Leaders in Customer Loyalty, Powered by Loyalty360

Leaders in Customer Loyalty: Supplier Voices | Capillary on Loyalty Trends Shaping 2026

• Loyalty360

Share episode

Send us a text

Loyalty programs aren’t failing because they lack features: they’re failing because customers don’t feel value fast enough. As consumer budgets tighten and expectations accelerate, patience has become one of the scarcest resources brands contend with. Loyalty is no longer judged by what it promises over time, but by how quickly it proves its worth. 

We spoke with Don Smith, Global Chief Consulting Officer at Capillary, about what that shift means for loyalty strategy in 2026, and why speed, relevance, and emotional connection are now deeply intertwined. 

SPEAKER_00:

Hi everyone, this is AJ Schneider from Loyalty360, welcoming you to another edition of our Leaders in Customer Loyalty Industry Voices podcast. In these episodes, we talk to the leading agencies, technology partners, and consultants in brand loyalty about the technology, trends, and best practices driving unique experiences, engagement, and ultimately customer loyalty. This episode is part of our 2026 trend series where we're talking about what patterns and best practices we're likely to see in the upcoming year. Today we're speaking with Don Smith, Global Chief Consulting Officer at Capillary. And for those of you who don't know, Capillary is a global SaaS leader in AI-powered customer loyalty and engagement solutions that helps enterprise brands design, manage, and optimize omnichannel loyalty programs and deepen customer relationships while driving repeat revenue. Don, welcome. Thank you for joining us. Thank you for having me. Absolutely, absolutely. Okay. So I wanted to start off by talking about something that everyone's talking about, which is the economy right now. And so I don't think it's any secret that uh we're seeing some pretty volatile macroeconomic shifts in terms of changing consumer confidence, discretionary spending cuts, things of that nature. How have those types of changes affected uh, you know, program engagement, loyalty programs overall, and certainly reward design over the last year and moving into 2026?

SPEAKER_01:

Yeah, I think it's an obvious question. And it's really culminating in this notion of an affordability crisis, right? And we've always known that customer loyalty programs have to pack a value. There has to be a value proposition where the member says, oh, I'm getting a reward, I'm seeing a savings, I'm getting something tangible that makes participation in the program in my interest. But at the same time, as loyalty architects, we also realize that we've got to serve up some perks and some experiences and things that go beyond the transaction that delight members in other ways that build more of an emotional connection as well. So it's not just a CV pro CVP-based kind of earn and burn, do this, get this solution. And that balance has always been tricky, but the pendulum is shifting right now for sure, with many consumers focused on the hardcore value proposition. What am I getting? How much can I save? How am I being hooked up? And they need to see it quickly, whether it's a reward or whether it's a tier benefit. All of those things are incredibly important. Getting a customer to a first sense of value in the program as early as possible is table stakes for having a successful program. Benefits do no good if they're not achieved or used.

SPEAKER_00:

Gotcha. Well, and you and you beat me to the punch a little bit because I was going to ask you about specifically about challenges, you know, sort of beyond the the the sort of the obvious economic things coming from the consumer side. Um, you know, challenges that that exist today that didn't exist 18 to 24 months ago. And I suspect that's part of what you were just talking about is just having to consider the speed and and and so on that that you were just describing. But are there some other things that sort of stand out in terms of being being new challenges?

SPEAKER_01:

Well, yeah, and I think we've seen a consolidation of spending. Amazon remains the Bammouth in the room, and you've got a lot of folks like I'm already paying for Prime, so I expect I don't want to pay for delivery ever. And I think we've had to re-engineer and go, how do we solve that problem? And still protect brands' profitability and find ways for folks to do e-commerce with other brands, andor refocus attention on a model that pulls folks back into the stores because, you know, like malls seem to be a dying animal. The brick and mortar experience is not what it was. But we know when done effectively and we can pull people in the store and serve up some clientele that only human beings can do. We can create a better experience. And loyalty programs are positioned with the kind of incentives to do that if we do it right. And I think we're seeing more of that. We're really just dipping our toe in the water of re-experiencing what clientele can do to kind of solve what I would call this Amazon Bayamuth for shipping.

