Loyalty

NEW YORK — A good loyalty program sets the foundation for great personalization, but the process of creating relevant experiences for each customer is its own journey.

That’s especially true at Ulta Beauty, which is looking at how to best tap into its loyalty program data to power personalization, Josh Friedman, VP of digital products at Ulta Beauty, said during a session at National Retail Federation’s Big Show conference in January. Its loyalty program has over 44 million members, and 95% of sales go through it, he said.

“We know a few things about our customer, and that's because she's willing to share them with us, and she expects that kind of personalization,” Friedman said. “She shares a lot about her shopping journey and her preferences, and we need to reply with an experience that makes it easy and relevant to shop.”

The retailer is aiming to live up to customers’ expectations with upgrades to its personalization capabilities in 2025. The company is exploring ways it can adjust team responsibilities to keep the customer front and center and improve its ability to collect and utilize information in the long term. 

Personalization spans the organization 

Budgets and technology are essential to any personalization effort, but the biggest change will be about the people involved in the process, according to Friedman. Ulta wants its teams to think about operations with a customer-centric lens.

The retailer’s plans include potential changes to responsibilities, roles and the overall structure of the organization. 

“You need teams to think about the customer,” Friedman said. “Not about the channel, not about the product, not about the offer, but about the customer and then where all the other things lead — and that's a big change.” 

Ulta’s approach is a best practice for personalization, Olivia Kwon-Best, head of digital strategy group, retail and consumer goods at Adobe, said during the session. Delivering consistent personalization is a task that spans teams across the organization, including the C-suite.

Companies with less robust capabilities than Ulta can benefit from this cross-organizational approach as well. Personalization is often a multiyear journey, and teams on the same page can be better positioned to take those all-important first steps.

One way to start is by identifying potential quick wins, according to Kwon-Best. Those initial victories can drive the momentum and excitement across the business that helps the larger personalization push succeed.

“Identify and prioritize what capabilities in those cases are going to matter most to you, and have that sequenced out,” Kwon-Best said. “Communicate it out.”

Build loyalty for a lifetime

Personalization is a vast subject, encompassing more than loyalty transaction information and product recommendations. One of Ulta’s goals is to collect more information directly from customers while exploring how that data can enhance long-term relationships.

“We need to do a better job progressively profiling our customers with full transparency and permission from them,” Friedman said. “They want to give us that data. They just need to know how, and they don’t want to spend 45 minutes doing it.”

Some of the relevant data Ulta seeks includes how customers like to use beauty products in their daily routines, according to Friedman. Data on the post-purchase experience is particularly important.

“That's where loyalty is born,” Friedman said. “Quite honestly, once checkout happens, customers are pretty forgetful about everything that happened before then unless it was negative. They want rich post-purchase experiences and genuine messaging.”

Many personalization efforts are optimized for generating clicks or revenue, but Ulta plans on exploring how personalization can better optimize for lifetime value, “which is a little harder equation to solve,” according to Friedman.

Ulta’s strategy aims to provide experiences and content that encourage customers to return in the future even if they don’t make a purchase immediately.

“We're doing things that build up your shopping habits and your preference and your loyalty to us without necessarily needing it to be a shopping trip,” Friedman said.

Pharmasave, a community pharmacy with more than 870 locations in Canada, announced in September that it had expanded its participation in the Canada-based Air Miles Reward Program, a coalition loyalty program with over 10 million active member accounts.

Unlike brand-specific loyalty programs that only allow members to earn and redeem awards for one brand, Air Miles allows its members to earn and redeem awards across more than 300 brands, including Amazon Canada, Apple and Hilton, and thousands of retail and service locations in Canada.

The pharmacy chain expanded its participation nationwide after the Air Miles Rewards Program established a strong track record in the company's Atlantic Canada region.

"We saw the benefits in terms of customer engagement, loyalty and front store sales that were higher than they were in the rest of the country," said Jackie Langlands, national director of merchandising and marketing at Pharmasave.

Coalition loyalty programs like Air Miles and other loyalty program partnerships are gaining interest among business executives, according to the 2024 EY Loyalty Market Study, which surveyed more than 1,500 consumers and 300 corporate employees responsible for loyalty programs.

Nearly half — 45% — of corporate employees surveyed said they planned to create a rewards ecosystem, such as expanding rewards across product types and partner networks, in the next year. 

Why interest in loyalty program partnerships is growing

Thanks to greater scale, coalition loyalty programs offer several advantages over company-specific loyalty programs.

