VIEWPOINT

2024

FROM TR ANSAC TIONSTO INTER AC TIONSThe emergence of embedded loyalty

The global loyalty management market is forecast
to continue growing rapidly at more than 20%
CAGR to the end of the decade. Still, consumer

AUTHORS
Arjun Vir Singhattitudes are constantly changing, requiring

Riadh Marrakchi

ever more sophisticated approaches. Embedded

Dominic Kuriakose

loyalty, in which rewards are integrated into dailyexperiences and transactions, is an increasingly
prevalent solution. In this Viewpoint, we lookat what embedded loyalty is all about and how
companies can go about introducing it.

ARTHUR D. LITTLE

VIEWPOINT

HOW LOYALT Y PROGR AMS
ARE E VOLVINGC U S T O M E R AT T I T U D E S
A N D B U Y I N G B E H AV I O R S
ARE SHIFTINGS I G N I F I C A N T LY

Traditional card-based loyalty programs havebeen around for many decades. According
to Statista, the global loyalty management
market was around US $5.6 billion in 2022 and isforecast to grow at a CAGR of more than 20% to

There are also some strong technological drivers

around $24 billion by the end of the decade. In

for growth of loyalty programs. Digitalization

increasingly competitive customer environments,

has greatly enhanced customer convenience andbuilding brand loyalty makes obvious sense forexperience, while providing richer customer datacompanies, as well as offering savings and otherfor companies. In the coming years, we can expect

types of benefit to customers. Loyalty programs

to see further advances through technologies

seek to increase customer lifetime value (CLV), asuch as blockchain, augmented reality/virtual

key metric that measures the profit generated

reality, omnichannel integration and, of course,

by customers over their entire relationship withartificial intelligence (AI) — see Figure 1.

a company, taking into account the frequency ofpurchases, average transaction values, customeracquisition cost, and customer-retention rate.
Through CLV, companies can identify their mostvaluable customers and target marketing efforts,
while using data analytics to reduce churn,

However, at the same time, customer attitudes
and buying behaviors are shifting significantly.
For example, recent studies from Zendesk andHubspot have shown that while 77% of people say
they stick with brands that offer loyalty programs,
55% of US and UK consumers indicate that theirprovide customer insights, and identify upselland cross-sell opportunities. The net benefit of aloyalty program can be assessed by comparing allthese incremental benefits with the incremental

brand loyalty is beginning to decline. Looking
ahead, according to Statista, 60% of US Gen Z
online shoppers report diminished brand loyalty.

running costs.

Figure 1. Evolution of loyalty and reward programs
Figure 1. Evolution of loyalty and reward programs
10 YEARS AGO

Traditional loyalty programs,
card-based, points per purchase

PRESENT DAY

Digital loyalty programs,
app-based, e-commerce
integrated, digital payments

5 YEARS FROM TODAY
Blockchain-based decentralized programs,
tokenized rewards, NFT exclusives

Omnichannel integration (online/offline/mobile/social),
loyalty programs blended into daily activities, fluid
customer experiences, unified programs across platforms
Limited personalization
with generic rewards

Data-driven personalized
rewards, behavioral tracking,predictive analytics

Mainly standalone/isolated
programs, some cross-brandpartnerships

Experience-centric rewards,social/sustainable rewards toresonate with customer values& lifestyles

Rewards for sustainable purchases & behaviors,social responsibility initiatives integrated into reward
structures

AI technology for hyper-personalization, real-time
adjustment to behaviors/trends, dynamic reward structures

AR & VR shopping & loyalty experiences to enhancecustomer experience

NFT = non-fungible token; AR = augmented reality; VR = virtual reality
Source: Arthur D. Little

NFT = non-fungible token; AR = augmented reality; VR = virtual reality
Source: Arthur D. Little
FROM TRANSACTIONS TO INTERACTIONS

2

ARTHUR D. LITTLE

VIEWPOINT

WHY EMBEDDED LOYALT Y IS
INCRE ASINGLY IMP OR TANTC U S TO M E R S WA N T TO
FEEL LIKE THEY ARECONTRIBUTING AND
BENEFITING FROMTHE SUCCESS OF A
PA R T I C U L A R B R A N D

Embedded loyalty is a powerful concept thatsome believe will be the future of all loyalty
schemes. It refers to seamlessly incorporating
rewards and experiences into daily experiences
and transactions rather than treating themseparately. A bank may, for instance, reward
customers using its mobile banking app, or

In general, customers are increasingly looking

retailers may reward customers who purchasefor customization. They are vastly aware of social

products with specific payment methods.

