The evolution of loyalty and customer experience
How to prepare your brand
for the future of loyalty
epsilon.com

The evolution of loyalty and customer experience
Contents
Introduction 3
What is loyalty? 4
Customer-centric loyalty 5
Reward mechanisms in traditional loyalty programs 6
The importance of building connections 8
Developing an effective loyalty strategy 9
Building emotional connections 10
Where to start 12
How Patagonia handles loyalty 14
How Walgreens integrates loyalty 15
Conclusion 17
About Epsilon 18
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The evolution of loyalty and customer experience
Consumers today have more choices and more channels to shop than at any other time in
history. This means your brand must face the ever-important challenge of creating unique and
effortless customer experiences at each and every touch-point.
Pre-recession, most retailers relied heavily on the store associate to create memorable
customer experiences. Although the associate continues to play a key role, shrinking staff sizes
and customers embracing online shopping leaves a gap in the service model. At the same time,
customers with limited discretionary income and stretched wallets began looking for retailers
that provide greater value for their dollar.
Post-recession, every customer expects more than just value. They expect experiences that
make them feel uniquely special and that exceed their expectations. Today’s consumers have
more access and choices than ever before and they don’t want to just be a number. They need
to know that you appreciate and value them.
The challenge these days is two-fold: you’re looking for ways to not only acquire new customers
who may be younger or different than your existing customers, but also to further engage and
satisfy your current loyal customers. It can feel like you’re constantly splitting your attention
between two competing avenues.
The evolution of loyalty and customer experience
Introduction

The evolution of loyalty and customer experience
Even though everyone seems to be thinking about or
implementing loyalty programs, the whole concept of
loyalty is quite broad. They range from very targeted,
surprise-and-delight CRM to very complex, tiered
loyalty programs which serve very different purposes.
Loyalty is one of the hottest topics today and the
reason is simple—loyalty programs allow you to
acquire more customer data than ever before.
Customer data allows you to be more targeted with
your marketing and stop the margin erosion caused
by mass-marketing heavy discounts. It’s the best
tool for marketing optimization, but in order for it to
be effective, your loyalty program must be designed
properly.
1
Colloquy Loyalty Census, 2015
2
Colloquy Loyalty Census, 2015
3
The 2015 Loyalty Landscape Report, Loyalty360, 2015
What is loyalty?
There are more than
3.3 billion loyalty
program memberships
in the US. That’s a 26%
increase from 2102.1
The average number
of programs in which
consumers are enrolled
continues to climb—
from 10.9 programs per
member in 2014 to 13.3
programs per member
in 2015.3
American households
hold memberships in
29 loyalty programs
but are active in just
12 of them.2

The evolution of loyalty and customer experience
It’s all about loyalty.
In an effort to set your brand apart, you need to find
unique approaches to loyalty beyond just doling out
points and issuing certificates. No longer just a points
program, loyalty is now about forming relationships,
building engagement and enhancing your customer’s
experience.
Rather than being just a program, loyalty is becoming
a vehicle for your brand philosophy. The new breed of
successful loyalty programs are going beyond perks
and building emotional connections with customers.
Unparalleled customer loyalty begins and ends with
the quality of the relationship a brand has with their
customers. We believe that relationships are the
strongest driver of business success. Loyalty is all
about people. And no two people are alike.
The journey to customer centricity requires you to
think of loyalty as a strategy rather than a program.
The explicit loyalty program lives within the context
of the broader customer experience strategy and
marketing plan.
The goal of comprehensive, integrated, holistic loyalty
and customer experience strategies is to engage with
your customers, build meaningful
relationships and encourage them to be repeat
customers. Personalization is the expectation from
customers, it is present in their emails, websites
and interactions. Creating an experience that is truly
personal and engaging can be accomplished through
behavioral targeting and insight that real time data
provides. Understanding and using this data connects
you with your customers in ways that will build trust
and engage interest.
A great loyalty program benefits both the customer
and the brand. Customers not only get economic
rewards, but experiences with the brand such as
insider tips, content, in-store events and reviews.
They can easily provide feedback and see tangible
acknowledgement of their loyalty.
On the flip-side, brands get rich consumer insights,
engagement and, ultimately, brand strength within
the industry or category. You can better understand
your customers’ behaviors, buying habits and
demographics, which allows you to make more
appropriate product recommendations and provide
enhanced value to customers.
Customer-centric loyalty
Loyalty as a program = A business-centric approach
Loyalty as a strategy = A customer-centric approach

