A.I. & The Retail Loyalty Program Hype Cycle
By Uwe Stueckmann, Steve Rothwell and Ory Adler
October 16, 2025
EXECUTIVE SUMMARY (AI Generated):
Retail loyalty programs often follow a predictable “Hype Cycle” that drives strong early results but faces profitability and engagement headwinds over time. Thoughtful value-proposition design, technology architecture, and the strategic use of AI can extend and maximize the program’s profitable phases.
Loyalty programs generate their strongest returns early — Launch and adoption create a surge in sales, customer excitement, and engagement, but incremental gains become harder and more expensive to sustain over time.
Monetization, Partnerships, and Scale drive peak profitability - Up-sell and Cross-sell opportunities, coupled with Strategic Partnerships, deliver significant incremental customer spend and profit flow-through.
Mature programs face inevitable cost pressures — As growth slows, retailers often cut back on rewards and benefits to control costs which weaken the value proposition and accelerates customer disengagement.
Composable value-proposition designs creates flexibility and efficiency — Personalizing benefits for high-value opportunities allows retailers to deliver sustained impact while optimizing financial investments across the base.
AI-driven personalization, contextual content, and value distribution optimization can prolong high-return phases and delay profit erosion.
Integrated Loyalty technology platforms simplify operations but often create costly lock-ins. With AI reshaping loyalty value delivery, retailers should strategically modernize and modularize their tech stack to stay agile and reduce future reinvestment costs.
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My business partners and I have had the good fortune of working on some of the world’s greatest Retail Loyalty programs in Canada, The UK and the US – touching dozens of businesses and hundreds of millions of customers. When reflecting on our combined experience, a clear pattern emerged: The Retail Loyalty Program Hype Cycle.
Same-Store Sales (aka Comp Sales) Growth is the lifeblood of all retailers. Growing faster than competitors drives market share gain, positive operating leverage and margin expansion. One of the core tenents of a well-designed Retail Loyalty Program is that it drives sales growth with an existing asset base (physical and/or digital storefronts). The challenge posed by the Retail Loyalty Program Hype Cycle is that in the early phases, as a new or a re-invented program launches and gains traction and momentum, it does exactly that. But as it matures, profitable incremental sales gains become harder and more expensive to achieve. This inevitably leads to continual cost optimizations (at the expense of the value proposition) as companies seek savings to fund an increased focus on initiatives that will drive incremental sales (promotions, advertising, etc.). This phase culminates in the program’s demise or expensive re-invention efforts. It should be noted that each of the Retail Loyalty Program Hype Cycle phases will vary in length based on business leadership, strategy and priority decisions, and in some exceptional cases programs have reversed course, and returned to growth phases.
Launch & Adoption Investments in awareness, enrolment of customers and value proposition education, coupled with media and promotional support result in noticeable positive impact on sales and high levels of customer and employee excitement.
Monetization Harvesting of customer engagement through the application of up-sell, cross-sell and retention marketing resulting in positive financial contributions.
Partnership Expansion of the program’s gravitational sphere through the introduction of complementary business partners (suppliers, financial institutions, retailers) that drive incremental customer spend supported by limited internal investments – Life is Good!
Optimization This is when trouble starts, profitable incremental sales become harder to achieve, and realization starts to set that non-Loyalty tactics are more cost effective at driving growth. Budgets are zero sum-games, so a continual cycle of cost optimizations commences at the expense of the customer and the value proposition, unfortunately, many mature long-running programs operate in this Phase.
Disengagement & Re-Invention Often initiates when cost optimizations have reached the tipping point of value proposition sub-optimization, and customers begin to lose interest. Customer engagement and participation declines and the program slowly reaches its inevitable demise or complete re-invention.
We have seen this cycle play out (and are watching it live now) across many retail programs. At Innovate Marketing we believe that thoughtfully designed, Composable Loyalty Value-Proposition and Technology Stacks can deliver sustainable tailwinds that transcend time. The purposeful application of Artificial Intelligence can also prolong the duration, and improve the returns realized by the profitable phases of Retail Loyalty Programs as they progress through the Retail Loyalty Program Hype Cycle.
Value-Proposition. “Not All Customers Are Created Equal”. Loyalty programs are traditionally designed to appeal to all customers, based on the belief that high levels of customer and transaction penetration will lead to changes in behavior and greater contributions, and while this argument is valid in the context of customers who hold a higher affinity to your brand , the accessibility to benefits and value offered by your program to all other customers represents a significant financial burden to the business and the reason for paring back the rewards offered by the value proposition. A Composable value proposition design offers flexibility in the benefits and value that are offered to individual customers enabling differential investments in customer cohorts for achieving a diverse set of customer strategy objectives, at an optimized cost to the business. However, Composable value propositions require Digital Engagement by customers, as the bulk of the value that is offered by the program is personalized for each customer. Successfully launching such a design or an existing program transformation requires careful balancing between the introduction of too much complexity or friction and the unnecessary distribution of value to customers that aren’t paying attention and driving financial performance. Companies that pursue a Composable design for their program can also benefit from the game changing capabilities that AI-enabled solutions are introducing in the context of optimized value distribution, personalized content creation, and the ability to facilitate highly contextual and relevant digital interactions.
Loyalty Technology. The loyalty technology stack can span a wide array of components that enable the end-to-end user experience in bringing the value proposition to life. The long list of solutions typically includes a customer file, consent management, points ledger (for points-based programs), offer management, catalog/rewards management, reporting & analytics, targeting & personalization, liability accounting & vendor income, as well as multi-channel marketing hub platforms. Given the high-level of investment that is required for integrating and operating these components, organizations will often gravitate towards integrated platforms that enable many of the required features and functions. This class of solutions are helpful in eliminating some of the required integration efforts but can also become very expensive to maintain or replace based on the role(s) that they play in the technology eco-system and how they were integrated with one another. New, financially attractive capabilities enabled by AI technologies are driving a demand for change but are often shackled by the high costs of integration and rewiring of the existing Loyalty technology landscape. While some level of investment is unavoidable to affect change, companies that are pursuing these opportunities should apply a strategic lens to the decomposition of their technology stack and consider how AI is likely to impact their end-to-end Loyalty Value-Proposition and User Experience to minimize the risk of having to continually revisit and invest in their technology stack.
Retail Loyalty Programs are a vital element of the overall customer strategy. Innovate Marketing’s unparalleled Loyalty Marketing and Technology real-life experiences can shape a Composable Loyalty Value Proposition and Technology Roadmap that will maximize the return on investment of new and existing Retail Loyalty Programs.