Building Proprietary Loyalty Systems In-house: Technology Experts Weigh In

In today’s loyalty landscape, brands can become overwhelmed by the number of technology solutions available promising to meet their unique needs as they build out organizational and loyalty strategies. Working with existing technologies and platforms within the organization adds another layer of complexity. The question of whether to fully develop a solution in-house or to partner with a technology company specializing in solutions that support a brand’s loyalty needs while assuring an enhanced customer experience is not an easy one to answer. Different brands should thoroughly vet all options before drawing on their own resources to produce in-house solutions.    

Loyalty360 spoke with supplier members and loyalty strategy experts about possible benefits and pitfalls, if the strategic value of developing and maintaining systems in-house outweighs the cost, and the potentialities of implementing a hybrid model. 

Article contributors:  

  • Cassie Preston, Director of Client Services, CRM & Loyalty, Baesman 

  • Sameer Garde, CEO, Capillary Technologies 

  • DuWayne Mahlen, Jr., VP Information Technology, Lacek 

 

Benefits vs. Risks 

Several major brands are developing and implementing their own technology solutions instead of relying on vendors to do the job. Recent  in-house or home grown tech products include mobile apps, kiosks, artificial intelligence (AI) modules, and even entire operating systems. Brands have stated that investing in proprietary technology will enhance analytics and personalization and support the continued digitalization of company operations.   

Bringing technology in-house may initially appear to offer greater control; however, in many cases, it can lead to unforeseen challenges, particularly when technology is not a core aspect of a brand’s business. The development of a robust technology platform with the necessary security and scalability features demands a considerable level of technological expertise.  

“One of the primary drawbacks of internalizing technology is the potential to overlook the innovative contributions that specialized technology-first loyalty solution providers can offer,” explains Capillary’s Garde. “The right provider with significant experience in AI-driven innovations can deliver a strong platform alongside a well-defined roadmap encompassing all the essential functionalities needed to establish and operate a profitable loyalty program.”  

It’s no secret. Brands today have numerous tech solutions in their tech stacks, and many are centered around managing the customer experience, which means they require integration with one another.  

“Building a tool in-house, whether to manage your data or act on it, can be cumbersome,” says Baesman’s Preston. “But in some cases, it can be beneficial. A business-driven roadmap and prioritization, the ability to integrate with other systems, and cost savings on hours-based work with an outside party are benefits to building in-house.”  

Still, she notes, building in-house doesn’t come without risks. Data security and privacy have become increasingly important, so if brands decide to build in-house, they’ll be expected to take on and manage the associated risk. Internal alignment on prioritization and capacity constraints can cause bottlenecks for build and future enhancements. Integrations with other software or hardware providers in the tech stack often require external vendor engagement, which can also delay product development. Moreover, adding to a company’s headcount to build internally can be expensive.  

Lacek’s Mahlen echoes the sentiment on cost. “The main potential risk is cost. The necessary expense and expertise to support technology functions may be unsustainable. Brands won’t want to deplete resources that could otherwise be earmarked for innovation.” 

Mahlen goes on to say that a benefit to bringing technology in-house is control. Any technology strategically important to the core business should be supervised closely. Bringing technology in-house allows the brand to maintain complete control of its intellectual property, data (including customer data), the location of storage and processing, and the direction of innovation.  

 

Resources and Expertise 

While deliberations are being made, brands must determine the resources and expertise required to develop and maintain proprietary systems. 

Mahlen points out that some brands may already have the hardware and expertise required to create a proprietary system. However, to bring technology in-house, they need to establish a host of other capabilities — software development best practices, code management, quality analysis, security reviews, load testing, documentation, and customer support.  

“Brands must carefully consider whether the strategic value of developing, hosting, maintaining, and supporting their own solutions is enough to outweigh the costs,” cautions Mahlen. “Will those solutions provide enough strategic differentiation to make it worth it?”  

