Optimize Your Loyalty Program Through a Digital Strategy

An industry digital strategy opportunity report

Analyst Perspective

A successful digital loyalty program begins with digital strategy

Many assume that simply having a loyalty program is enough to propel the organization forward. However, this is not the case, especially if the loyalty program is focused solely on transactional marketing.

Casinos and hotels must witness the art of the possible, the achievable in the world of loyalty. A successful digital loyalty program that focuses on relationship marketing will move the business forward and provide resiliency. This requires a value-driven approach to digital transformation.

In this report, we leverage Info-Tech’s digital business strategy approach to develop a digital loyalty strategy that identifies aspects of the program to transform, technologies to embrace, processes to automate, and new growth strategies to create.

Larry Fretz
VP, Gaming & Hospitality (GHRC)
Info-Tech Research Group

Monica Pagtalunan
Research Specialist, Gaming & Hospitality
Info-Tech Research Group

Executive Summary

Your Challenge

• There is uncertainty about how to meet evolving customer needs and how to compete in a digital economy.
• Your organization has difficulty adapting new technologies or rethinking the existing business model of your loyalty program.
• Your management lacks a framework to rethink how your organization delivers loyalty today, which causes annual planning to become an ideation session that lacks strategic/holistic focus.

Common Obstacles

• Your IT team lacks the understanding of the loyalty program context needed to identify opportunities for digital transformation and enablement.
• Your organization might approach digital transformation as if we were still in 2019, not recognizing that the pandemic resulted in a major shift to an end-to-end digital economy and exposure to disruptive gaming and hospitality competition.
• Business executives think digital is “IT’s problem” because digital is viewed synonymously with technology. IT thinks digital is “a business problem” because digital exceeds the current thinking of what’s possible for their department.

Info-Tech’s Approach

• Design a digital loyalty program strategy that applies innovation to your business model, streamlines and transforms its processes, and makes use of technologies to enhance schemes and interactions with guests.
• Use digital for transforming your loyalty program’s nonroutine cognitive activities and for derisking key elements of the value chain.
• Create a balanced loyalty program roadmap that improves digital maturity and prepares you for long-term success in a digital economy.

Info-Tech Insight

Digital transformation increases the depth of data-driven insight and empathy available for creating a more effective loyalty program, which in turn can drive significantly higher levels of member engagement. It has become the most powerful means of understanding customers, anticipating their needs, and demonstrating both value and personalization in an agile, efficient, and scalable way across all touchpoints and revenue streams.

What is digital?

Digital: The representation of a physical item in a format used by computers

Digitization: Conversion of information and processes into a digital format

Digitalization: Conversion of information into a format to be processed by a computer

Digitization and digitalization alter how work takes places in an organization and form the foundation of digital transformation.

We maintain that digital transformation is all about becoming a “digital business” – an organization that performs more than 66% of all work activities via executable code.

As gaming and hospitality organizations take a step closer to this optimal state, new avenues become open to identify advances to promote growth, enhance customer experiences, secure sustainability, drive operational efficiencies, and unearth potential future business ventures. In the end, digital transformation can help organizations understand guest emotions during the customer journey, showing organizations that human emotions like compassion and empathy are driving forces behind purchases.

Comparing traditional versus digital loyalty programs

In essence, a digital loyalty program takes all the traditional aspects of making customers feel valued by a brand and uses innovative techniques and schemes to ensure every customer enjoys a truly personal experience with the brand. Digital transformation of a loyalty program provides the organization with opportunities to advance growth, enhance customer experiences, secure sustainability, drive operational efficiencies, and unearth potential future business ventures.

The traditional approach alone can kill the success of your loyalty program

Is loyalty an emotion or a transaction? Ultimately, it can be both. A sole focus on transaction-based loyalty, however, will fail to address the emotional side that provides a strong customer experience.

Consider the following components and discover how your loyalty program stacks up against this list to determine whether your program is largely traditional versus digital.

Does your program...

• Ignore technology process to enable loyalty?
• Have weak promotional levels?
• Have limited or no analysis of guest behaviors, activities, or touchpoints with the business?
• Ignore personalization?
• Fail to offer customers a variety of channels to interact with the loyalty program?
• Not provide cross-channel redemption services?
• Use general (and ineffective) incentives in an attempt to drive purchases?

“The customers that are pulled in through transactional marketing can be nurtured through relationship marketing.

On the flip side, customers who are nurtured through relationship marketing can be convinced to make another purchase in a transactional way, such as a discount.

