January 23, 2020 Loyalty Strategy, Loyalty Trends

The Future of Loyalty – The Changing Industry Structure

Group of marketers discussing how customer loyalty is changing

In our continuing series on the top 3 trends disrupting loyalty, we’re taking a critical look at how the industry itself is structured and how, in the near future, it will shift to become more dynamic, more flexible and more efficient in delivering technology and services to programs worldwide.

The loyalty industry today is broadly structured in a way to deliver the main components of the loyalty program value chain, such as strategy, rewards, analytics, campaigns, creative, operations, platforms, etc. There is a lot of competition for providing these components of the value chain by in-house departments, established players within the loyalty industry and through increasing encroachment from companies outside the loyalty industry. For example, program management and creative services are being targeted by traditional advertising agencies or marketing firms, as we saw with Epsilon’s acquisition by Publicis.

Analytics is another huge field where specialized analytics providers, whose sole purpose is innovating and executing best-in-class machine learning tools, are applying their techniques to loyalty. Because of this, loyalty firms currently offering machine learning are going to be pushed by better funded, more sophisticated, more focused AI companies. Rewards is another element of the value chain that has seen transformation over the years. Rewards has moved from the historical warehousing of goods and merchandise to more digital and virtual solutions enabled by different tech startups around the world. Rewards are also being targeted by payments companies, ecommerce players, telcos and even OTAs like Expedia, which has identified rewards programs as another source of getting additional volume into the Expedia ecosystem. Even in IT, traditional CRM providers are adding functionality to offer loyalty solutions in addition to broader customer management.

Competition within the industry remains fierce. As many loyalty vendors fight for clients, pricing is under pressure and companies are managed with limited cash on the balance sheet. In this highly fragmented and competitive environment, brands are not able to access products and services from bigger companies that have the scale to invest in much larger projects and develop breakthrough capabilities, features and functionalities. This environment is not sustainable, and the loyalty industry will follow the path of other marketing services sectors that have undergone consolidation to compete more effectively and provide more powerful capabilities to their clients. As this consolidation occurs, smaller firms will join forces with others or be forced to continue struggling alone.

As we look to the future of the loyalty industry, machine learning technology, changing objectives of loyalty programs and industry consolidation will be key drivers of disruption. These disruptions will occur alongside ever-increasing expectations from customers around personalization in their relationships with companies. While the industry may look very different than today, the disruptions will ultimately have a tremendous positive impact on the effectiveness of loyalty programs and will continue to drive loyalty program adoption and investment for years to come.


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