Loyalty programs have long relied on the point of sale interaction to inform consumers of their rewards and discounts, but the rise of mobile is changing consumers' expectations.
Today, many consumers determine how many points they have earned by asking a cashier or digging through their pockets for their most recent receipt. With mobile, that information can be looked up at any time, and can guide consumers' shopping habits at more points of interaction.
Starbucks, for example, has long stated that its loyalty program is one of the foundational elements of its successful mobile payment app. Returning customers can see how many "stars" they have earned on their way to the store, and they can top up their Starbucks card a product one in seven Americans received as a holiday gift last year before they get to the register.
"We know that increased Starbucks Card sales drives My Starbucks Rewards membership and, in turn, traffic in our stores," Howard Schultz, chairman, president and CEO of Starbucks, said in a January conference call to discuss holiday-season earnings.
Using Starbucks as the "how-to" model for combining loyalty programs and mobile payment would make sense for others seeking to strengthen interaction with customers.
Another major brand to watch is Taco Bell, which is working on adding a loyalty program to its mobile app.
But every merchant has different needs, and many may not grasp the extent of the work that goes into a successful marriage of loyalty and mobile, said Molly Plozay, vice president of loyalty products at First Data.
"If you are a national player, you probably have multiple different devices and systems, making it very hard to open up the POS to identify members and past loyalty data," Plozay said. However, mobile is "going to liberate us away from the POS" by moving loyalty data to the cloud, Plozay added.
Payment processors like First Data will have to work closely with merchants to develop and fine-tune a proper mobile loyalty app, Plozay said. "We will figure it out as we go along, but that will open the door to some exciting things."
Even though mobile projects call for more investment than traditional loyalty programs, it is hard to find a downside to the new technology, said Kirk Simme, senior vice president for credit and corporate finance for Ascena Retail Group Inc.
"I believe mobile technology will remain an important driver in helping mobile-savvy consumers to better plan shopping events to take advantage of what merchants have to offer," Simme said. "New mobile products coming out in the next two to three years will become true differentiators."
The biggest potential complication for mobile loyalty programs is the move to more secure payment methods, such as tokenization, which replaces the shopper's card-account number with a less sensitive token. The shift to EMV-chip cards presents a similar problem.
"The card number is what is the primary identifier, especially in bank card rewards programs," Plozay said. Merchants with POS terminals designed to capture loyalty data will generally use a phone number, code or member name to identify a program member, she added.
Regardless of the technologies in place, loyalty programs must continue to emphasize the basics of being easy to understand, being available immediately and having relevance, said Thad Peterson, senior analyst with Boston-based Aite Group.
MasterCard has encouraged issuers to set aside the technology obstacles and emphasize "life experiences" with its customers to promote more card use. Similarly, Amazon.com emphasizes experience such as free shipping and cloud storage of digital music as the rewards for spending on its website.
Peterson cautioned against building rewards that take so long to earn that they become disconnected from the in-store experience.
"Ultimately, you are rewarding customers for an exhibited behavior," he added. "For that reason, the reward has to be pretty attainable and relatively soon."