"Loyalty programs can be a little complex to stand up," said Patricia Camden, managing director and Americas loyalty leader at consulting firm EY. "Sharing those operational costs, including the technology, infrastructure, marketing and [program administration], makes it a more cost-efficient model."

These programs also give brands access to more customers than they could reach alone, making it easier to expand to new markets, cross-promote products and services, and increase brand exposure. Those features have become more important as more consumers shop online and seek greater value from rewards programs amid high prices.

Pharmasave's newly expanded participation in the Air Miles Reward Program is already paying off. Customers are lining up to collect and redeem Air Miles rewards at newly participating stores and "telling our owners that they plan to shop at Pharmasave," Langlands said. "We also have reports of new customer demographics coming into our local pharmacies, and our owners are very excited about that."

Coalition programs can also help brands engage younger consumers by making it easier to earn and redeem rewards across multiple brands. Over a third of consumers surveyed by EY said access to partnership brands and brand enthusiasts was "the most valuable aspect of being a member of a loyalty program." 

The EY study also found that consumers aged 18 to 24 are less likely to shop exclusively through a loyalty program, with 42% saying that reward options were often limited or undesirable.

"A coalition program goes against that by giving them a broader set of rewards," EY's Camden said.

Multi-vendor loyalty programs also make it easier to offer personalized rewards, which are also important to younger consumers, especially those aged 25 to 44, the EY study found.

Why bilateral partnerships often make more sense than coalitions

Coalition programs are harder to operate than company-specific ones, as companies face such challenges as integrating technology across brands and channels and mitigating data privacy concerns, experts said.

It can also be difficult to align brand identities and create a rewards program that meets the needs of all the partners and their customers. Studies show that coalition loyalty programs often benefit the largest partners with the highest market penetration and that partners frequently cannibalize each other's sales, with consumers more likely to compare prices and purchase heavily discounted items.

However, high competition among loyalty programs may be the most significant barrier to coalition loyalty program success, especially in highly developed economies like the United States, according to Ed Crouch, managing director and senior partner at Boston Consulting Group.

The average U.S. consumer who participates in loyalty programs belongs to 14 free and paid programs, according to a BCG study. Most consumers already belong to one or two travel programs and several retail programs, which limits the potential upside to joining a coalition program, Crouch said.

"Consumers are already quite deeply engaged in a number of programs," Crouch said. "They have accumulated currency. They have status. They understand the program."

Bilateral partnerships, on the other hand, allow two companies to gain access to and information about each other's customers without the additional complexity and market conditions required by coalition loyalty programs, Crouch said. "It just requires them to have some overlapping set of customers that share a lot of similarities and purchasing behaviors."

Walmart, for instance, recently partnered with Burger King to give members of its paid loyalty program, Walmart+,  25% off Burger King orders placed through the fast-food giant's website or app.

However, companies that offer exclusivity or want to provide "a highly tailored customer experience," such as luxury brands, are likely better off creating their own loyalty programs, EY's Camden said. Such companies benefit from partnering with others on a case-by-case basis.

Coalition programs can be a good fit for "businesses with limited internal resources to manage and scale a loyalty program" and brands with "no direct connection to consumer data," such as consumer packaged goods companies, Camden said.

Regardless of the approach, loyalty program success depends on whether it delivers value and flexibility to a brand's customers, Pharmasave's Langlands said.

Sponsored content

By Collinson

As financial institutions face mounting competition for customer retention, an opportunity is emerging. Travel data shows that global passenger numbers will reach an unprecedented 5.2 billion in 2025¹, and consumers are almost unanimously in favor of travel rewards on their credit cards. Yet a significant gap exists—while 89% of consumers want travel-related rewards as core credit card features, only 54% currently have them². This disconnect represents both a warning and an opportunity for bank loyalty program managers.

The connection between travel rewards and loyalty runs deeper than traditional point-based programs. With consumers expected to take an average of 4.1 trips per year, each journey presents multiple touchpoints for banks to engage cardholders.³ More importantly, these aren't just transactions - they're experiences. With 47% of expected travel in 2025 centered around cultural events and festivals⁴, it's clear that consumers are seeking memorable moments, not just trips.

This excitement for travel has important implications for credit card loyalty programs. Our research² shows that 83% of cardholders would switch to a new credit card offering airport lounge access if their existing card didn't provide it. Moreover, 78% of consumers are willing to pay for a credit card with lounge access. When asked why lounge access was their most desired benefit, 64% of cardholders said it enhances their travel experience. Premium travel benefits create emotional connections that strengthen cardholder loyalty.