SPEAKER_00:

Gotcha. Yeah, that makes sense. And and so I I guess still kind of attach that. Let me go back to something you said a little bit earlier. Um, you know, it's it to your point, it's becoming pretty clear that that consumers are are becoming increasingly more impatient uh about getting the value out of their loyalty programs. And I, you know, whether you blame that on the shorter attention span, kind of that Amazon, like, you know, instant gratification kind of thing, um, you know, the economic pressures we talked about earlier. But in this environment, um, from capillary's perspective, uh, how are you helping companies to sort of reduce that time to value and and get members to the point where they're saying, okay, good, I'm I'm starting to see the the fruits of my labor here uh more quickly.

SPEAKER_01:

Absolutely. I mean, hit the nail, look, engage consumers have to see the value in a program quickly. And we call it priming the pump. And in a lot of our program designs, what we'll do, for example, it could be as simple as, uh, here's the accrual structure, what you need to do to get to a first reward, but just join, you know, create your profile, accept the terms and conditions, and you're 80% there to the first reward. We sometimes even engineer it so you can make a first purchase, do a follow-up activity, and boom, you're at the reward, right? And we love to put that in there quickly because once you get the first redemption, we know that's a catalytic event in the life cycle of a member. They see the value it begets, this virtuous cycle. But we've also looked tier status also falls in that same category. There's a lot of folks who go, look, these tiers are set up, and every time I swing and I miss, and it's just not quite within my experience set. So I think you're seeing a democratization of tier structures with lower, easier-to-reach tiers. And we've been playing with fast tracking new members and other members into the tier, those who look like they came close but didn't quite make it. Let's get them in there and give them trial in the tier to enjoy the benefits and the perks and do that quicker. And I think we're also seeing a focus on making the rewards themselves work harder. We love redemption stretchers. Uh, and one of those things, that's where you, hey, I've earned a$10 reward. I can use on anything with this brand. But if we're using Next Best Action Analytics and we see a category the member isn't purchasing that she or he likely should be, let's make that$10 reward worth$20 and give the member the delight of going, oh my gosh, I just totally played this. I gamed them. I got$20. And they see that value and it feels good. And I think those are the kind of surgical things, you know. And the other point is rewarding for engagement too. We'll see a lot of brands. It's amazing in this day and age how many brands still fail to communicate the value proposition in a straightforward way. And I give the case of a customer who goes into a retail, for example, and they're 89% of the way to the first reward. Well, we need a tracking thermometer that shows them that. And ideally, it would be right there at the point of sale with the message like, you know, you're only$11 away from earning your first reward today. Or it would be there as a call to action on the receipt. And on the website, you should always be showing as people are building baskets and browsing what that looks like and reinforcing it because consumers want to know if they're close. And if they're that close to a reward, most of them respond positively and see it as empowering when you're letting them know so they don't feel like they missed an opportunity. And I think this is just a central focus. You've got to get folks to a reward, to a tier, to a benefit, and they have to see it and enjoy it.

SPEAKER_00:

You know, I was gonna ask you a question about relevance, which is which is another sort of hot topic um in the loyalty space. Um, but what I I wonder I I you know, obviously relevance is important in, you know, particularly if if it's uh, you know, you mentioned like um I've been shopping for a certain thing, uh, you're able to determine what that is, and you offer me uh uh an incentive or reward, you know, based on the types of things I've been looking for, whatever the case might be. But is relevance, does it have the same meaning today after all the things we just discussed in terms of the time to value, the uh cost issues, people's discretionary spending. Is is relevance become really more acute in terms of just the the the financial value that you're getting from it at this point?