As you can see, the two strategies go hand in hand.”

– Meltwater, 2020

Your digital loyalty program can transform your relationship with customers

A loyalty program does not only consist of the activity of earning and burning through loyalty schemes. This is where the customer experience portion of a loyalty program becomes important as it focuses on driving ongoing conversations and interactions with the customer to create a deeper sense of loyalty. This is enabled by digital.

76%
Experience components make up for 76% of what drives engagement in a loyalty program.

Bond Loyalty, 2020

Further, a fundamental shift to a digital loyalty program will have positive outcomes, influencing retention and advocacy among your guests:

66%
Percentage of customers that are more likely to recommend brands with good loyalty programs

77%
Percentage of customers who state that programs make them more likely to continue doing business with that brand

63%
Percentage of customers that modify amount spent to maximize points

Bond Loyalty, 2021

The ideal DNA of a digital loyalty program consists of alignment across three components

1. A deep understanding of guest needs and expectations
   • According to a survey given to hospitality and tourism organizations, “22% strongly agree and 50% agree that they have a deep understanding of customer insights to understand evolving needs” (Adobe, 2021).
2. A connected approach to marketing and guest experience technology
   • According to a survey given to hospitality and tourism organizations, “20% strongly agree and 53% agree that they have a fragmented approach to marketing and customer experience technology” (Adobe, 2021).
3. An increasing/shifting budget to support guest demand for digitized experiences
   • “77% of hotel operators state that ‘driving guest loyalty’ is a ‘very’ or ‘extremely’ important technology initiative” (Hospitality Technology, 2022).

Component #1: The need for a deep understanding of guest needs and expectations

The gaming and hospitality industry is dealing with the changing needs and expectations of customers. Organizations should be concerned about what is happening in the external environment that will have a direct influence on what changes should be made in a loyalty program.

Trifecta of Change

Digital consumer lifestyle

Consumers’ increase in digital dependence has been a phenomenon for quite some time, with the pandemic shifting behaviors and preferences even further. When an organization’s technology is outdated, that really sends a message about the brand since consumers desire a high level of technological familiarity. Therefore, there is an increased need for digital transformation and adoption to provide a unique experience.

GENERATIONAL SHIFT

Organizations have an eye toward the future, and the future lies with the younger demographics – millennials and Gen Z. Organizations must consider a different audience, enhancing the experience to sway this new generation of customers. As these digital natives are always looking for the next big thing in technology and desire seamless technology integration in their daily lives, companies are forced to continuously upgrade products and services to appease these generational segments.

Health & safety habits

Organizations should be focusing on high-tech/low-touch solutions. In the reopening phase, there was an emphasis on barriers, social distancing, and cleaning investments. Now, the emergence of higher-end technology-related innovations has induced the need and desire for digital transformation and adoption.

Component #2: The need for a connected approach to marketing and guest experience technology

Organizations can develop a successful loyalty program by understanding the changing nature of the relationship between guests and brands through technology. In any interaction, communication, or engagement through technology, guest interpretations are changed by that technology. This technology influence can be a risk if there are fragmented organizational strategies, as it will lead to incongruent approaches to address client needs.

Alignment between marketing, operations, and IT can lead to:

• Faster cadence of response to new and possibly transient marketing loyalty concepts due to competition, agility (fail fast), seasonality, and first-to-market.
• Enablement of loyalty program tools and technologies and the ability to exploit the art of the possible.
• Enhancement of data collection and insights to evolve the customer experience and further improve the guest interpretations that are colored or changed by the technology.

Data Extract: Info-Tech’s Gaming & Hospitality Benchmarking Report illustrates the current overall satisfaction and value metrics. Marketing’s view of IT value and satisfaction is lower overall compared to other departments, with a rating of 7.2 out of 10.

Component #3: The need for an increasing/shifting budget to support guest demand for digitized experiences

Allocation of budget must be shifted to support digital in the marketing department, determining where technology is a gap. This redirection should aim to improve business resiliency through automation and guest experience through innovation. GHRC stands by the allocation and prioritization of budget toward initiatives that enable the following overarching systems:

1. Digital Ecosystem – Building for Expansion

Refers to the environment that the business must compete within.

A key component of this trend involves laying the foundation for upcoming high-value implementations.

To accomplish this, your environment must allow for the connectivity of systems and processes so that your organization is in a better position to take advantage of projects in the coming years.

