Loyalty programs have evolved far beyond simple points and rewards. In an era where consumers expect hyper-personalized experiences and seamless omnichannel interactions, brands must rethink how they engage and retain customers. From leveraging AI to recalibrating business models, staying ahead requires both innovation and strategic execution.
In this episode of Industry Voices, Mark Johnson of Loyalty360 sits down with Don Smith, Chief Consulting Officer at Capillary, to unpack the latest trends in customer loyalty. They discuss what predictions for 2024 held true, where the industry fell short, and what key strategies will define success in 2025. With insights on AI, partnerships, financial engineering, and program design, this conversation is a must-read for any loyalty professional looking to refine their approach. Read the excerpt below and listen to the entire interview on the podcast.
Mark Johnson: In hindsight, what predictions about customer loyalty in 2024 turned out to be accurate? How have those accurate assessments impacted brands' customer loyalty strategies?
Don Smith: Some of our predictions were spot on. One major trend we anticipated was the recalibration of business models post-COVID, which required many major loyalty programs to undergo dramatic restructuring. We saw brands working to make programs more profitable, efficient, and balanced. A prime example is the airline industry, where we observed significant changes in how customers qualify for tiers, with more spend-based metrics and the introduction of loyalty points.
At the same time, airlines sweetened the member experience by bringing in better partner benefits that align more authentically with travelers’ needs. This balancing act—enhancing perceived value while maintaining profitability—continues to evolve and will remain a focus going forward.
Mark Johnson: Were there any predictions that didn’t materialize as expected?
Don Smith: Absolutely. Everyone, myself included, predicted that 2024 would be the year of hyper-personalization at scale. While there have been advances, true personalization hasn’t fully materialized. Instead, we saw an increase in the volume of communications, making the personalization stack appear more "spray and pray" than truly customer-centric.
Another prediction that didn’t fully come to life was the rise of data-informed "clienteling"—using AI-driven insights to empower in-store associates with better customer data. While it remains low-hanging fruit, many brands haven’t executed this strategy effectively yet.
Mark Johnson: AI in customer loyalty is intriguing but also met with skepticism. Many brands employ teams to oversee AI-driven segmentation and personalization. If AI makes an error, brands hesitate to trust it fully. What are your thoughts on this?
Don Smith: That’s a great point. AI, when done correctly, should augment human capabilities rather than replace them. Forrester recently highlighted that well-executed AI enhances customer interactions rather than eliminating jobs.
For example, AI should help customer service agents by curating relevant data—past purchases, outstanding rewards, and service history—to create a more personalized experience. The key is having a strategic approach rather than blindly relying on automation.
Mark Johnson: Looking ahead to 2025, what role will brand partnerships play in loyalty strategies?
Don Smith: We are already seeing smarter partnership marketing. The goal is to create relevant, authentic, and adjacent benefits that enhance the customer experience without being purely transactional.
For example, in the travel sector, partnerships between airlines, rental car companies, and hotels make sense. Consumers appreciate these authentic benefits rather than generic, affiliate-based offers. Done correctly, partnerships should elevate all participating brands and add value for consumers.
Mark Johnson: How should loyalty programs integrate in-store and online experiences for a seamless customer journey?
Don Smith: It comes down to a solid online-to-offline (O2O) strategy. Brands need to understand their business model, their customers' behaviors, and where incentives make the most sense.
For example, if clienteling in physical stores leads to higher sales, brands should create incentives to bring online shoppers into the store—like try-on bonuses or in-store exclusive perks. Conversely, if store closures are necessary, brands must proactively transition customers to online engagement.
Ultimately, brands must focus on customer experience journey mapping while keeping things simple and aligned with customer preferences.
Mark Johnson: What are the most common reasons loyalty programs fail, and how can brands address these issues?
Don Smith: Two major factors:
- Poor Financial Engineering – Brands sometimes make rewards too generous or introduce too many earning mechanisms, creating an unsustainable financial model. Proper modeling and simulations are essential from the outset.
- Lack of Innovation – Even well-designed programs can stagnate. Brands need to continuously personalize experiences, introduce new perks, and keep members engaged beyond a static value proposition.
Mark Johnson: What are the critical metrics brands should track to measure loyalty program success in 2025?
Don Smith: Some key metrics include:
- Tracked Sales Penetration – Percentage of transactions tied to loyalty members.
- Earning & Redemption Rates – Ensuring members are engaging with rewards.
- Acquisition to Attrition Ratio – Gauging membership growth health.
- Retained Member Velocity – Understanding if retained members are growing in value.
Many brands also overlook emotional loyalty metrics and comprehensive ROI calculations. It’s vital to involve finance teams in loyalty ROI discussions for accurate measurement.
Mark Johnson: What’s the next big thing in customer loyalty?
Don Smith: The future is about choice—allowing members to personalize how they engage with a loyalty program.
For example, brands may let members choose between earning points or unlocking perks directly. The challenge is making these options simple and intuitive for consumers. Loyalty programs must empower members without overwhelming them.
[Podcast] Leaders in Customer Loyalty: Industry Voices: Don Smith, Chief Consulting Officer at Capillary
[Video] Don Smith, Capillary | Leaders in Customer Loyalty: Industry Voices