SPEAKER_01:

Absolutely. And I think it's it's I think of relevance being synonymous with authenticity, right? And understanding a customer. And it can be as simple as everyone talks about hyper personalization right now, couldn't be a bigger buzzword, right? But I think we've achieved the hyper, but not the relevant personalization component of it in many cases. And this could be as simple as, you know, I shop a children's retailer and you know me. You should see I've been shopping with you for three years, and I've only got boys. Why are you sending me pictures of girls' dresses and telling me about Easter bonnets, for example? You know, um, but I think the relevance is there when we take the first party attributes and go with it, but we're so much more successful when we source zero party attributes from the member himself or herself. And I think profiles that say, here's what I'm interested in. I like these products, but not these products. I would love to know more about this. And when you know authentically that someone has a 12-year-old playing hockey, you know, and a 15-year-old who's into piano, you can tailor communications and things like that in a very meaningful way that are empowering for the consumer. Let them know when things that they buy are on sale. And I think that that's one piece of it. And the other side of the equation is, in other words, the spray and pray and constant barrage of emails and messages. It just can't be en masse, right? We need to be focused and go, look, I established a relationship with you. And as a brand, I'm honoring the social contract. You told me about yourself. You're letting me know everything you buy. I need to serve content that reflects that, right? And I think the other side, I would call it facilitative or empathetic communications. And we have a rule, as we're communication planning at Capillary, that for every transactional or call to action email that you send out, do something that doesn't have that component post-purchase. When someone buys a product with you, tell them how to use the product, give them hints and trips, curate content from other members. You know, and this can be as simple as hey, you just bought that new treadmill. Uh, watch these videos for hacks on how to assemble it faster. You know, watch these videos on free downloads for routines that you can incorporate into your workout. People love that kind of facilitated feedback. For a retailer this year, we sent out an email that was like, here's five ways members are rocking that belt that you purchased. You know, it was a woman's fashion belt, big accessory. And it was like, and you could see like this is the ready-to-wear work, or I have a little bit of a larger hip size. Here's how I adjusted the belt to make myself look slimmer and more sleek. And those pictures of how to use it, instead of saying buy another belt, here's$10 off a hundred dollar purchase, the customer just spent money with you. Tell them how to use the product that they just used. And I think the more of that that we do, the more relevant, the more authentic, and the more folks are going to trust the communications and the relationship with the brand. And the good news, AJ, on this is that generative AI for content is making this so much easier to do at scale and map in. And I think it really is changing the game, or it will change the game. It works where folks do it, but it's amazing how few brands are still doing it really well.

SPEAKER_00:

Yeah, I mean, I think that's always been a huge problem for a lot of companies is how how if I'm talking about the product themselves or I'm trying to sell you something else, then it's sort of very obvious to me what that content should be. But it's the in between uh purchases. Like, how do I, again, we'll use the term relevant, how do I stay relevant in that time frame, you know, without seeming silly. And and I think those examples you've you've you've just given are are super important that it's it's relevant to the to the product you just purchased. And I'm not asking you to buy something else right at this moment.

SPEAKER_01:

I think that's that's really exactly celebrate the fact that they did business with you and help them.

SPEAKER_00:

Yeah. And and that's probably a good, a good segue in into my question, uh, my next question about emotional loyalty. Um and and and whether I mean this has been you know an increasingly hot topic as well, um, certainly in the last year, uh, but I think it gets to that point that you were making is that the content itself doesn't always have to be transactional. It can be, you know, sort of building a relationship and and appealing uh on an emotional level. Um can you talk a little bit about how your clients are using the concept of emotional oil to be a differentiator uh between themselves and the competition and and ultimately how you sort of um operationalize that and build it in without seeming uh hokey, I guess is is the word I would use.

SPEAKER_01:

Yeah, yeah. And I think it it all comes down, it starts with measurement. This is a passion topic for capillary. We've invested a lot in it. We have a proprietary measure of emotional loyalty called the BLQ, the balanced loyalty quotient, which looks at rational loyalty. I like the brand, it has good products and services, I can trust it, and then the emotional connection to that brand as well. Like, I look forward to going there. They know me. You know, I'd be devastated if they went out of business, those types of things. And we've actually we spent a lot of time researching with consumers uh in our loyalty programs. And we actually we have a voice of customer measure that goes out, it's 14 questions, seven are rational, seven are emotional, and we ask it of all of our clients, and we actually start our program design process this way in our consulting practice as well. And we'll go in and we'll score you. And it's it's a nice index from zero to 100. You get 50 points for rational, 50 for emotional. But what's useful about it is we also believe that you can't understand emotional loyalty in a vacuum for your brand. You must locate it in the context of your competitive set. And so we typically ask customers at the beginning share of wallet questions. Hey, we know you shop with us. Where else have you shopped this year for the same types of products and services, or who else have you done business with? And we will ask the same series of questions for the competitors as well. So at the end of the day, you can find areas, dimensions of emotional connection where you're over and under-indexing relative to your competitive set. And that provides guidance and trending ability to go, I need to keep working at that and shipping away at that. So we have a really good measure. Most of our clients use it, and it's very, very easy to deploy. And I think it is a far superior solution to net promoter score, which just is tapping into one small dimension of would you recommend? But um, the the reality is we do focus groups all the time with our members. It's something we evangelize. And if you go into a focus group, even with your best customers, and ask, you know, um, who else do you do business with? Are you splitting? Chances are good there's some splitting. And we'll ask, hey, with our brand, what would you give us on likelihood to recommend? Ah, I'm a 10. I would totally recommend you. What about our competitor's brand? And many of them are going to give that a 10 too and be a promoter. And that's why just being a promoter and being willing to recommend a brand is not the same thing as developing an authentic emotional connection that moves beyond the transaction. And the latter, you have to invest in it. You have to have mechanics designed to delight. But every penny you spend cultivating that emotional loyalty will be amortized over an extended customer lifetime value. And that's how we're really approaching it. And every program we design, it can't just be transactional. We have to find benefits, perks, experiences, delights, and recognitions that resonate with customers and feel authentic. And they can't be so out of reach that no one ever gets them.

SPEAKER_00:

Well, you just use the word uh experien uh experience-based uh uh types of uh rewards and so on. Let's talk about that a little bit and and you know what kinds of experiences and I you have a a variety of clients, I know, but but in general, like are there uh certain types of uh of experiences uh that people are looking for that that help build that emotional uh uh loyalty that you know in the last year and that you can foresee coming down the pike in in 2026? Um and you know, how compared to other types of rewards, where is the experience sort of in in that uh continuum at this point? Is it at the higher end, uh, lower end? Where is it coming in?

SPEAKER_01:

It's probably I wouldn't call it on the higher end right now, like it's the most pervasive solution. It works better in certain business models than in others. For example, one of our program, NASCAR fan rewards, people love to get access. If they can redeem and be able to go into the pit, go and meet the drivers two hours before the race, get special uh uh you know telemetry and other things streaming into their devices. Those experiences are so authentic to the experience of liking NASCAR that it makes total sense, right? And that works. And I think on the higher end, like we've designed for some luxury malls and retailers, and partnerships and experiences actually work really well in that segment, like an invite to a fashion show or a members-only exclusive to see a new premiere or a workshop on we did one with like how to apply a smoky eye with a special makeup artist. And all of those things are very exciting. And customers, you know, they don't resonate with everyone, but if they're authentic and they feel on brand and they feel exclusive, like I'm only getting this because of my membership, they they actually do work. But on the lower end, when you're dealing with, you know, habituated cadence retailers, the value prop is still more important. And the experiences that those folks like, first of all, they just want to save money in the program and uh and feel like they're they're enjoying some benefits. But if you do things like early access sale for members or the top tier gets to come in two hours early, you know, and everyone gets free gift wrapping and everyone gets a free stocking stuffer with purchase. And those types of experiences, which are much more practical, but still convey that element of exclusivity, that's the winning formula there for those types of uh of experiences.

SPEAKER_00:

Gotcha. And and uh to your point, um it it it seems that, at least in certain cases you mentioned like NASCAR and some other things, that um kind of a partnership model to be able to provide uh the experiences is is really something that's kind of starting to blossom um over the last uh couple of years. But I wonder um there are clearly some companies that are doing it well and some companies that maybe it's not working as well. And I guess I wanted to talk a little bit about sort of the concept of just having a partnership versus you know a partnership that actually works. What are some of the key points that makes a partnership um, you know, that you've seen work and and really benefit the the client?