But travel loyalty extends far beyond lounge access; banks have numerous ways to drive loyalty and reinforce card choice throughout the travel journey. As consumers plan trips, travel insurance and card selection come into play. Banks can lean into the booking phase by engaging customers through rewards redemption. At the airport, premium experiences like lounge access and priority services elevate the travel experience, reinforcing brand loyalty. During travel, benefits like ground transportation and global wellness access maintain engagement. Post-trip, reward tracking and feedback mechanisms allow banks to remain engaged with cardholders and remind them of their positive travel experiences.

The business case for adding travel rewards to card programs is also compelling. Data shows that, on average, consumers plan to spend $5,051 per vacation in 2025³, so the opportunity for card usage is significant. Also, 92% of consumers say they would use their credit card more often if it offered better rewards or benefits².

For banks and card issuers, travel rewards are no longer optional - they should be considered essential for acquiring and retaining customers today. As meaningful travel experiences remain a top priority, consumers' credit card choices will follow. Financial institutions that recognize and act on this demand will build meaningful customer experiences – and loyalty will follow.

---

Today’s customers expect brands to recognize their preferences while offering a personal connection that feels genuine and tailored to their needs. A handful of companies have found a formula that works.

Sephora, Famous Footwear and PetSmart are unlikely peers, but they have one thing in common. These popular retail brands have well-executed loyalty programs that lean into their customers’ interests and preferences, according to David Slavick, co-founder and partner with Ascendant Loyalty.

Sephora members earn points that are redeemed for free items, encouraging customers to sample and expand the overall products they’re buying. Famous Footwear’s program has different customer tiers based on annual spend, including additional benefits for using its credit card. PetSmart’s personalized program is based on the customer’s pet, has community engagement through adoption events and provides complementary services like grooming, Slavick said.

The programs offer more than just points and discounts.

“It’s that personalized, experiential recognition and reward that consumers are asking for if they’re sharing their information with the brand,” he said.

It confirms what surveys indicate: Financial rewards are important, but consumers crave personalized experiences. In Deloitte’s 2024 Consumer Loyalty Expectations and Preferences report, nearly three-quarters of respondents nominated personalized experiences or rewards as important features in a loyalty program.

However, there’s still room for improvement, with only 3 in 5 respondents in the Deloitte survey satisfied with the personalized experiences they’re currently offered.

The key is personalization based on customer data and segmentation as well as a specific understanding customer life events and preferences to deliver relevant and valuable offers, said Slavick.

“Consumers are saying,'Show that you value me and apply some level of personalization to give me what I want,' as opposed to just being a guessing game,” he said.

Yet consumer behavior and preferences are like shifting sands, always changing and sometimes unpredictable. To steer a successful loyalty program, brands must stay in touch with their customers and ensure they’re desirable and relevant.

“It’s understanding what’s going on with customers, figuring out how you’re going to approach them, what you’re going to communicate and how you can give value to them,” Slavick said.

Leaning into data to drive personalization

Personalization relies on using data effectively to know whether someone has a fish or a dog as a pet, or prefers Converse over Crocs. Consumers will give something for this benefit, with just over half of Americans willing to share their data for more personalized experiences, the Deloitte survey noted.

However, it’s of little value if the customer information can’t be translated into personal, meaningful interactions. In many cases, a customer data platform is needed to build a true 360-degree view of the customer and drive segmentation and personalization.

When done appropriately, it connects all the components and links to different loyalty technologies as the control center, according to Slavick.

“A CDP helps you understand the individual customer segment journeys to then build your communications plan by customer segment and reach them during their journeys,” he said.

However, loyalty programs don’t need to start with a CDP, and Slavick warns businesses against falling into the trap of thinking they must set up a complex, centralized platform to have personalization in their loyalty programs.

“To do loyalty, you don't have to get a CDP in place — that’s like hitting the nail with the proverbial sledgehammer,” he said.

He recommends brands start by identifying and learning about the customer and building a permission-based capability to deliver some outcomes in the form of value or growth and working towards adopting this type of platform.

“By creating incremental momentum, you've proven the data is in hand, you're doing a good job of driving your business performance, and with that incremental lift in profit, you can fund the CDP,” he said.

The human connection: More than a transactional loyalty program

Brands that want a mature loyalty program need to forge deeper emotional connections with consumers, according to Lia Grimberg, principal and consultant with Radicle Loyalty. It requires mature data strategies that offer complex personalization levers beyond just tailored communications and offers.