2. Experience Platform – Building for an Optimal Experience

Refers to a system that sits on data to manage both operational and customer experience with the ultimate objective of driving engagement for customers and the right decision for organizations.

Further, by enticing your guests with specific technology or trends, you’re enhancing the guest experience while driving present and future sales.

Alignment across all three components can lead to profitability

There is a financial dimension of loyalty that must be considered: cost and revenue. Through increased revenue and decreased cost, organizations will experience higher profitability.

THE REVENUE OF LOYALTY

Improving your loyalty program can lead to increased revenue. Consider the following revenues and how your strategy (Experience and Earn + Burn) performs to accomplish these goals:

• Increased ancillary revenue such as membership fees, point sales, or partner payments
• Increased purchase frequency or volume
• A willingness to pay premium
• Lowered customer churn rate
• Higher referral rates

THE COST OF LOYALTY

The development, design, and maintenance of a loyalty program are expensive. Your organization will need to consider the cost of a loyalty program, especially its legacy technology and manual processes (vs. the return on digital). Consider the following costs:

• Cost of soft benefits, such as perks, recognition, and member events
• Rewards redemption and accrued liability
• IT investment and subsequent maintenance
• Marketing and advertising
• Business overhead, such as payroll and staffing
• Research and development
• Vendor contract

A digital loyalty transformation is about building resilience and relationships in a digital economy

Digital Loyalty Strategy

• Old Paradigm
  • Reluctance to use digital collaboration
  • Brick and mortar, multichannel focus
  • Guest value price
  • Transactional marketing
• New Paradigm
  • Wide acceptance of digital collaboration
  • Omnichannel acceptance
  • Guests value convenience and speed of fulfillment
  • Relationship marketing

Info-Tech Insight

A fundamental shift is required to evaluate how organizations capture the priorities and strategies for digital loyalty transformation.

Info-Tech’s approach to digital loyalty strategy

A path to thrive in a digital economy.

1. Identify top value chains to be transformed
2. Identify a digitally enabled growth opportunity
3. Transform stakeholder journeys
4. Build a digital transformation roadmap

Info-Tech Insight

Pre-pandemic digital strategies have been primarily focused on automation. However, your post-pandemic digital strategy must focus on driving resilience for growth opportunities.

The Info-Tech difference:

• Understand how your organization creates value today to identify opportunities for digital transformation.
• Leverage strategic foresight to evaluate how complex trends can evolve over time and identify opportunities to leapfrog competitors.
• Design a journey map to empathize with your guests and identify opportunities to streamline or enhance existing and new experiences.
• Create a balanced roadmap that improves digital maturity and prepares you for long-term success in a digital economy.

Why is a digital loyalty strategy essential today?

The typical loyalty program is erroneously focused solely on increasing market share and revenues through repeat purchase and usage. Gaming and hospitality organizations must structure people, processes, and technology to be more focused on the individual customer, prioritizing behavioral and attitudinal loyalty and, as a result, cultivating engagement and profitability. The creation of new customer behaviors and expectations due to the pandemic, coupled with siloed approaches among marketing, operations, and IT, makes it difficult to accomplish this guest-centric loyalty program. Consequently, stakeholders are lacking the design-thinking mindset needed to recognize a clear and unified vision for the digital customer journey, and the loyalty program is lacking the level of sophistication needed to adapt to new technologies and opportunities for response.

Understand the different components necessary to develop a guest-centric, unified, and agile enterprise loyalty program architecture

IT’s Role in Enhancing the Organization’s Loyalty Program

Focus of Report

1 – Digital Loyalty Program Opportunities

• Careful analysis of pain points, gaps, and opportunities within the loyalty program is the core estimation of effectiveness and a way to determine digital initiatives to enhance your program.

2 – Loyalty Platform Solution Vendor

• Select a system that aligns with marketing’s strategic goals and opportunities.

3 – Data & Integration Strategy

• With digital loyalty program opportunities in mind, optimize your data and integration strategy.

Insight summary

Digital loyalty strategy benefits

Guest Benefits

• The business will be able to meet and exceed expectations of various casino and hotel guest segments through digital transformation.
• Enhanced and high-value long-term guest journeys will result in enrolled, entertained, and loyal guests.

Business Benefits

• Increase revenue and retention through high-value loyalty program experiences and engagement.
• Differentiate your brand through data collection and insight generation that will personalize marketing messages and offerings.
• Gain the opportunity to automate internal processes to increase efficiency and productivity.
• Improve reputation by enabling transactional, behavioral, and attitudinal loyalty.