SPEAKER_01:

Yeah, I think authentic adjacencies is the key to making this work. Uh the failed model is the old affiliate marketing where you would check a radio box, like I give my permission for you to email me with the partner marketing and you're shopping for athletic wear, and all of a sudden you get an ad for you know something completely off base, right? Like a musical instrument. You're going, why did I get this? What is this about its spam, right? It doesn't feel authentic at all. And it may actually chip away at the authenticity of your primary brand. Relationship. But on the other hand, if you're really sourcing nice adjacencies and it feels super exclusive, then it can work very, very well. Like this is a deal that's available only to the people in our program. And it's a special partnership. And it really is a limited edition, early access, some deal that's better or different from what's out there, and someone can't find on coupon cabin or just doing a Google search to see what comes up. Those things feel really curated and exclusive, and they're appreciated by consumers. And I think those things are exciting. But gone soon should be the days where I'm doing business with a brand. Most people are going, hey, I just did a workout. My fitness center should not be rewarding me with a Starbucks gift card. That feels so inauthentic, right? But I would probably be open to discounts on sportswear, you know, from some of those retailers, especially if they're good or early access for a new pair of kicks that I'm getting by virtue of that membership. And I think that that reciprocity and the partnership structure where both partners stand to benefit from the relationship is really powerful. And I actually think where partnership marketing is going as well, is you're going to see a lot more, and this is already happening in Asia at an increasing volume. And that is, you're going to see a lot more group loyalty programs and coalition solutions where folks come together and go, you know, we're complementary, not necessarily competitive, and we're joining into a common solution and we're able to stimulate cross-brand adjacencies and deliver some cool stuff to our members in a way that creates an opportunity cost for transacting outside of the coalition.

SPEAKER_00:

So I I obviously you guys are are uh headquartered in in Asia. What what is there something cultural about the the culture there that makes it a more obvious kind of solution that you just described than than here in the US?

SPEAKER_01:

I think it's less cultural and more just about scale. And so like the nice thing in the US is we've got such our market is so big, so major retailers can afford to have their own loyalty programs. But if you go to other parts of the world in the countries are smaller, there's fewer retail outlets for some of those brands. It's really harder to get to scale, right? And make that work. And so it makes a lot more sense to pool resources with other brands, you know, and come up with a solution where you're sharing in the operating costs, benefiting from the uh from the adjacencies that live there and from the incentive structure. So I think that's that's a bigger part of it. Um, but I think coalitions also, when there's a lot more splitting and a lot more choices, that's where these coalitions and group loyalty solutions also flourish. And one thing, maybe culturally in some of the markets in the developing world, is there's still this differentiation between modern trade and general trade. And what I mean by that is you got a lot of folks who are still going to wet markets and fishmongers, and that's how they've been shopping forever. And it's a slow movement into retail. And so uh these solutions like group loyalty programs provide a mechanism for getting someone who's tried modern trade in one vertical to try it in another that she or he might not have been uh aware of. And so that that may be a part of that as well.

SPEAKER_00:

Gotcha. So again, maybe another good segue in into maybe a little bit of a discussion about and and maybe particularly um uh in the hospitality uh and and retail arenas. Um you know, we've we've talked about experiential, we've talked about, you know, uh sort of financial versus you know, content versus whatever. Um how do you think loyalty you know moving forward is gonna kind of sew together all that as we move into into 2026? Particularly in those two arenas, hospitality and and retail. Um do we think we're gonna see more of a certain type of reward uh moving forward in those in those industries? Um talk a little bit about what where you think that's going.

SPEAKER_01:

Well, I think there's there's multiple directions, but it's interesting in hospitality. You know, for example, if I take that vertical, I do think that the status benefits and the tier benefits in hospitality are probably the most defined and the most coveted. But I think there's a real risk there. So we all know that like my airline status, I cherish mine, right? And I make sure I requalify every year because I see the tangible benefit of that upgrade and that access to better seats, and it matters to me. But I think what we're also seeing in the consumer research is we've got a lot of folks going, what's the point of requalifying for a tier? I never get the benefit. I'm never the one who's selected for the hotel room upgrade or the car class upgrade or the uh the upgraded seat. It's always the highest value folks, and I always swing and miss and I'm uh always a bridesmaid, as the expression goes. And I think democratizing those perks and mechanics is going to be critical. And that's why you've seen so many of the hospitality providers provide milestone rewards, interstitial bonuses halfway to your tier status that keep you engaged and you can redeem something else and get something else that's very exciting. I think those things make a lot of sense. You know, American Airlines is giving uh a loyalty milestone between tier statuses where you can actually be a president's club member at Avis. And all of a sudden now, what would have taken 20 car rentals to enjoy that status you get for a year? That's a substantive benefit, and it's really smart to offer that. And I think we're gonna see more of that milestone provision kind of democratize the structure, serve up perks and benefits that make people feel like, yes, I won something. I got hooked up. And I think that's gonna be critical uh in many of those. And so that's an in hospitality, and I think in retail, you're gonna see a much more focus still on savings and uh on making sure that you're really delivering the value. And I think those perks and experiences are gonna be secondary to that, but reinforcing the experience.

SPEAKER_00:

Gotcha. And and so let me ask you kind of the wrap-up question uh as we look at at sort of trends um going into the new year. Um what do you think people, brands, companies are are missing? What are what is the biggest opportunity that you see? Because you guys have a unique, you know, uh viewpoint because you you know you're not in any one particularness. You see the whole the whole shebang from your vantage point. Um, what are people missing? And and and if companies would only concentrate on these things, they'll have a great deal of success moving forward.

SPEAKER_01:

Yeah, you know, I think focusing on clientelling in personalization is going to be critical. As we become increasingly automated and AI seemingly takes over, don't forget the human connection is still valued and arming sales associates and customer facing folks with relevant information and letting them be the agents of facilitation and delight. When we do that, the employees love to do it, customers love to receive it, and that focus is being this. Don't take the AI bus and the automation bus so fast that you forget about the human connection, because it does differentiate. And I think the other, well, there's a couple other things I would mention. One, you've got to find ways to successfully monetize your program assets, especially zero-party data, and do it in a way that's member and consumer friendly, that's benefiting the consumer. But if you do this, you also have things that can help shift the program cost to your partners and to others who will pay, you know, to play in your in your sort of consortium, if you will. And I think finding those solutions, as long as they're delighting your members and building your brand equity and lifting up the consumer, hey, the rising brand, the rising tide of loyalty lifts all boats, and we should focus on that. Um, and you know, the final thing I'll say is this is a basic one, and I've been saying it for years, but we're having so much success at Capillary with it, is we have voice of customer research that is so democratized now in a way that it's never been before. I'm a statistician by training. I was a university professor by 11 years. Um, I love focus groups though, too, in addition to survey research. Focus groups used to be really expensive to run. You'd have to go rent a facility with that ridiculous one-way glass and it was creepy, and people knew that they were being watched. And um, we are running focus groups virtually right now, and we'll just set up people are comfortable with a Zoom link like you and I are on right now, and we can source consumers and just have a virtual conversation, show the mock-ups of program collateral, different changes we're thinking of making, and you can get instant gratification and do these all the time. And the same is true with in-depth interviews. You're making a program change or you're introducing a new product, talk to the first people who bought it and see what they thought. And it's amazing how many of them want to do this with you and share their opinion and think it's really cool that you're letting them do it. And I think there's no excuse for not constantly taking the pulse of your program and talking to your members. That's what allows you to be more relevant and recalibrate in real time. And I think the loyalty assets have just set it up, and technology has set it up, that there's no excuse for not constantly doing that.

SPEAKER_00:

That makes perfect sense. And I think it's fantastic advice. So, Don, I really appreciate it. Thank you for being on the Leaders in Customer Loyalty Podcast. And we are certainly looking forward to hearing more from Capillary as we move into 2026. Thank you. Thanks. I appreciate your time. Thanks for having me. Absolutely. I want to thank everyone for tuning in to our Leaders in Customer Loyalty Podcast series. If you haven't already, please subscribe to the Leaders in Customer Loyalty Podcast and follow Loyalty360 on YouTube and LinkedIn. The links are provided below. Please join us every Tuesday for another edition of our Industry Voices podcast.