Some brands are working from this playbook, building emotional loyalty through purpose-driven experiences. REI Co-op has a significant focus on environmental initiatives in its loyalty program. Walgreens rewards customers for health-related sign-ups, such as doctor’s visits or programs to quit smoking, and purchases, including from nutritionists or therapists through its loyalty program.

Similarly, Nike’s loyalty program centers on fitness goals and tracking customer progress. It doesn’t offer a traditional points-based system but instead rewards customers with personalized content.

In each case, the loyalty program aligns with the brand’s overall values and provides a non-transactional way to earn rewards, which helps drive customer satisfaction and engagement, Grimberg said.

“This approach is more cost-effective and drives incremental behavior by providing value-added experiences,” she said.

By contrast, a loyalty program that’s highly transactional, such as McDonald’s, leaves little scope for being innovative and may just be rewarding people without driving additional purchases, Grimberg noted.

Focusing on transactional behavior rather than aspirational or values-based rewards may not deliver growth because it doesn’t drive truly incremental behavior, such as new trips or increased basket for a particular shop.

“Because loyalty is so expensive, you don't want to be paying customers for purchases they were going to make anyway,” she said.

The goal is to leverage data and technology to drive personalization while fostering a human connection to the customer. Deloitte’s research shows human touch can deepen relationships and help brands respond to demands for increased personalization.

Grimberg said luxury brands can pull off exceptional personal touch because they keep detailed notes on their customers, who tend to be smaller in number and valuable individually.

For brands not in this position, it takes a collaborative effort between loyalty managers, analytics teams and other stakeholders to turn data into actionable insights that deepen the customer relationship.

“Use the technology and leverage that customer information so that the communication to the customer is truly actually personalized in a way that the customer expects,” she said.

The share of customers feeling loyal to brands has slid since 2022, according to a survey of 4,000 U.S. consumers released by SAP Emarsys in December. Seven in 10 customers say they are loyal to certain brands, retailers and stores, consistent with 2023 levels but down from 4 in 5 in 2022.

Three in 5 consumers say they'll leave a brand over price, according to the survey. More than half, 56%, would depart due to perceived reductions in quality and 53% would leave because of bad experiences.

Customers express loyalty to retailers in a variety of ways. The most common is by shopping frequently with favorite brands, followed by recommending the company to friends and family and downloading and installing their app.

Brands aiming to earn consumers’ loyalty may want to look above and beyond loyalty program basics.

While rewards are important — 7 in 10 survey respondents say rewards and incentives are a top prompt for using a brand’s mobile app — good, personalized experiences can keep customers coming back. 

Consumers are becoming more likely to switch loyalty following a negative experience, according to Erin Raese, SVP of growth and strategy at Annex Cloud. Research from Qualtrics XM Institute backs that up: More than half of customers will cut spending with a brand after a bad experience. 

Younger generations are switching brands due to boredom or sustainability issues, too.

“Against this backdrop, building lasting loyalty means creating tailored loyalty programs that engage, recognize and reward customers uniquely,” Raese said in a prepared statement. “Recognition is essential to foster loyalty, and is often more impactful than rewards, which are frequently equated with discounts in consumers' minds.”

Some brands find unique ways to recognize their loyal customers. PetSmart personalizes its loyalty program based on the customer’s pet, while Lowe’s offers MyLowe’s members personalized product information, maintenance suggestions and recommended subscriptions based on their recent purchases. 

Good communication can help a loyalty app stand out. Half of customers will use an app more often if it has personalized communication, and another half would use it for helpful prompts like order updates and service delay notifications, according to SAP Emarsys.

Exclusivity can help loyalty programs stand out as well. Customers want exclusive rewards, such as special discounts or perks such as special merchandise, according to a June 2024 survey by Snappy. 

One example is Ulta Beauty, which used exclusive and early event access and personalized offers to grow its loyalty program, according to a Q3 2024 earnings call. The program reached 44.4 million active members during the quarter.

When David’s Bridal added easier-to-access incentives to its Diamond Loyalty rewards program in October, it was responding to a growing customer demand from its business. 

Discounts were the top loyalty incentive, but only brides had access to them, and not every bride purchases a new dress for her wedding. So why not open the primary loyalty benefits to the entire wedding party?

Diamond Loyalty’s emphasis on brides makes it different from many other loyalty programs, but its development strategy and ultimate goal are largely the same. The company listens to customers, looks at the data, and shapes its loyalty incentives to create a program that blends CX and marketing to benefit customers and the company alike. 

