspects, including customer retention, spend, and perception, but quantifying overall program impact is the No. 1 challenge among corporate loyalty programs, according to the surveys’ findings. Companies report tracking data metrics like revenue, profit, ROI, and volume of members, with 50% of companies using data metrics as KPIs for loyalty programs. But the question is: are these companies’ KPIs and data tracking methods aligned to their purpose of having a loyalty program? Companies need to clearly define the impact they want to have with their customers, whether that is just increased spending or something further, such as increased engagement, positive brand perception, and more.

Seizing these opportunities is critical.

As loyalty programs increasingly become more prevalent, consumers are expecting more, and companies need to react. How do companies stay innovative and differentiated in a space where consumers may be tied to numerous programs within the same product type? How do companies proactively identify their targeted consumer groups’ needs and personalize their loyalty program reward options, communications, and recommendations to match these needs? How do companies prioritize and align their methods of KPI tracking and success measurement to the impacts they want to have? Now is the time for companies to take hold of the opportunities presented and invest in their loyalty programs where it matters.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.

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