What exactly is loyalty marketing? It's a program that rewards customers for their repeat purchases or interactions with a brand. Think about airlines, hotels, and QSRs. Loyalty marketing programs are offered from both national brands as well as local ones. For the latter, perhaps your neighbor pizza shop.
According to a 2024 report on the Loyalty Management Market from Fortune Business Insights, the global loyalty market is projected to grow from $13.31 billion in 2024 to $41.21 billion by 2032, exhibiting a CAGR of 15.2% during the forecast period. I'll take a 15.2% growth rate in my 401k any day!
Further, according to the report US Retail Loyalty Programs 2024 from eMarketer, both total loyalty program memberships and active loyalty program memberships reached new highs in 2023.
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ANA and Human (formerly known as White Ops) have a long history of working together on advertising bot fraud -- also known as invalid traffic or IVT. We partnered on four studies together. That first study was released in 2014 and put the issue of bot fraud squarely on the radar screen of the advertising industry. The level of fraud was high ten years ago. As a result of our work, buyers now proactively manage fraud and there are multiple ad verification companies who work with marketers and agencies to address the issue. It all began with the awareness generated from our work together. We are now curious to learn about fraud in loyalty marketing.
To help set a foundation, there is currently a survey in the field to understand marketer attitudes about loyalty marketing and loyalty fraud specifically. Preliminary findings are outlined below (we have kept them broad for now and will provide details after the survey closes).
- Loyalty marketing is three times more likely to be "more important" over the next year, than "less important."
- Top benefits of loyalty marketing
- Ability to collect customer data and insights to improve products, services, and customer experience
- Increased customer lifetime value
- Top challenges
- Measuring ROI
- Cost to run the program
Note that there were six options for challenges offered -- potential for fraud ranked next to last and privacy concerns ranked last.
- In response to the question, "What types of fraud most concerns your organization?" the top responses were:
- Customers exploiting loopholes or errors in the program's rules or system to gain unfair advantages or access to rewards that they are not eligible for
- Fraud via professional hackers
- In response to the question, "Have your organization's loyalty program(s) ever been subject to fraud?"
- About one-third said "yes" while the majority "don't know"
Recently at Cannes, Human hosted a panel discussion on fraud in loyalty marketing. Thanks to MediaVillage's Jack Myers for hosting a vibrant discussion that had participants from Human, The Weather Company, Merkle, United Airlines, and ANA (me!). Comments of interest from that session follow (but without attribution to specific speakers):
- Loyalty marketing programs are important because of the quality of first party data they generate. And they don't just generate first party data in the moment; they generate it and build it with customers over time.
- Loyalty marketing programs build long-term relationships with customers. That is done by adding value to the customer. When there's an experience where that value is eroded in any way -- i.e., if fraud occurs -- it puts things at risk.
- Companies need to consider the potential for fraud from the very start and build protections into their loyalty marketing programs.
- Fraud protection can be expensive. That protection is all built around the end game of a better customer experience that's going to drive value. And the relative costs are therefore rounding errors in that context.
- The most common type of fraud in loyalty marketing is email account takeover. That is when customer accounts, their email account that's associated with their loyalty account, and their bank account is compromised.
- Sometimes there can be just an account to email takeover, where the fraudster has taken over an email account and is able to see all activity flowing through to that account.
- Multi-factor authentication is one solution to combat fraud. Multi-factor authentication is a multi-step account login process that requires users to enter more information than just a password. For example, along with the password, users might be asked to enter a code sent to their email.
- One participant recently retooled the underlying fraud systems to track and monitor device type for login, looking for patterns that are different than the norm.
- Generative AI is really good at identifying patterns of attack that look different than a regular customer outreach and has been quite helpful in protecting loyalty marketing programs. There are playbooks that fraudsters use. And when the attacks look like the playbook, then that will trigger a block and the company will put a hold and then attempt an outreach to the customer directly.
- Loyalty programs in general are going to move from transactional, to more emotional. Generative AI allows us to get much more personal on those connections. So, the barista at Starbucks should know my name, they should know that I'm in there every day, they may because it's my neighborhood store. They may not because I'm in a new city, but they still should know that I'm a valued customer. And they should make that connection with me. Generative AI allows that level of personalization and customization at a much more interesting and important level.
- AI is both friend and a foe of loyalty marketing. It's a foe because the bad guys are using AI too!
We learned so much in our work with Human on advertising bot fraud. We are just in the initial phase of our work on fraud in loyalty marketing. I can't wait to see what we find out!
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The opinions expressed here are the author's views and do not necessarily represent the views of MediaVillage.org/MyersBizNet.