IT Benefits

• A digital loyalty strategy ensures that IT is seen as a valuable partner in the eyes of the business.
• Your organization will likely invest in new or updated software and hardware for a successful and low-latency digital loyalty strategy.
• IT’s role in the organization will become more innovative in this increasingly digital environment.

Responsible gaming as a guiding principle for casinos

As you develop and execute your digital loyalty strategy, ensure you balance responsible gaming and loyalty. Digital attracts and supports responsible gaming a lot better, but gaming and hospitality organizations must do their due diligence in ensuring the safety of their players, especially when it comes to a digital loyalty program initiative.

As digital opportunities emerge and are adopted, consider your loyalty program’s responsible gaming plan, self-exclusion program, property signage and responsible gaming disclosures, advertising restrictions, wager and time limits, point restrictions, restrictions on financial instruments, treatment and research funding, employee training, restrictions on alcoholic beverages, and so on.

Overarching business risks & considerations

Don’t forget about the reality of your environment

#1 Service Culture & Delivery

Loyalty is driven by far more than loyalty schemes and rewards. Guests that come to your property will expect a highly satisfactory experience overall. Therefore, the operational decisions that your organization makes in relation to customer experience and service delivery will also determine the success in luring guests to enroll in your loyalty program. Consider the following experiential elements that may affect the psychological behaviors and emotions of your guests: room quality, service and experience, amenities, and in-house food and beverage options.

#2 Know Your Business

Bear in mind the classification your organization falls under. Every organization is different, with varying initiatives, priorities, guest demographics, and funding challenges.

• For casinos – regional versus destination
• For hotels – service levels:
  • Luxury
  • Upper Upscale
  • Upscale
  • Upper Midscale
  • Midscale
  • Economy

Overarching IT risks & considerations

The viability of a digital loyalty strategy is highly dependent on the maturity of the IT department. Measure and assess your IT maturity because what may seem like a simple project could be more complex than expected. Therefore, your organization must understand the possible uncertainties and have substantial processes in place to stand resilient against potential risks.

IT Security & Network

• IT Security – Satisfaction that organizational devices and data are properly secured
• Network & Infrastructure – Satisfaction with reliability of communication systems and networks

Info-Tech Benchmarking Insight - A digital loyalty strategy will require superior IT security and network services and will therefore increase the importance of IT security and network to the business. Depending on IT’s maturity, this could positively or negatively affect business stakeholder and guest satisfaction. Further, consider what this means for identity and access management as well as customer records and privacy, especially when it comes to data protection and privacy compliance laws (GDPR, PIPEDA, CPPA, DPA, PCI).

Data & Analytics

Analytical Capability – Satisfaction with effective standard reports, custom report capability, and the ability to generate business insights

Data Quality – Put policies, processes, and capabilities in place to ensure that appropriate targets for data quality are set and achieved to match the needs of the business

Info-Tech Benchmarking Insight – Business stakeholders must understand the value of data and analytics in making the right decisions. Satisfaction must be improved as personalization and guest identification will require automation and real-time data and analytics to maximize the guest experience. Further, consider data governance and how your organization will classify data and leverage business intelligence (BI) tools.

Data Extract: Info-Tech’s Gaming & Hospitality Benchmarking Report illustrates the current importance and satisfaction metrics for IT Security, Network, Data and Analytics functions according to business stakeholders.

How to use this report

This report is intended to act as a standalone report on the opportunities within the gaming and hospitality industry to digitally enable and transform loyalty programs while also serving as a research-based input to the Define Your Digital Business Strategy blueprint and associated activities. Realize all organizations are unique and you may feel that some sample information may not be relevant to or representative of your organization due to the type of organization, market, etc. We recommend that you adjust and customize the template as needed to be specific to your organization and to create the most valuable digital loyalty strategy for your organization.

This report uses research-based data for “Integrated Resort X” to demonstrate digital loyalty opportunities for use in a digital business strategy. Because integrated resorts focus on gaming, non-gaming, and hospitality products, the report will be able to demonstrate applicable connections for hotels, regional casinos, and destination casinos.

Visit Info-Tech’sDefine Your Digital Business Strategy blueprint for full activity details

Act X.X

When you see these symbols in this document, they represent the research based on digital loyalty program opportunities for use in the corresponding (X.X) Define Your Digital Business Strategy blueprint activity.