The evolution of loyalty and customer experience
Connecting with your customer
requires more than a transaction
The evolution of loyalty and customer experience
4
Fixing the Cracks: Reinventing Loyalty Programs for the Digital Age, Capgemini, 2015
Traditionally companies have based their loyalty rewards on purchases. This transactional
mindset is evolving as loyalty becomes a mindset and not just a program.
97%purchases
6%mobile app
downloads
4%social media
engagement
2%in-store
check-in’s4
14%participation
in gamification
programs
16%activities
Transaction-based rewards
Engagement-based rewards
Overall, only 25% of companies reward any one of these
forms of engagement:

The evolution of loyalty and customer experience
Because loyalty is evolving from a simple points-
based system into something more robust and
customer-centric, loyalty membership is steadily
increasing. U.S. consumers are signing up for loyalty
programs in droves and participating in all the reward
activities the program has to offer.
But that doesn’t mean they are happy with the
loyalty program you have in place. The key for today’s
shoppers is to give them targeted, personalized
messages and offers, including rewards they
actually want and will use. Your loyalty members
want opportunities to interact (and get rewarded for
it), from downloading your app to participating in
activities.
Driving behavior through targeted offers is only part
of the equation. You must be responsive and provide
information and resources that guide and reinforce
the decision they’ve made to shop with you. As a
brand, you must be available to consumers whenever
and however they are interacting with you, much
like a trusted friend, rather than just focused on
completing a transaction.
Your loyalty customers want to engage with you, but they expect you
to know them and they expect you to get it right.
3.3 billion
2.6 billion2012
2014
433.5 billion
members
Specialty
retail
229.6 million
members
Dept store
retail
US loyalty membership growth: 2012 to 2014
26%
increase
20%
increase
18%
increase
3.3 billion
Loyalty is evolving from a simple points-based system
into something more robust and customer-centric.
Loyalty memberships are steadily increasing as U.S.
consumers take advantage and participate in all of
the reward mechanisms that programs have to offer.

The evolution of loyalty and customer experience
The importance of building connections
To gain a competitive advantage, you must achieve elevated levels of engagement
and experience. Without a brand connection, completely satisfied customers
demonstrate significantly lower brand and business equity.
13%
18%
1%
5%
41%
3%
19%
8%
8%
80%
82%
71%
Weak connection Strong connection
Recommend brand
Increase spend
Remain committed
Increase SOW
Repurchase brand
Continue servicing
Percentages = customers who responded ‘highly likely’
The evolution of loyalty and customer experience
5
Igniting Customer Connections: Fire Up Your Company’s Growth by Multiplying Customer Experience & Engagement, Andy Frawley, 2015
5

The evolution of loyalty and customer experience
Developing an effective loyalty strategy through
emotional connections
Customers today are more than just buyers; they are stakeholders. They are educated and empowered and using digital tools to make their shopping journeys
more efficient, relevant and meaningful. Making a purchase isn’t just a transaction anymore; it’s making an investment into your brand. In return for that
investment, customers are increasingly seeking an emotional connection with the brands that speak to a higher purpose or have a culture of doing the right thing.
Customers are most engaged with the brands that share their values.
Experience
Emoti
on
En
gagement
Engagement Experience/Emotion
Visited
website
Followed
on Twitter
Friendly
staff
Accessible/
convenient
Opted to
receive email
Linked on
Facebook
Responsible
staff
Is a respected
leader
Opened/
clicked email
Referred
others
Knowledgeable
staff
Is trustworthy
Posted
online review
Searched
brand online
High quality
products
Is innovative
Called
customer
service
Downloaded
a brand app
Good value
for the money
Values are
consistent
with mine
Measuring customer engagement & experience
Retain and grow your customers’ spend

