By Richard Schenker
The consumer packaged goods (CPG) industry, traditionally known for its vast scale, global reach, and ubiquity in everyday consumers’ lives, has been a late adopter of formal consumer loyalty program strategies. While sectors such as retail, financial services, and travel & hospitality have all operated, marketed, and benefited from highly sophisticated loyalty programs for decades, the CPG industry has lagged other sectors in establishing meaningful scale and lasting consumer relationships through loyalty programs.
As consumer shopping behavior evolves and direct to consumer technologies accelerate, the conditions for making it easier for CPG companies to jump into offering loyalty programs are more opportunistic than ever. The time has come for the CPG sector to catch up and reap the benefits of such programs. This article examines why the industry has been slower to adopt formal consumer loyalty programs, the barriers that have impeded progress, and the strategic and financial benefits of embracing consumer loyalty programs. Additionally, the article outlines why the current market conditions are ideal for CPG companies to revolutionize their consumer engagement strategies in 2025.
The Delay in Embracing Consumer Loyalty Programs
There are several key reasons why the CPG sector’s development and adoption of consumer loyalty programs has lagged other industries:
1. Control over the Consumer Relationship: In the past, CPG companies used to know the most about their consumers and their preferences. However, over the last few decades as mass retailers have successfully launched large scale and highly penetrated loyalty initiatives, they have amassed a deep and wide spectrum of valuable consumer and transactional information around CPG consumer purchases. Their rich understanding of consumers has acted to strengthen their negotiating power over CPG companies who used to hold that advatage. CPG companies have become dependent on mass retailers to help them better understand consumer purchasing behavior and access consumers through retailers’ communication vehicles. This has provided significant leverage to retailers as they tend to hold the key to the direct-to-consumer relationship. Retailers often exploit this power to grow funding from CPG suppliers in exchange for consumer cohort information and access to market to consumers.
2. Price Sensitivity and Brand Loyalty Challenges: In the CPG sector, many products are commodity-driven, with price often being a key influencer of consumer choice. Unlike other sectors, like travel and hospitality, where experiential or service-based factors play a key role in the consumer’s decision to be loyal to a brand, CPG brands have found it more difficult to create a sense of brand loyalty that transcends the price-product relationship. One could argue that this is the case since, historically, there has not been an adequate direct channel for some of these brands to build a relationship with their consumers. In this absence, it is difficult to foster an emotional connection with consumers. That said, the landscape is changing as many CPG brands have been harnessing social media channels (which are measurable) to sidestep the reliance on retailers. This is allowing CPG companies to forge more emotional connectivity with prospective and existing consumers.
3. Diversity of Categories: Many CPG companies have a plethora of categories which they manage. Each of the brand names across multiple categories of products have no linkage in the consumer’s mind, making it more complex to bring a value proposition together. Designing a single loyalty program that can cater to diverse consumer needs and preferences for such a wide range of products presents a challenge. However, we have seen several noble attempts by CPG companies with large product portfolios such as, but not limited to, P&G, Unilever, Kraft, J&J, and Nestlé, assemble CRM and consumer loyalty offerings that recognize and reward consumers for their transactional loyalty with some or all of the consortium of brands in their portfolios.
Some CPG companies with less complex structures have built physical retail outlets and online commerce sites. These commerce outlets are allowing them to collect consumer identifiers, such as mobile numbers and/or email addresses, in order to communicate with consumers to establish a relationship with or without a formal loyalty offering. This represents the beginnings of loyalty-building blocks but in many cases only represents a small portion of total CPG network sales and, therefore, a small proportion of product purchasers.
4. Investment & Commitment: For consumer loyalty strategies to flourish in any sector, they require a C-suite top-down commitment. Loyalty programs can have significant upfront and ongoing costs. According to Ariela Freed, Founder and Principal at Funnel Digital and a longtime expert in the CPG industry, “CPG companies love consumer loyalty. Investing in brands that consumers can trust and product portfolios that meet a range of consumers’ needs and wants, has always been core to CPG businesses. However, loyalty programs have not historically been adopted by CPG companies. This is due to platforms and mechanics that depended significantly on consumer sales transactions which were, historically, obtained only by retailers in-store.” The business cases for loyalty programs are less prevalent in the CPG sector than other sectors. As such it can make it more difficult to secure the strategic and financial investment commitments required to proceed with Loyalty.
