[MARTECHVIEW] From Legacy to LaaS: The Evolution of Loyalty Programs

MartechView originally published this article. You can read it on their website here. 

Loyalty programs have evolved over the past few decades, with Loyalty-as-a-Service (LaaS) as the latest strategy for creating a modern loyalty experience. 

Long recognized as a powerful customer retention strategy, the first loyalty programs were simple but effective at engaging consumers. It is hard to imagine punch card-style tactics gaining much traction today, but the novelty of those early programs encouraged repeat purchases and built brand loyalty. 

The emergence of the modern loyalty program 

The ‘80s saw the emergence of the modern loyalty programs that still dominate the landscape. In 1981, American Airlines paved the way with its AAdvantage travel loyalty program, making it the first brand to start collecting data and encouraging customer retention by offering rewards for the number of miles flown. The then-innovative approach to incentivizing travelers’ loyalty quickly became popular with consumers worldwide, and other carriers rapidly followed suit. 

Other industries eventually adopted and adapted their loyalty programs to meet customer engagement and retention goals. Banks and credit card issuers began offering transaction points, and supermarket chains introduced loyalty initiatives in the ‘90s. 

Also Read: Beyond Rewards: Redesigning Loyalty Programs for the Modern Customer

The constraints of early loyalty programs (and legacy tech) 

Early loyalty programs – and many legacy loyalty technology systems still in use – employ various tactics, allowing brands to track consumer behavior more closely and collect detailed data. While this is a core component of any successful loyalty strategy, limitations exist. These older and likely complex systems rarely provide the flexibility necessary to leverage customer data to create better and more meaningful loyalty experiences that scale and meet the needs of today’s savvy consumers.

It is challenging for these legacy programs to adapt to changing customer preferences because adding functionality to existing platforms or integrating them with other systems requires time, money, and development resources—making the juice not worth the squeeze. Legacy programs also struggled to provide customers with anything remotely personalized or tailored due to architecture rigidity, limited data capabilities, and inadequate scalability. As a result, most early loyalty programs fell short of fully engaging customers or delivering real value beyond basic discounts and mass offers. 

How loyalty-as-a-service is surpassing traditional loyalty programs 

The rapid advancement of digital technologies in the 2000s (starting around 2010) created new opportunities to develop more sophisticated loyalty programs. Thanks to the significant growth of ecommerce and mobile apps, brands had newfound opportunities to collect data about customers they had only dreamt of before. This led to a greater understanding of their customers through data-driven insights and the ability to develop rewards targeted to narrower customer segments. 

Tech-savvy consumers also began demanding greater value and more personalized experiences from loyalty programs. At iSeatz, we published a report earlier this year based on a survey of US consumers and loyalty program professionals, which found that 65% of loyalty program members would engage more with those programs if offered better discounts. Another 22% would book travel through their loyalty programs more often if they received more personalized offers and recommendations. These findings suggest that brands must improve their programs’ ability to demonstrate value and create customized interactions to capture consumer attention effectively. 

Enter Loyalty-as-a-Service (LaaS), a cloud-based loyalty solution that applies the SaaS model to loyalty programs. Developed in response to the limitations (and expense) of building in-house loyalty programs, LaaS platforms provide scalability, flexibility, and seamless integration across myriad technology and loyalty systems, supplier and aggregator networks, as well as data and analytics platforms,  eliminating the need for time-, cost-, and labor-intensive internal development.  

Also Read: Loyalty and Data: Building Trust in Privacy

The LaaS model is designed to help companies increase customer engagement with more personalized rewards and offers. It delivers seamless and intuitive user experiences, making it easier for customers to track their rewards, redeem points, and view new offers. LaaS achieves this by making gathering and manipulating data for insights much easier than traditional loyalty platform deployments, all through a constantly updated, agile framework that can be implemented with faster time to market. 

With LaaS, brands can redefine loyalty strategies and offer customers a more dynamic and relevant experience. 

What LaaS means for brands moving forward 

LaaS is taking customer retention strategies to the next level by enabling brands to provide more customization and diversity in reward options. LaaS can quickly innovate and adapt to changing customer needs and wants as a cloud-based solution. LaaS also levels the playing field, enabling businesses of all sizes (not just the big brands) to create advanced loyalty programs that drive customer retention.  

According to the iSeatz report, in 2022, 67% of companies surveyed said they developed their loyalty programs in-house. By 2024, that number had dropped to 37%, with the percentage of companies contracting with an external provider rising from 22% to 33%. Today’s brands want to maximize returns (and investments) by partnering with loyalty technology companies that already have the best solutions built and are raring to go and can provide strategic support at every step of the way, from program design to management and rewards fulfillment. 

A Solution for the future of loyalty  

LaaS is poised to redefine brands’ approaches to loyalty program implementation and set a new standard for how effective customer retention and engagement strategies can be. As consumer expectations and competition among loyalty programs increase, LaaS is the solution to staying flexible enough to anticipate shifting customer demands and technologically capable enough to engage them optimally.  

This makes LaaS the current peak of loyalty program evolution, one that can truly release the shackles of traditional program construction and unleash the power of consumer-brand relationships.  

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