The evolution of loyalty and customer experience
Are you thinking that building emotional connections is
taking loyalty a bit too far? See the stats for yourself:
Emotional drivers are the strongest determinants of brand and business equity.
Successful organizations align what they sell with why customers buy6
.
What most brands sell Why customers buy
Freshness
Low prices
Clean rooms
Convenient locations
MSRP
MPG
# of emotional connections
Trust
Alignment with my values
Recognition for loyalty
Trust in the dealership
Confidence in the brand
Top 2 key drivers:
6
Igniting Customer Connections: Fire Up Your Company’s Growth by Multiplying Customer Experience & Engagement, Andy Frawley, 2015

The evolution of loyalty and customer experience
New research suggests that brands that support customers’ well-being benefit from
increased engagement, interest and loyalty. Further, according to Edelman Wellness
360’s ‘American Well-Being Study’, 65 percent of consumers said brands “could be
doing even more” to facilitate their journey towards a stress-free life and 85 percent
of consumers said they would buy from brands which “effectively engage in
well-being.”8
This means that customers want you to care about them and to
behave in socially responsible ways.
64%of retailers say
their loyalty/rewards
program is the best
way to connect with
consumers7
7
Enhancing the Retail Omnichannel Customer Experience, SPS Commerce
8
http://www.bizreport.com/2015/04/increase-brand-loyalty-by-supporting-consumers-emotional-wel.html
9
Intelligence Across 1,000,000 Consumers, 280 Brands and 20 Industries, 2003-2013, Motista
Emotional connections matter9
Apparel retail spend per visit: $109
Banking products: 3.1
Tablets’ weekly paid content: 10%
Apparel retail spend per visit: $137
Banking products: 3.1
Tablets’ weekly paid content: 11%
Apparel retail spend per visit: $100
Banking products: 4.4
Tablets’ weekly paid content: 25%
1x 1.2x
3x
I’m satisfied I see your brand
as unique
I’m emotionally
connected

The evolution of loyalty and customer experience
To start building emotional connections with your customers, you need to understand what your values are. What do you stand for? What don’t you stand for?
Who determines what your values are? What issues or social conversations do you want to get involved in?
Once you understand your brand values internally, let the external world know, but be sure to first weigh the implications of publically speaking out for or against
something. The more your brand values are emphasized and used in imagery in marketing materials, social media and promotions, the stronger connection the
shared values can create with your customers.
It’s no surprise, then, that many of today’s most effective loyalty programs are moving beyond just rewarding transactions and toward actually engaging with the
customer. They are using the customers’ loyalty to help others and build a true emotional connection based on shared values.
Where to start
10
Igniting Customer Connections: Fire Up Your Company’s Growth by Multiplying Customer Experience & Engagement, Andy Frawley, 2015
Downloaded or used
brand app
Followed brand
on Twitter
Opened or clicked
on an email
Visited brand
website
Online search
for brand
40%
30%
20%
10%
0%
%ofcustomers
“In the last 3 months, which of the following have you done...”
An emotional connection triggers action10
...
+593%
+396%
+227%
+165%
+117%
1%
5%
0% 1%
7%
22%
32%
12% 11%
25%
Low emotion High emotion % Proposed increase in action of happy customers
(eg. spend money, influence other customers)

The evolution of loyalty and customer experience
The companies who are the most
successful at building emotional
connections with customers are those
who are leveraging their values and
letting their stance be known.
While most companies focus on more neutral values that
aren’t disputable—like caring for the environment or
supporting child education—others stand up for their values
and put themselves out there on more controversial topics.
But impactful loyalty programs aren’t stopping there. They
are providing tools, services, products, information and
resources to help customers learn about and get involved
in specific causes or issues. Sometimes the chosen
focus makes sense with the company mission, like an
environmental perspective for an outdoor company, but
that doesn’t have to be the case.
The evolution of loyalty and customer experience
Establish deep, reciprocal connections with
your customers, building loyalty for life