Garde believes a brand choosing to develop its own system will need to attract top-tier engineering talent capable of constructing a proprietary system that operates efficiently at scale, exhibits adaptability to address diverse use cases inherent in business operations, and adheres to stringent security standards. He warns the endeavor can divert attention and resources away from the core business, essentially necessitating a significant shift toward technology platform development — a distinct and demanding venture in its own right.  

However, if a brand decides to move forward with designing and developing the system in-house, it’s imperative for a strategic brand leader to drive the business requirements behind what’s being built. Preston explains that other headcount and resources from the team in IT, project management, product management, and beyond may be needed to maintain an ongoing roadmap for the product. Loyalty platforms require ongoing enhancement to keep up with necessary integrations and servicing as loyalty programs adapt to meet evolving customer expectations

“External partners can be helpful in identifying strategies that consider the industry and market trends that may influence roadmap items,” she adds. 

 

Hybrid Models Are Possible 

Loyalty360 asked the technology experts if they anticipated brands embracing a hybrid model using a mix of in-house and outsourcing solutions in 2024. Preston asserts it’s already a reality.  

“Brands have several different ways they look at technology — some build fully in-house solutions, some outsource everything, and most ultimately rely on a healthy mix of those options to do what they need to do,” Preston says.  

Indeed, some tech providers offer a base configuration, which allows for customization down the line by the brand’s technology teams. However, Preston reminds brands that there are significant items to consider when outsourcing access and integration.  

“You don’t want to be in a position where you’re unable to access the solution or the external team,” Preston continues. “Integration is also key, especially from a marketing standpoint. The systems in your tech stack must talk to each other and pass information about the customer safely and securely for marketing teams to create the customer experience that drives engagement and purchasing behavior.”  

Garde also sees a hybrid model as a viable option for brands, wherein they maintain a modest in-house technology team or collaborate with a trusted consultant well-versed in the intricacies of the field. This type of approach ensures seamless integration while outsourcing the heavier lifting to specialized solutions providers. He explains that large enterprises, in particular, can benefit from this approach, as it allows them to engage actively in technology-related matters while entrusting the implementation and execution to seasoned experts. 

Mahlen offered that one way to achieve a hybrid model is for brands to focus on developing a proprietary interface and user experience that could then “bolt on” to open, API-driven outsourced solutions that are built, maintained, and supported by specialist third parties.  

“Another way brands can leverage outside expertise to support their solutions is in outsourcing specific required functions, such as customer support,” adds Mahlen. 

 

Leveraging the Power of External Partners 

Even when a brand chooses to develop systems in-house, there is still ample room to work with an external technology partner to leverage expertise and take advantage of additional resources.  

The right partner can assist brands in understanding the pros and cons of certain technology platforms, what to look out for in the onboarding process, and how to prepare business requirements and a strategic roadmap for any tools a brand may choose to develop internally.  

“We commonly support brands who have long-term engagements with other technology providers, so we’re familiar with how much of the customer relationship management and loyalty technology works,” says Preston. “We also support integrations that a brand’s current providers can’t when building in-house.”  

To this, Mahlen adds that the negative effects of protectionism — limiting integrations and increasing costs due to data conversion and mapping — can be mitigated if external partners develop standards and universal data models to guard against them.  

“Interoperability is key, especially if the in-house solutions must work with other software or systems,” emphasizes Mahlen.  

Even when brands invest in developing their own technology, the reality of an interconnected world makes it nearly impossible to completely avoid reliance on external partners. Whether it’s for in-depth engagement solutions, specialized AI capabilities such as hyper-personalized segmentation, or providing valuable insights and guidance to marketers, there will inevitably be situations where external partners can contribute effectively.  

“It is prudent to carefully consider the available options, maintain open avenues for partnerships, and navigate the path ahead with flexibility and adaptability in mind,” finishes Garde.   

Recent Content

Membership and Pricing

Videos and podcasts

Membership and Pricing