Is Transactional Loyalty Dead? If points are passe, can we all get by on gamification and NFTs?

By Rick Ferguson, CLMP

Partner, Loyalty Wired

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The possible demise of transactional—re: points-based—loyalty programs was the topic of discussion at the most recent Loyalty Summit CXM in Copenhagen this past spring. Proclaiming the end of currency-based loyalty is a pastime nearly as old as loyalty marketing itself; for anyone who’s been in the business a while, the objections to loyalty points are as timeworn as Classic Rock. Points programs are expensive. They’re a form of bribery. They erode margins by rewarding customers who are already loyal.

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If all these objections are valid, then why do points programs still proliferate? And if we all shut down our miles and points programs tomorrow, what will we replace them with? Is hyper-personalization at scale enough to retain valuable customers and win the loyalty of new ones? Are gamification and NFTs enough to build strong and profitable customer relationships?

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Led by moderator Iain Pringle , my partner at Loyalty Wired, the CXM panel in Copenhagen included Dom Winchester and James Howland from Nectar 360, former Ikea Global Loyalty Manager Penny Shaw, and Comarch retail consultant Zofia Wozniak. In an insightful session, they arrived at an answer to the “are points dead” question that all loyalty marketers ought to get behind. Points programs aren’t dead—but they must evolve or die.

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A key example of this evolution is the UK’s Nectar loyalty program itself. Once a national coalition program with a grocery anchor, a credit card, and partners across multiple categories of household spend, Nectar suffered a fate similar to other national coalition programs around the globe—a partner exodus, declining engagement, and an eventual sale to its primary sponsor. Now wholly owned by the Sainsbury’s grocery chain, Nectar has evolved beyond a purely transactional loyalty program to become a vehicle of engagement across its 19 million members. The program collects data from approximately 50 percent of UK households, making it a dynamic engine of customer loyalty.

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To achieve this state of rebirth, Nectar’s operators haven’t abandoned the core transactional points proposition. Instead, they have evolved it to reward their members not only for purchases, but also across a wide spectrum of engagement.

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“We've moved to what we're calling the third phase of coalition [programs],” said Dom Winchester , Strategy Director at Nectar360, to the CXM panel. “Points are very flexible, so you can deploy them in lots of ways. Not just for rewarding spend, but also for lots of non-transactional behaviors—one-off or occasional behaviors [like] completing surveys or watching videos to drive engagement, signing up to direct debit, switching to online billing, as well as more emotional activities. We’ve switched base issuance, which everyone gets regardless of how engaged they are, to a better balance of base and bonus [points] where the more engaged you are, the more points you can access.”

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This example does not suggest that a transactional loyalty program is the correct model for every brand. That assumption has never been true. For many brands with business models less suited to capturing everyday spend, building loyalty means rewarding customers with exclusive access, members-only perks, or—in the case of Penny Shaw , who helped launch UK television provider Sky’s VIP program, building loyalty meant rewarding members with more time.

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“At Sky, we created a new loyalty program where the currency was time,” Shaw told the CXM panel. “So, the longer you're with us the better it gets and the more rewards you earn for staying with Sky. It’s absolutely non-transactional, but it’s a really effective program.”

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Shaw was also the Global Loyalty Manager for IKEA, where she created a token-based loyalty program with no cash value that rewarded IKEA Family members for both transactions and interactions. IKEA Family is a classic example of a program that rewards both for spend and for activities that forge a closer connection to the brand.

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“We didn't want to make [IKEA Family} all about spend,” said Shaw. “There was a transactional element, but we also rewarded members for using a kitchen planner or a sofa planner, for attending a workshop, or for sustainability-based activities like driving your friend or family member to IKEA to reduce road traffic.”

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And, in an example of transactional loyalty coming full-circle, IKEA Family recently introduced a points-based earning model to the UK, with plans to roll it out to all markets by the end of 2025. The rollout adds an additional data point to the notion that transactional loyalty is far from dead; rather, it is still an essential tool in the loyalty toolbox.

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When I became Editorial Director of COLLOQUY magazine during the George W. Bush administration, what I knew about loyalty marketing could fit in a thimble. But I was fortunate enough to work under talented mentors who taught me the fundamental axioms of loyalty marketing. Namely, that some customers are more valuable than others. That customer relationships can be managed and strengthened to the mutual benefit of those customers and the brand.

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And, perhaps most importantly, that customers are motived by both transactional and emotional rewards. Maybe your brand can indeed build sustainable loyalty on personalization, gamification, or NFTs; maybe you can do so purely by delivering a steady diet of points or miles. Finding the right balance for your brand is perhaps the most important design decision you can make.

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“I don't think transaction loyalty is dead, but it's no longer enough on its own,” said Dom Winchester. “You need to have that balance of non-transactional elements, whether they're connected with earning points or other benefits, that rounds off those kinds of hard transactional edges.”

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Rick Ferguson is host of the Loyalty Newscast, the premiere news magazine for a global audience of loyalty marketers. To listen to the Loyalty Newscast, visit www.loyaltywired.com.

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