Loyalty programs are at a crossroads. As retailers seek to define and refine strategies that put the customer at the center of their businesses, data about those customers becomes increasingly important – and loyalty programs have become a significant means to acquire that critical customer data. At the same time, retailers struggle to justify their loyalty programs to shareholders and management. Loyalty programs are being jettisoned by poor performing retailers looking for a quick return to profitability, as Borders and Albertsons recently demonstrated. This report seeks to unravel the elements of successful loyalty programs by benchmarking their effectiveness across various segments of retailing. How effective are loyalty programs in building loyalty? Which types of programs have the greatest success? What defines an “effective” program in the first place?

The answers will surprise you. While there are certain things that retailers do – and do not do – that make sense and fit with conventional wisdom about loyalty programs, retailers with successful loyalty programs see the world differently – and behave differently as a result. But what we heard most clearly through this research is that even though loyalty programs have been used for a long time compared to other retail innovations, they are still relatively immature. Loyalty programs may be at a crossroads, but there is still a lot of road left to travel.