Our review of the Modular Loyalty eBook from Exchange Solutions
The competition for people’s time, energy, and attention is intensifying, not only as result of the proliferation of loyalty programs across all forms of business but also due to the tendencies of Gen Z and other cohorts close in age to willingly switch brands quickly and without remorse.
A 2023 BCG survey showed that customer loyalty programs can deliver measurable results to cut through this noise. The report found that high performing customer loyalty programs generate engagement levels 3X greater and deliver an average of 35 percentage points greater share of wallet than less successful programs.
The continued success of these high performing loyalty programs is closely tied to the ability of each brand to adapt and introduce new features into the program in rapid response to identified customer needs. In recent years, the capacity to deliver enhanced services in Loyalty Management Systems has been stretched to its limits.
To serve market needs, loyalty providers have developed capabilities in personalization, gamification, card linked offers, social connections, paywalls for subscriber-based programs, support of non-transactional models, and much more. This short, but hardly exhaustive list of features, illustrates the challenge faced by brands and the technology providers they partner with to win at the customer loyalty game.
Rip, Replace, Enhance, or …
Our editorial team has a practitioner background. We have created customer growth strategies and loyalty program design, operated loyalty programs, and worked with dozens of loyalty service providers to deliver results for notable brands around the world. The competitive dynamics that have dominated the market for decades can be described as a zero-sum game between competing technologies.
While many brands are looking to reduce costs or improve service levels, the majority find themselves issuing RFP’s (request for proposal) in pursuit of improved capabilities to serve their customers. Until recently, the choice has been to “rip and replace” platforms when making a change. That process is expensive, sometimes risky, and fraught with time delays.
Wise Marketer Group CEO Bill Hanifin shared “the dilemma is this – there’s an “urban myth” in loyalty technology that for retailers to advance their solution capabilities and keep pace with customer demands, their first, maybe only, option is to “rip and replace” their entire loyalty platform in order to accomplish their goals. This way of thinking is foolish and no longer applies, as a broader set of options are available to extend capabilities and meet consumer expectations.”
Is the answer a concept known as Modular Loyalty? Forrester has stated that “due to economic pressures and technology overlap with martech stacks, brands are seeking modular loyalty tech.” Forrester went further to identify modular technology as the “current top disruptor in the loyalty technology market.”
We are living in an age of Composable commerce, headless commerce, or API-first depending on your choice of terminology. The terms are largely interchangeable, and Forrester, Exchange Solutions and others are moving forward with Modular Loyalty as the tech concepts apply to Loyalty Marketing.
To investigate these assertions in more depth, we turned to Exchange Solutions, an organization taking the lead in developing a more flexible approach to loyalty technology adoption. We reviewed their eBook on the topic, consulted other sources and talked with a variety of industry experts to create this article.
Assessing the Challenge
The place to start with this analysis is to review your own program performance. Do your members love it? Are you and your executive team happy with the financial and operational performance? If you’re making an honest assessment, you realize that things could be better, but fixing current issues may seem impossible to overcome due to budget constraints and the lack of quick-to-market solutions.
The root cause of change is two-fold, customer expectations and operating complexity. Customers expect more personalized treatment of their interactions with your brand and it is clear that the tenor of your loyalty offer has to transcend transactions to deliver brand-level loyalty.
The complexity comes from the sheer magnitude of data ingested by loyalty management systems, the multiplicity of channels you need to be prepared to communicate in, and the need to protect sensitive customer data from highly motivated hackers.
The plethora of challenges often leads to organizational paralysis. Struggles like these create an environment where marketers tolerate gaps in delivery and abdicate their access to incremental value that could be earned from the loyalty program.
Where does Loyalty Tech fit into your IT Group?
The demand for enabling technology to adapt and grow at a pace sufficient to match customer growth levels is suffocating for most IT professionals. The level of ‘tech debt” in most organizations continues to grow, internal resources are stretched, and the cost to evolve legacy loyalty technology can quickly become cost prohibitive.
Loyalty Technology competes with other resources from a disadvantaged position in the organization. Though the importance of loyalty programs to C-Suite leaders has grown in the past 3 years, its position as “mission critical” is still challenged when compared to point-of-sale infrastructure, core billing systems, even CRM installations.
Taking a modular approach to loyalty program management is one way to change the conversation with your CTO. Scott McDonald, Exchange Solutions, says Modular Loyalty is a “component-style — or microservice — implementation approach to a technology product or service, rather than the overall loyalty platform. The technology plugs into an existing loyalty platform and works with existing marketing technology without needing to replace the complicated pieces of the current infrastructure. The new technology enhances only the underperforming components, such as personalized offers and experiences, gamification, or reporting. “
Andreanne Rondeau, Founder stratLX, frames the concept this way “To help relate to the definition of modular loyalty technology, think of it like building a house out of Lego. To build the house, you need many bricks. Each brick can be in different shapes, different colors and have a different purpose to support the overall structure. Think of modular loyalty technology solutions as the bricks — each has a function and purpose but represent different pieces of the platform that meet consumer expectations.”
Modular Loyalty leads to Massive Benefits
With brand loyalty in flux in many retail industry sectors, the ability to improve loyalty program performance through innovation at the speed of retail has never been more important. In its eBook, Exchange Solutions cites 4 key benefits of taking a modular approach to loyalty program management:
- Solve a business problem rather than burning valuable marketing budgets unnecessarily
- Apply improvements in smaller increments via a lower cost/risk model
- Become truly agile and enjoy the benefits of a dynamic test and learn model
- Fund improvements through Opex, not Capex.
The need is real. According to the latest State of Personalization 2023 report published by Twilio Segment, the odds are that your loyalty program is missing the mark in delivering a more personalized member experience. Applying a modular technology approach to program improvement really could be the key to amping up program performance.
Exchange Solutions recommends this framework to identify which modules in your loyalty tech stack hold the highest priority for replacement and how to close the gap:
- Identify Performance Issues
- Determine which loyalty modules to enhance
- Select an ideal integration approach
- Create project phases to launch quickly and prepare to scale
- Measure immediately and apply learning to future phases
David Slavick, Co-Founder and Partner Ascendant Loyalty Marketing validates this approach, saying “if everything is working with the platform you have, but not producing as it should, the concept of modular loyalty or modular capabilities could definitely be a win for both the business and the customer. Make sure what’s implemented supports a clear need, is easy to configure and integrate, becomes seamless to the customer in terms of the experience and is measurable in terms of its effect.”
The eBook from Exchange Solutions includes two case studies which illustrate the potential impact of Modular Loyalty. For one fashion retailer, the story shows how it closed a gap to satisfy customers and generated a 50% increase in transaction size and a 40% rate of incrementality in sales.
For a National Pharmacy Retailer, offer engagement increased by 2X, offer costs were reduced by 36% and operational efficiency increased by 50% at scale.
What Should You Do Next?
Make your own assessment of your loyalty program performance. As you identify opportunities for improvement, list the barriers holding you back from embracing change. If solving those challenges are time sensitive, seriously consider the impact of modular loyalty technology solution.
Loyalty programs can deliver higher brand loyalty through multiple sources of value. Your most valuable asset is at stake and your loyalty program members deserve the best opportunity to engage in a relationship with your brand. Deferring improvements due to overwhelming tech debt and annual budget planning cycles won’t win the day for you in 2025.
You are encouraged to do your research, but from our review of current market dynamics and the sources we have tapped, we recommend consideration of modular loyalty as a way to build sustainable value into your loyalty program in the future.