Diamond Loyalty is approaching 3 million members and has given away its most exclusive reward — a free honeymoon — 1,000 times since its launch in late 2020, according to Kelly Cook, president of brand, technology and finance at David's Bridal. The program is responsible for about three-quarters of David’s Bridal’s sales.

“Our members perform so much better than non members,” Cook told CX Dive. “They are our cream of the crop. And so we really want to make sure that we're providing them the absolute best experience.”

Why a wedding loyalty program isn’t crazy

The Diamond Rewards program is a relative latecomer to the loyalty game because, at its core, the brand’s business model seemed at odds with the long-term focus of a rewards program.

“When we launched it, everybody thought we were crazy,” Cook said. “It's like, ‘Why does a wedding company need a loyalty program? Are you going to get married 12 times and come to David's every single time?’”

Then the challenges of COVID-19 led the brand to rethink the value a loyalty program could provide. 

David’s Bridal dug into its data and determined that the average bride invites 200 people to her wedding, half of whom are women, according to Cook. Two-thirds will buy a new dress for the event, meaning each wedding represents 66 potential purchases. 

The bride and her party earns points for each person who buys a dress for the wedding, providing an incentive to shop with David’s Bridal. And while the retailer is focused on wedding apparel, it offers a range of special occasion and event dresses, according to Cook. If Diamond Loyalty can get these shoppers in the door, a good experience gives them an incentive to come back.

With this in mind, Diamond Loyalty is designed to benefit the bride without adding friction to others’ shopping experiences, Cook said. Diamond’s integration with the Pearl wedding planning app is key to making the program as smooth as possible.

Pearl offers brides note cards they can send out with their wedding invitations. The cards detail how Diamond Loyalty benefits the bride and her party, and notes that all invitees need to do is share the bride’s phone number when they make their purchase.

The art and science of loyalty design

Loyalty programs seek to strike a balance between interest and simplicity, with incentives that stand out from the competition but a structure that makes earning and redeeming rewards intuitive.

Finding that balance is a combination of art and science, according to Cook. 

At David’s Bridal, this includes looking at customer reviews every morning in ascending order, starting with one-star reviews and working up to five-star reviews. This approach helps the company keep an eye out for any major problems and quickly act when problems arise, Cook said. 

The company also listens to broader feedback about what customers want out of Diamond.

One area receiving feedback was the difficulty to earn rewards. Diamond Loyalty used to offer brides extra gifts and discounts starting at 3,000 points, for $3,000 spent across her wedding. The program now has tiers at the 1,000 and 2,000 point levels in response to customer demand.

“We're always talking to Diamond members, and the Diamond members told us, ‘Look, I'm on a tighter budget. I have less disposable income,’” Cook said.

The lower tiers, with associated perks like free photo coasters and discounts on certain wedding services, are designed to ensure all Diamond Loyalty members can access extra benefits.

The company also took economics into consideration when calculating the new tiers and their benefits. 

“The No. 1 thing you have to do with a loyalty program is make it simple, or they won't use it,” Cook said. “We could find out through our economics and our forecasting and modeling that the bottom tier should really be at $1,150. Well, we're not doing that. We're going to make it easy to remember.”

Diamond will continue to expand based on the combination of customer feedback and economics. While David’s Bridal found it important to create lower tiers in 2024, Cook expects Diamond to further build on its high-end tiers in the coming year due to the early success of Pearl.

The bridal experience is the best marketing

Cook believes that there is no line between marketing and CX, which is reflected in how Diamond Loyalty’s rewards draw more shoppers to David’s Bridal.

The bride is the ultimate influencer, according to Cook. Her wedding party and guests are going to follow her lead on where to shop and where to avoid, and if she has a great experience with David’s Bridal, she becomes a powerful marketing force multiplier.

“The bride is the influencer for all the other purchases, which is different from a normal retailer, like a Kohl's,” Cook said. “Brides influence $74 billion of annual spend. That’s the apparel, that’s the tuxedos, that's the venue, that's the flowers, that's the music, that's the DJ, that's the food.”

Few other industries have a singular influencer like a bride, but the same principle applies to the relationship between CX and marketing no matter where you go, according to Cook. 

Word of mouth is one of the most powerful forms of marketing, and social media gives every customer a megaphone. Marketers used to tell the brand story, but now potential customers listen for that story from other shoppers.

“You can't have a great dichotomy between what the brand is saying they are and what a customer is experiencing,” Cook said. “It just doesn't exist anymore.”