Article by Chen Peng, vice president, Mastercard Data and Services
Loyalty programs in Asia Pacific are undergoing rapid change as organizations from retailers to banks to telcos reconcile the shifting landscape of loyalty. Strategies that served organizations in the past no longer engage today’s consumers, and many are grappling with the diminishing value of legacy programs and the growing expense of maintaining them. Loyalty executives are asking tough questions: How can our loyalty program remain relevant and engaging? How can we create better experiences for our consumers?
While the traditional closed-loop, points-centric loyalty program is well established, leading loyalty professionals in Asia Pacific are re-examining their engagement strategies to ensure they’re robust enough for the new digital age. Enter the open loop loyalty ecosystem: an innovative loyalty construct based on a network of organizations that enables consumers to earn points at one organization and use them at another. Open loop ecosystems are proving to be a powerful way to deliver value and encourage loyalty by exceeding consumer expectations.
Understanding the regional challenges
Because Asia Pacific is made up of markets in different stages of maturity, the challenges vary greatly by country. In well-established markets like Australia, Hong Kong, Japan, Singapore and South Korea, organizations face the challenge of continuing engagement with a demanding, and sometimes jaded, value-hungry consumer.
In emerging markets such as mainland China, Vietnam, Thailand, Indonesia, the Philippines, and India, there’s an opportunity to capitalize on an appetite for loyalty programs among the burgeoning middle classes. Loyalty programs can be a tool for organizations to shift from the traditional and basic strategy of heavy discounting. Because earning value through loyalty programs in these developing markets is a newer concept, consumers are likely to view rewards points as something aspirational that conveys the status they’re seeking.
Introducing the loyalty ecosystem
A solution to these challenges is emerging in the form of loyalty ecosystems. A loyalty ecosystem is a network of organizations that enables consumers to earn points at one organization and use them at another. For example, a fuel chain might open their loyalty program so members can also redeem points at a grocery chain partner. A loyalty ecosystem is not a traditional coalition loyalty model, and while the two models might appear similar, they differ in their approach.
In a coalition loyalty model, complementary businesses team up under one program umbrella. By contrast, a loyalty ecosystem originates with one standalone business that gradually opens its loyalty program for cooperation with other programs. Today, loyalty ecosystems that originate with one business can grow to encompass a wide range of businesses, including pharmacies, supermarkets, home goods and home improvement stores, department stores, insurance providers, rental car companies, streaming services, airlines, travel aggregators and restaurants. Shoppers joining the loyalty ecosystem earn points when they book travel, eat at a restaurant chain in the airport, and then hire a rental car to drive to their hotel, where they earn more points.
In a new report, “Opening the loyalty loop: How organizations across Asia Pacific are building next gen loyalty programs,” Mastercard Data and Services vice president Chen Peng and director Martin Benda share the results of a survey of 150 loyalty executives across Asia Pacific.
“Opening the loop requires opening your thinking,” says Peng. “The future looks like a quiet coalition of banks and hotels and airlines all exchanging value.”
Shifting the narrative on loyalty programs
Open ecosystem loyalty programs make up only a small percentage of all loyalty programs, but as more consumers come to expect an engaging, immersive experience from their favorite brands, they are gaining significant momentum. In the Mastercard survey, 75% of respondents said their loyalty strategy is increasing the points per spend in their current points-based loyalty system. But when asked what their vision for a customer loyalty program of the future was, ecosystem-enabled loyalty (35%) is the top-ranked program that respondents expect to see in 2022 and beyond.
“It’s a big change in the narrative of loyalty programs,” says Mastercard’s Benda. “Merchants are accustomed to that money coming back into stores 100%. But if merchants don’t change, they’ll be less relevant because there are too many similar loyalty programs around.”
Learning how to evolve toward a loyalty ecosystem
How do you evolve from a points-based loyalty system to a more comprehensive digital lifestyle and loyalty platform? That’s the question that faced one of Southeast Asia’s largest retailers. Established as a membership program in the early 2000s, the loyalty program already had a large member base in which customers could earn and redeem points. However, the program had limitations and could not engage customers on an individual level.
Mastercard worked with this company to launch a lifestyle platform offering its millions of members a personalized experience through their mobile application. An engaging gamification board anchors the experience with visible results shaping consumer behavior and driving sales to participating brands. Today, the program includes more than 2,000 brands with loyalty, payment and retail offers consolidated into a single mobile experience.
“Opening the loop is about earn and burn and the customer experience,” says Mastercard’s Peng. “On the earn side, everyone wants to join in. On the redemption side, it’s a bigger ask of a company to embrace the ecosystem. While the customer wants more places to redeem their points, companies can be reluctant to see points going out of their store.”
But this fear can be assuaged. Peng adds that ensuring that the points revenue is justified for the technology integration required is also important. A café with two locations might not make sense as a loyalty partner, for example. Working with the retailer, Mastercard planned a three-phase approach in which they defined the target customer experience, built the backend technology backbone, and scaled up hyper-personalization via gamification. The result was a highly gamified digital engagement program that customers in Asia Pacific use daily. One year after the program relaunch, there was 15% more spend from participants compared to 2020 and a 60% increase in app engagement. The project drove an increase in mobile application downloads by 147% and a 100% increase in monthly active users.
Enjoying the first mover advantage
Consumers now expect businesses to understand their needs and unique contexts across every channel, and businesses are leading the way as they rethink what loyalty means for the company and its customers. Forward-looking loyalty executives are opening the closed loop of their traditional loyalty programs to create brand ecosystems. Customer loyalty is pivotal to the success of businesses over the long term, and those who adapt now will gain first-mover advantage.
To read more about the Mastercard survey and loyalty ecosystems in Asia Pacific, download the report.