trends and want to be part of a group where they
feel they belong. They also expect to have their

The main distinction between traditional

opinions heard. Consequently, brands need toloyalty programs and embedded loyalty isprovide them with benefits and experiences thatthat the customer data collected can enhance

make them feel special and keep them interested

personalizing rewards. Traditional loyalty— directly and indirectly. Customers also wantprograms often require customers to manually

to feel like they are contributing and benefiting

track points before redeeming them, whereas

from the success of a particular brand. Figure 2

with embedded loyalty, this process becomessummarizes these and other trends shaping thestreamlined and effortless for both companies

future of loyalty schemes.

and customers. This is in contrast to traditional
loyalty programs, which are often standalone

These trends are interconnected, and many aresystems that require separate registration,

mutually reinforcing. Collectively, they could lead

tracking, and redemption processes. Table 1

to no less than a complete redefinition of whatsummarizes the differences between embedded

customer engagement is all about.

loyalty and traditional loyalty schemes.

Figure 2. Trends shaping the future of loyalty and reward
programs
Figure 2. Trends shaping the future of loyalty and reward programs

Rapid adoptionof Web3
technologies

Emergence ofcommunities

Convergencewith financial
services

Creating
ecosystems withloyalty backbone

Personalization
through AI

Sustainabilityfocused rewards

Dynamic reward
structures

Omnichannel
presence,
including social
media

Instant
gratification

Increased data
security &privacy

Subscriptionbased models

Interactive& gamified
experiences

Interoperability
among different
loyalty & rewards
program

Blurring of thelines withrewards
programs

Integrated
customerfeedback loop

Mobile-first
approach

Embeddedloyalty

Source: Arthur D. Little

FROM TRANSACTIONS TO INTERACTIONS
Source:Arthur D. Little

3

ARTHUR D. LITTLE

VIEWPOINT

Table 1. Embedded vs. traditional loyalty schemes
Table 1. Embedded vs. traditional loyalty schemes
FEATURETRADITIONALLOYALTY PROGRAMSEMBEDDEDLOYALTY PROGRAMSRELATIVE
DIFFERENCE

Integration withcore services

Often standalone systems; manual input
or separate platforms to manage

Seamlessly integrated into product or service;
inherent part of user experience

High

Ease of use

May require separate cards, apps, orprocesses to participate

Designed to be frictionless, often requiringno additional steps from the user

High

Data collection

Typically collects transactional data,
often limited to purchase history

Gathers comprehensive data, including user
behaviors, preferences & interactions

Moderate to highPersonalization

Generally broad-based offers; may not
be tailored

Highly personalized, based on integrated data

Moderate to highAccessibility

Often users have to remember to engage
with loyalty program

Often automatically engages users as they use
core service or product

High

Rewardmechanism

Often physical (e.g., points, vouchers,
products)

Can be experiential, digital, or integrated into
service (e.g., premium features)

Moderate

Engagement
frequency

Often occurs post-transaction or during
specific promotional periods

Continuous engagement throughout customer
journeyHigh

Technology
dependency

May or may not be technology-driven;
physical cards or tokens might be used

Heavily reliant on technology, mainly digitalplatforms

High

Adaptability

Slower to adapt or change based on
customer feedback or market trends

Generally more agile, built on digital platforms
that allow for quick iterations

Moderate

Source: Arthur D. Little

Source: Arthur D. Little

Embedded loyalty is growing rapidly for several
reasons:
1. Digital technologies and tools haveenabled greatly improved capabilities tocollect and analyze customer information,
allowing businesses to provide more targeted,customized rewards to customers, increasing
retention and engagement and opening up the
possibility of using the data to generate newrevenue streams.
2. Customers appreciate the convenienceoffered by a seamless, integrated loyalty
scheme, without the need to enroll or
manually redeem rewards.
3. Embedded finance opens up the potential
for new, mutually beneficial partnerships
between product/service providers, loyalty
service specialists, and financial services firms.
Building on the third point, embedded finance(i.e., the integration of financial services into
nonfinancial platforms, products, or processes)
is already a popular and growing service withcustomers and embedders alike. Deep integrationof loyalty programs with financial products —going beyond just superficial integration such as
cobranded credit cards — offers major benefits,- Improved customer experience. Companies

that incorporate loyalty programs directly into
financial products can offer instantaneous
rewards for users and create a frictionlessexperience for them. Starbucks’s mobile
app, for example, combines digital walletand loyalty program functionality so users
can load funds onto it, earn points, andthen redeem those rewards within one app
environment.

