3 Generations of Loyalty & Rewards Technology

January 31, 2017 | Elaine Arnold

Customer retention is a vital part of the health of small businesses. Retention is ultimately achieved by creating personalized customer experiences. With a digital loyalty program, merchants have the opportunity to capture customer data and deliver personalized marketing messages aimed at increasing ticket value, preventing churn, and improving the customer experience. Over the years, loyalty software has evolved, and each generation has provided brick and mortar businesses with better customer insight which can be used to improve marketing efficiency.

Generation 1: Visit-Based Loyalty Programs

The first generation of loyalty and rewards technology launched about 11 years ago. These pioneers of the digital loyalty industry evolved the infamous paper punch card into a plastic card that could be scanned at the register. These tablet based systems rest on the counter and allow customers to “check in” to earn points for their visit. These systems sometimes allow customers to check in with a physical card or with a mobile phone number. These were a great place for business owners to start, since it allowed them to identify their top customers based on visit. The biggest pain point with these programs is that all customers earn the same amount of points or punches regardless of what they purchase, which means that a $2/visit customer is valued to be the same as a $20/visit customer.

Generation 2: Spend-Based Loyalty Programs

The second generation came onto the scene about 7 years ago. Similarly to the first generation, these are tablet based systems, but with the added capability of allowing the cashiers to manually award points based on the amount spent in the transaction. With this information, business owners are able to identify their top customers by spend, allowing them to differentiate between that $2/visit customer and the $20/visit customer. These systems usually also include some email and SMS marketing tools which allow businesses to target customers based on spend or recency of last visit. There are 2 major pain points with these loyalty software programs. First, manual entry of points is fraught with user error and opens the business up to potential fraud by cashiers. And second, businesses using these tools still lack clarity on what these customers are purchasing.

Generation 3: POS-Based Loyalty Programs

Third generation loyalty programs are those that integrate with the point of sale, allowing the business to track specific customer purchases, down to the SKU. By connecting to the POS, third generation loyalty solutions are able to fully automate points and punches, which eliminates the manual data entry errors and fraud associated with the second generation solutions. With SKU-level purchase data, businesses can also start to learn customer buying behaviors and market to them individually based on their own spending habits. With this data, businesses can deliver “Amazon-style” marketing messages that are extremely effective.

For years, loyalty technology providers have struggled to tap into POS data to provide businesses with a third generation solution. Why? The main problem is that there are thousands of POS systems on the market. The good news is that AppCard has developed patented technology that enables business owners to tap into SKU-level POS data without any integration required. Finally, merchants can gain a consolidated view of their transaction data alongside customer information, across multiple locations, and regardless of the POS system they’re using. Request a demo to learn how it works!

About Elaine Arnold

Elaine is a Senior Customer Success Manager at AppCard, the personalized marketing and rewards platform. Elaine specializes in helping independent grocers to engage their customers with data-driven marketing campaigns to grow their business.