The evolution of loyalty and customer experience
Patagonia isn’t shy about their stance on environmental
topics; it’s even part of their mission statement:
Build the best product, cause no unnecessary harm,
use business to inspire and implement solutions to the
environmental crisis.
According to the Patagonia website, “For us at Patagonia,
a love of wild and beautiful places demands participation in
the fight to save them, and to help reverse the steep decline
in the overall environmental health of our planet. We donate
our time, services and at least 1% of our sales to hundreds of
grassroots environmental groups all over the world who work
to help reverse the tide11
.” They put themselves out there in
very overt ways, allowing customers who share these values
to easily see what they stand for and how they prove it in
their daily operations. Customers can trust this and it inspires
extremely strong loyalty.
11
http://www.patagonia.com/us/patagonia.go?assetid=2047
The evolution of loyalty and customer experience
How Patagonia handles loyalty

The evolution of loyalty and customer experience
Walgreens’ Balance Rewards took the approach of inspiring
customers to get involved by partnering with Fitbit and
MapMyFitness to let members rack up points for physical
activity tracked within the apps. This approach works off of
the shared value of health and wellness, but took it one step
further by actually rewarding customers for their hard work.
Syncing with existing tracking companies makes it simple
for Walgreens to implement, yet customers benefit from
more Balance Rewards for exercising. Customers feel like
Walgreens supports them in their efforts and helps them
reach their goals, making for a strong emotional connection.
This well-being component of loyalty gives your customers
an opportunity to be a part of the larger community. Use
your social channels to build followers, inform advocates
and inspire customers to take action.
The evolution of loyalty and customer experience
How Walgreens integrates loyalty
Watch the video of Julie’s Walgreen’s journey

The evolution of loyalty and customer experience
Putting it all together
Giving people a chance to engage with you in a variety of
meaningful ways leads to a stronger connection. If your brand
mission or the causes you support align with your customers’,
you automatically have a connection. Now it’s your job to
leverage that connection to turn those people into loyal
supporters of you (and indirectly, everything you support).
It’s time to shift your approach to loyalty by placing a greater
focus on the total customer relationship, engagement and
advocacy. Consider offering members discounts on in-
house classes, trainings or special events. Partner with
third-party vendors to offer meaningful content and insider
perks in addition to discounts on supplies, passes or
experiences related to your core values.
Think holistically about your program from a customer
experience perspective. Your approach may include CRM
and/or loyalty activities, or just one, but the idea is that every
touch point you have with the customer should be seamlessly
integrated and designed to enhance the customer experience.
This omnichannel approach means you have an integrated
strategy for brand marketing, CRM and your loyalty program,
and that integration includes point-of-sale, mobile, apps, online
stores, in-store signage, email campaigns and more.
And finally, the concept of loyalty and customer experience
continues to evolve. Don’t be afraid to embrace that evolution
and create personal connections with your customers. There
is no one-size-fits-all approach to loyalty, but if you know your
customers, you may have ideas about how to engage them
and give them the experience they want. Trust your intuition,
but do your homework and leverage customer insights and
data to push the boundaries.
1
2
3
4

The evolution of loyalty and customer experience
As the market has evolved, we have seen a shift in the demand to close gaps in the customer experience.
Loyalty is no longer simply a technology platform or a points program. Customer loyalty to a brand is the
direct outcome of a seamless customer experience.
If you don’t currently have a loyalty program, what are you waiting for? It’s now or never to create the
connections that will lead to true loyalty. The online world is shrinking. Retail and customers are empowered
to be very selective about who they enter into retail relationships with. How can you acquire new customers
but also further engage your current loyal customers in this competitive environment? A loyalty program
can help.
The tools we have at Epsilon enable seamless customer experience for our brand customers. We start
with the consumer identification at the individual level. We capture their interactions across all touches.
We organize scattered fragments of data into clear, unique human identities. We interact with powerful
enterprise marketing technology platforms with predictive capabilities and cross-channel tools to give you
the ability to connect with your customers. We consult and design to solve even the most complex business
challenges while keeping the customer at the center of everything we do.
Contact us to learn more about how you can develop a best-in-class loyalty
experience that creates emotional connections with your customers.
Conclusion
We lead in loyalty. So do our customers.

The evolution of loyalty and customer experience
About Epsilon
Epsilon is the global leader in creating connections between people and brands.
An all-encompassing global marketing company, we harness the power of rich
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