Dave Allen, VP tech and data, Epsilon, looks at how loyalty programmes and retail media need to adapt to work effectively together.
Over the past few years, retail media has become an important growth engine for many retailers. Meanwhile, loyalty has quietly been delivering the foundations for even longer. Loyalty programmes help retailers earn customer trust and learn their preferences and buying behaviour. Based on this first-hand data, they can then build a retail media network to monetise those insights.
Or so the theory goes. In practice, too many retailers still run the two as separate yet adjacent disciplines – creating friction in how customer value is understood, acted on and measured.
Why there is a divide
Loyalty programmes are all about long-term customer relationships. They tend to think in years, even if they are measured more frequently. Retail media on the other hand is about fast decisions and immediate transaction signals.
The two approaches can clash when both parts of the business talk about ‘lifetime value’ but mean different things. How retailers define this value is often shaped by what the organisation can easily track rather than what it truly wants to understand. It could mean a customer’s spend in the last six months or some rolling window that fits the reporting cycle. Defining a ‘lifetime’ metric in this way may create a convenient measurement for which individuals look valuable for targeting right now, but it can be misleading.
For example, a customer who buys often, but little, can look like a star customer when using a narrow lens. Another shopper who has spent heavily over several years, perhaps across multiple categories, can look ordinary just because they have been less active recently. Put differently, recency can look like loyalty, and frequency can disguise who carries real value.
For retailers, this creates a gap between what they can easily optimise and what would actually boost long-term profitability.
Weighing up monetisation potential
Retail media complicates the picture further because customer value is no longer rooted solely in what someone spends. Each customer also has monetisation potential depending on the categories they buy, the brands that want to reach them and the advertising opportunities when intent is high. Retailers should therefore shift their focus from lifetime transaction value to lifetime profitability.
Loyalty needs investment, and the real return is slow. Retail media can accelerate the process, but not by chasing easy short-term wins. Monetisation pursued as a sole objective can make advertising untrustworthy: The system starts to optimise for revenue at the expense of the desired customer behaviour that created value in the first place.
Some retailers see retail media as an extension of loyalty. Others see it as a margin lever that should be allowed to run independently. Grocers often recognise that small shifts in customer retention and basket behaviour can outweigh the upside of pushing the ad load higher. However, no matter what the approach, the common underlying constraint is that customer tolerance is finite. And the customer relationship is usually the most valuable asset to protect.
The most promising path therefore is not more ads, but better coordination between loyalty insight, retail media activation and the benefits a customer can actually feel.
Instead of pushing the same advertising messages broadly and often, a better strategy is to use loyalty to create a clear value exchange. If you know your customers, you can join the dots with tailored offers, delivered through targeted media campaigns that feel exclusive rather than intrusive.
With more relevant propositions, brands will see stronger performance and better customer acquisition, while retailers will deliver a better customer experience. Relevance reduces the need to compensate with frequency, and loyalty and retail media will start reinforcing each other rather than competing for the same customer.
A new phase of identity-led retail media
Ultimately, success will be determined by whether retailers can align on a single, durable definition of customer value. One that recognises the customer as an individual, respects time and treats monetisation as part of a growing relationship rather than a tax on the customer’s attention.
To deliver this requires an accurate view of each individual customer over time, not a patchwork of partial records. Modelling must be able to distinguish genuine incremental growth from budget that is simply moving around the ecosystem. The retailer needs to understand not only what a customer has done in the past, but what they might do next, and how media might change that trajectory rather than merely reacting to it.
The retailers who master this will be able to grow both loyalty and retail media, with each of those areas fuelling the other.