- Increased stickiness. For example, Uber

Cash’s digital wallet provides bonus amounts
for pre-deposits, encouraging customers toregularly utilize this financial product andextend its daily relevance. As more customers
utilize both services simultaneously, Uber sees
retention increase.

- Tailored offers. By merging financialtransaction data with loyalty data, businesses
can develop tailored offers. One such example
is Apple Card’s seamless integration into
Apple Wallet and Apple Pay and tiered rewards
on purchases within Apple products andservices — encouraging spending within its
ecosystem and rewarding users who staywithin it.

for example:

FROM TRANSACTIONS TO INTERACTIONS

4

ARTHUR D. LITTLE

VIEWPOINT

USERS BECOME MORE
ENGAGED WHEN THE Y
C A N A C C E S S A N A R R AY
OF SERVICES UNDERO N E L O YA LT Y U M B R E L L A

EMBEDDED, NE AREMBEDDED E X AMPLES
Embedded loyalty is growing across multiple
sectors from coffee shops to airlines toretailers. The degree of embeddedness varies,
but the direction of travel is toward increasing- New monetization channels. Merging

loyalty with financial services opens up many
monetization channels. Grab, an originalride-hailing app, made the leap into financial
services via GrabPay, its mobile wallet service
that offers loyalty points when bill payments
and mobile recharge payments are made using

integration. Tables 2 and 3 provide someillustrative current examples, distinguishing
between embedded and what we call “nearembedded” loyalty programs.

BUILDING AN EMBEDDEDLOYALT Y PROGR AM

it, creating an ecosystem where users can

Building and executing an embedded loyalty

both spend and pay within one platform.

program requires a strategic approach.

- Increased ecosystem engagement.

Users become more engaged when they
can access an array of services under one

Businesses should consider the following key
building blocks:- Robust data analytics infrastructure.

loyalty umbrella, like Paytm (an Indian digitalAn effective data analytics infrastructure

payment platform) that offers banking, digitalis essential to collect, analyze, and utilize

wallets, and shopping. Loyalty points earned

customer data for greater insight into

can then be spent across this ecosystem,

customers’ needs, preferences and behaviors,providing one-stop shopping for the financial

as well as provide tailored rewards withand retail needs of its users.

personalized experiences for their customers.

Table 2. Embedded loyalty programs
Table 2. Embedded loyalty programs
SCHEMEDESCRIPTION
As one of the most successful programs, Starbucks customers earn stars for every purchase made using the Starbucks

Starbuck Rewards

app or a registered Starbucks Card. The mobile app integrates mobile payments, order-ahead functionality &personalized offers, making the experience seamless experience. Program includes multilevel rewards, customized
offers & omnichannel presence. Experience makes customers feel appreciated and exclusive.
Uber has integrated its loyalty program, Uber Rewards, into its app, allowing users to earn points for every dollar spent

Uber Rewards

on Uber rides and Uber Eats orders. Points can be redeemed for discounts on future rides or orders, making the entire
process seamless.
Although not a traditional loyalty program, Prime is a good example of embedded loyalty. Members receive various

Amazon Prime

benefits (e.g., free shipping, access to streaming services & exclusive offers). These benefits are integrated into
customer’s shopping experience, encouraging loyalty & repeat purchases. While subscription-based, member benefits
encourage loyalty and repeat purchases.

Pão de Açúcar Mais

This Brazilian supermarket chain has an app-based loyalty program where customers earn points for every purchase,
which can be redeemed for discounts on future purchases.
Online food-delivery service in Turkey offers a loyalty program where users earn points for every order placed throughYemeksepeti

app or website, which can be redeemed for discounts on future orders. By integrating loyalty mechanism directly intomain ordering platform (app/website), it fits the embedded loyalty description.

Source: Arthur D. Little

FROM TRANSACTIONS TO INTERACTIONS

5

ARTHUR D. LITTLE

VIEWPOINT

Table 3. Near-embedded loyalty programs
Table 3. Near-embedded loyalty programs
SCHEME
SephoraBeauty Insider

DESCRIPTION
Sephora has integrated its Beauty Insider loyalty program into its mobile app & online store. Members earn points forevery purchase, which can be redeemed for products, samples & exclusive experiences. The program integrates loyalty
into its primary shopping platforms, leaning toward embedded loyalty.
A retail company in South America, Fallabella offers its CMR Points program. Customers earn points by purchasing with

