Businesses have been transforming their customer relationship strategies across the globe
owing to the digital transformation. Hence, the market for loyalty programs has been
consistently evolving, giving rise to innovative solutions. According to Mordor Intelligence's
study, the APAC loyalty management market was worth USD 946 million in 2020 and is
predicted to expand to USD 3643 million by 2026, an almost fourfold increase in just six
years. Both, the customers as well as the companies seem to be benefitting from these
loyalty programs.
Loyalty programs have evolved significantly since the initiation of their use. The loyalty
programs started out as generic rewarding mechanisms to gain increased purchasing
frequency and value from the company’s most loyal customers. Now loyalty programs are
about personalisation, utilising data-driven insights to first map a user persona, then tailor
the rewarding mechanisms and touchpoints in accordance to people’s purchase behaviour.
This is just one of the ways in which loyalty programs have evolved over the decades. This
report discusses other aspects of this evolution with respect to the design of the loyalty
programs, their redemption requirements, level of interaction with consumers and the
dynamic role of technology.
Loyalty programs are increasingly being utilised in different forms across all industries. While
they began as a tool for the travel industry, more sectors have introduced such programs
such as restaurants, gas stations, the financial sector, etc. While some brands are
relaunching their loyalty programs for the second or fourth time such as Air India, there are
other brands, introducing these programs for the first time. But how profitable are these
loyalty programs? Why are companies spending money on such programs instead of just
using it for marketing? This report also discusses the economics of loyalty programs, its
applications across the retail, hospitality and financial sector as well as key factors that
influence the design of the loyalty programs.
Why are consumers willing to pay for such loyalty programs? Why are more and more
consumers associating loyalty programs as a way of feeling a connect with the brand? How
should you design a highly profitable loyalty program? If you require answers to such
questions, the section of this report on understanding consumer behaviour, discusses the
behavioural drivers for adoption of such programs. At the end of this section on consumer
behaviour, either you would leave as an informed business or an informed consumer. The
psychology of consumer behaviour is at the core of understanding why these loyalty
programs work or fail.
In a world where competition increases every day and there is increased pressure on market
share, brands are targeting implementation of loyalty programs to sustain their loyal
customers and onboard more. Rewards are an integral part of the life of a customer,
especially in this digital age with targeted marketing taking over the social handles and
search engines. This report discusses the market for loyalty programs in depth, focussing on
its evolution to understand the influences of the historic programs on today’s market and
discussing the industries and consumers it applies to.
Evolution of Customer Loyalty Programs
India is a developing country where about 2/3rd of the population lives in rural and suburban
areas where the payments have been dominated by paper-based transactions. So, the
adoption of digital payment tools was low till very recently. During this time, it was dominated
by traditional loyalty programmes with plastic cards where users could earn points that could
later be redeemed for awards. With demonetisation coming into place in 2016, the scenario
shifted.
As the government promoted digital payments there was an inclination towards loyalty
programmes. There was greater acceptability of credit and debit cards where customers
could earn better rewards like instant cashback. There was also a push towards e-
commerce websites. It was made with realisation about the ease of shopping anytime and
anywhere. Here, with traditional rewards some retailers are also starting thinking about
additional things they could do in this space.