The future of loyalty programs II: 2025 – 2028 unpacked

Two years ago Australia's privacy overhaul and Google's cookie cull had brands, retailers and publishers scrambling – and racing to loyalty programs. Now the local milk bar has one, says Ellipsis' Tim Tyler, with a high-margin, data recycling retail media program to boot. But for some, loyalty-media economics are about to be challenged. Here's an expert view on what the next three years holds.

My local café now has a loyalty program – and a retail media business.

This article for Mi3 pointed out in 2023 that Google cookies were going, privacy was tightening unapproved access to customer data, and since Marketing abhors a vacuum, we predicted a serious increase in the number of loyalty program launches and relaunches before 2025.

It was hardly breaking news at the time, but we also pointed out that this would allow marketing to:

• Continue the drive to personalisation in communications and promotions.

• Build media networks that monetise the first-party data for additional profit and
• Oh yeah, sometimes increase customer loyalty.

Google backed off removing cookies, but like King Canute, the first-party data tide ignored this retreat and continued anyway.

Here is a sample of the programs launched, relaunched, and cancelled in the last few years (apologies to those we missed). This is a continually active industry looking for permissioned customer data!

Retail Media Businesses are popping up like mushrooms after rain.

Not surprisingly, the companies we in 2023 labelled ‘Loyalty Artisans’ are leading the way. They use their customer data to offer a channel that can close the attribution loop between marketing investment and sales.

There is also growing awareness of the dangers and fraud associated with the RTB (real-time bidding) system underlying online advertising channels.

“Major brands may be inadvertently funding a website that is known to host child sexual abuse materials.[1]”

This month, two US Senators, with the help of industry watchdog Check My Ads, have begun a probe of four huge tech companies following reports that ads are being displayed on child exploitation sites without the brand’s knowledge or control. The Senators wrote to Google's CEO, Sundar Pichai, “Where digital advertiser networks like Google place advertisements on websites that are known to host such activity, they have, in effect, created a funding stream that perpetuates criminal operations and irreparable harm to our children."[2]

Ellipsis (the loyalty experts) suspect the primary reason for retail media proliferation is the high margins available from reusing customer data already paid for. This complies with privacy regulations because the customer has granted permission. These organisations have launched retail media businesses.

As have a tonne of others: Wesfarmers, David Jones, Adore Beauty, Metcash, Woolworths, Chemist Warehouse, Bunnings, Coles, Aus Post, Petbarn, Foodstuffs to name a few – with half a dozen more sizeable networks expected to launch within months.

Note: not all brands need a loyalty program before launching retail media. Businesses operating via a contractual relationship with customers that require you to ‘know your customer’ already know what customers are doing without a program.

However, many operate a loyalty program for other reasons (think Amazon Prime). Banks and telcos, airlines, credit card issuers, streaming services and insurance companies know who you are and what you do. This class of companies is entering the media business; CBA has a media business, and United Airlines can sell personalised ads on seat-back screens, and it looks like there is no peace for the automobile driver.

Ad unit economics

Organisations with non-contractual customer relationships increasingly look to loyalty programs as the cost of the data they need to compete for a share of the customer’s wallet in their category. The current marketing zeitgeist encourages them also to monetise the data through advertising.

Two main factors influence the choice of retail media over other direct selling channels, and they both favour loyalty artisans.

1. Retail market strength: how many consumers start their product search at the retailer? “The higher the retail market strength, the more likely the brand will sell through the retailer.”
2. Organic match accuracy: can the retailer match consumers with the right brands? “Besides traffic, a key benefit of the retailer to the brand is the matching accuracy based on the retailer's 1P data and matching algorithms. The better this 1P matching, the more the brand benefits, and the more likely it is to desire retailer presence.” 

Loyalty programs will be more central to marketing strategy; the executives' focus will be measuring program health.

The loyalty program industry has (generally) done a poor job of accurately attributing more profitable customer behaviour to incremental reward costs. We grimace every time we see a program proudly proclaiming that members spend more than non-members. Of course, they do, but the infamous 50 per cent were going to buy anyway. It seems OK to live with misleading measures when the main waste is ineffective rewards to good customers. Vanity metrics like the total number of members, ever, disguise ignorance of how program performance can be measured. Are we afraid of the answer if we measure rigorously?

Things change when the key enabler of the loyalty program – retail media ecosystem becomes customer engagement with the loyalty program.

The consequences of a program that fails to engage members used to be real but opaque: wasted program expenses and missed opportunities for increases in customer lifetime value. Retail media businesses depend on a healthy flow of engaged customer behavioural data. The consequences of missing are more immediate and profit-threatening as advertising billings dry up. (FFPs be aware).

Ellipsis predicts an increased emphasis on engagement scoring and leading program health indicators. Measures of the effectiveness of advertising in the retail channel will add to this focus on programs as a data source, offer destination and sales channel.

The continued growth in retail media channels makes the effectiveness of the loyalty program even more critical. This is a wake-up call for the loyalty industry to apply rigorous attribution and measurement to ensure customer engagement and advertising revenue increases continue.

Dave Parsons, CEO, Ellipsis

Summary

• The more accountable retail media businesses are raising awareness of accountability, making ROAS and return on loyalty verifiable.
• This enhanced understanding of causality/attribution will focus on loyalty programs, in fact, on all channels owned, paid, and earned.
• Loyalty apprentices will have a choice of more accountable channels. Amazon is licensing its matching technology[1], so there will be shortcuts available to pave the way to becoming a ‘loyalty artisan’.

References:

[1] https://adalytics.io/blog/adtech-vendors-csam-full-report Adalytics noted that the ad tech vendors under scrutiny “do not provide the advertisers with page-URL-level reporting that would allow the brands to investigate exactly on what page URLs their ads served.” In other words, advertisers often do not know which specific webpages their ads are being served on, only the domain names.”

[2] The Ad Contrarian Newsletter #334/FEB 16, 2025

[3] The general moral, intellectual, and cultural climate of an era

[4] https://www.linkedin.com/pulse/retail-media-dynamic-capabilities-research-dmsb-pauwels-yihhe/

[5] https://advertising.amazon.com/library/news/retail-ad-service-announcement

This article originally appeared on the mi3 website.