Falabella

their CMR credit card, which can be redeemed for discounts on future purchases in-store or online. Integration of
loyalty program with CMR credit card leans toward embedded loyalty; however, it has characteristics of traditional
loyalty with point accumulation & redemptions.
One of Australia’s most extensive loyalty programs, Flybuys allows members to earn points on everyday purchases from

Flybuysa range of retail partners. Points can be redeemed for discounts, merchandise & travel. It is more of a traditional loyalty
program, but partnerships with diverse retailers & the ability to earn points across multiple platforms add elements ofembedded loyalty.
French multinational retail corporation offers its MyClub loyalty program where members earn points for every euro

Carrefour MyClub

spent, which can be redeemed for discounts & vouchers. By integrating loyalty system within its primary shopping
experience & using points as the mechanism, it’s a mix but leans toward embedded loyalty.

Pick n Pay
Smart Shopper

Retail store in South Africa offers Smart Shopper program where customers earn points for every purchase, which canbe redeemed for discounts on future purchases. This is similar to Pão de Açúcar’s approach, integrating the loyalty
system within primary shopping channels, so it leans toward embedded loyalty.

Source: Arthur D. Little

Source: Arthur D. Little- Strength in partnerships. Forging strategic- Flexible and attractive reward offerings.

services providers, and vendors is integral tothat appeal to a broad customer base (e.g.,offering customers additional rewards anddiscounts, cashback offers, merchandise sales,

benefits from loyalty programs. Doing this canor experiences).

alliances with other businesses, financial

increase their appeal among customers while
making programs even more valuable to thebottom line.

- Integration into customer experience.

Customers should be offered flexible rewards- Merging loyalty, rewards, and financial

services. Embedded loyalty creates greater
convergence between loyalty, rewards,
and financial services for customers. By

Delivering an outstanding customer

capitalizing on existing relationships and dataexperience across both online and offline

to provide additional value-added services —channels is of utmost importance, whichsuch as offering mobile app users embedded

includes seamlessly incorporating loyalty

loyalty incentives when taking out loans

programs into daily transactions andor opening savings accounts — embedded

interactions to reduce friction.

loyalty increases customer engagement while- Integrating mobile and digital platforms.
Integrating mobile and digital platforms

like mobile apps, online stores, and payment
platforms into loyalty programs is vital tosimultaneously creating new revenue streams
for any business.

- Adopting cutting-edge technologies
like Web3, AI, and others. Leveraging

making them accessible and user-friendly

cutting-edge technologies can enable

for customers.

loyalty programs to become more adaptive,- Personalization. Advanced data analytics
and/or AI algorithms should be adopted toenable personalization strategies with rewards

responsive, and tailored toward individual
customer needs, improving engagement
and retention rates.

and incentives tailored specifically for eachcustomer’s preferences and behaviors.

FROM TRANSACTIONS TO INTERACTIONS

6

ARTHUR D. LITTLE

VIEWPOINT

CONCLUSIONM A K E THE M OV E TOWA R D
E M B E D D E D L O YA LT Y

L O YA LT Y P R O G R A M S O N T H E I R O W N
CANNOT CHANGE THE FORTUNES OFA N Y B R A N D I N I S O L AT I O N

It is true that loyalty programs on their own cannot change
the fortunes of any brand in isolation, with many factors
contributing to building brand strength. However, loyalty
programs do have a key part to play. They are growing rapidly— and also becoming more competitive as customer trends
and behaviors shift. Moving toward embedded loyalty istherefore increasingly important for businesses. To make themove, businesses need to put in place strong data analytics
infrastructures and embrace the potential of partnerships withother companies such as financial services providers. In doing
so, they can greatly enhance customer experience, improveengagement, build greater loyalty, and generate new revenue
streams. If loyalty and reward programs are not an integral partof an organization’s customer engagement strategy, they are
merely glorified discount programs.

FROM TRANSACTIONS TO INTERACTIONS

7

Arthur D. Little has been at the forefront of innovation since1886. We are an acknowledged thought leader in linking
strategy, innovation and transformation in technologyintensive and converging industries. We navigate our clients
through changing business ecosystems to uncover new growth
opportunities. We enable our clients to build innovation
capabilities and transform their organizations.
Our consultants have strong practical industry experience
combined with excellent knowledge of key trends and dynamics.
ADL is present in the most important business centers around theworld. We are proud to serve most of the Fortune 1000 companies, inaddition to other leading firms and public sector organizations.
For further information, please visit www.adlittle.com.
Copyright © Arthur D. Little – 2024. All rights reserved.