The Strategic and Financial Benefits of Consumer Loyalty Programs for CPG Companies
Despite the aforementioned challenges and obstacles faced by CPG companies, the case for investing in consumer loyalty programs is stronger than ever. Here are some of the compelling strategic and financial benefits for CPG companies:
1. Rich Consumer Insights: By directly engaging with consumers, CPG companies can collect rich data that provides insights into consumer preferences, behaviors, and purchasing habits. Most of the data which CPG companies accumulate is research based as retailers typically only share aggregate segmented consumer transactional data. Data collected from a CPG company’s loyalty program could do many things such as:
• Identify best consumers in order to recognize and reward their loyalty and mitigate potential attrition of this important cohort
• Target next best consumers to migrate their spend and commitment upward
• Consolidate consumer purchasing among multiple CPG categories
• Inform new product development, product innovation, and better predict consumer need states
• Deliver consumer-specific relevant content related to the use and enjoyment of products
• Facilitate personalized offers that will deliver more optimal conversion rates and product uptake
• Build cross-channel purchase profiles and omni-channel shopping behaviors to significantly improve category relationships with retailers, from improved return on ad spend (particularly with Retail Media Networks) to personalized co-promotion with a CPG companies’ loyal customer base
2. Emotional Connectivity: A well-designed loyalty program with embedded emotive building mechanics can help forge an emotional connection with consumers that transcends the transactional relationship. This increases the propensity that consumers will choose a particular brand even in a highly competitive environment. It also increases the likelihood that consumers will recommend the brand to friends and family.
3. Competitive Advantage: A well-executed loyalty program can set a CPG company apart from its competitors, especially in densely competitive product categories. It also allows for differentiation beyond simply price, providing a reason for consumers to remain loyal even when new, competing products enter the market.
4. Less Reliance on Price Discounting: With a loyalty proposition, CPG companies are afforded the ability to leverage a loyalty currency to incentivize behavior change and be less reliant on discounting, which is non-differentiating and margin-eroding. The currency can be used in a bonusing formation to motivate various desired consumer behaviors. These behaviors include encouraging multiple quantity purchases, mitigating sensitivities to price increases, encouraging new category purchases and more. This is especially effective in the CPG prestige or luxury categories that are less amenable to price discounting. Loyalty offers these brands an opportunity to avoid tarnishing their brand image through discounting by using their proprietary currency incentive to maintain the integrity of the brand’s image.
How Loyalty Programs Benefit CPG Consumers
For CPG consumers, loyalty programs provide tangible benefits and rewards for their ongoing brand preference and commitment to staying loyal to the brands offered by CPG companies. Benefits for consumers include:
1. Personalized Rewards: CPG companies can offer a litany of personalized transactional benefits that can be customized and personalized based on consumers’ affinities, preferences, and commitment levels to their brands. Transactional benefits can include bonus points offers, discounts, promotions, and rewards based on a consumer’s preferences and purchase history. The key benefit of personalization for CPG companies is to equip them with the ability to offer the right benefit to the right consumer at the right time and in the right channel. For CPG companies this will permit them to better optimize their investments with consumers who have the highest propensity to be loyal.
2. Non-Transactional Perks/Offers: Loyalty programs can offer first or exclusive access to new products, reservations for beloved products that are about to be retired, special member events, and customized content. These loyalty marketing motions signal to consumers that the CPG brand is in the business of making their customers feel understood, supported, involved, valued, and acknowledged for their loyalty.
3. A Sense of Belonging: When configured properly, a loyalty program can create a community-like feeling for members. It can become a destination where like-minded consumers can come together to immerse themselves in the brand experience and expression. They can share brand tips, tricks, new usages for products, and learn more about the behind-the-scenes making and inspirations of the brand. It also provides an avenue for consumers to feel part of a brand’s journey, leading to stronger emotional connectivity and love for the CPG brand. Lastly, it can act as a conduit for consumers to be invited to be involved in the co-creation of new products, product extensions, and new applications as part of a revered and valued community. All of these possibilities offered through a clever loyalty program can build a strategic point of brand differentiation and advocacy for the CPG’s brands.
The Ideal Conditions for CPG Companies to Launch or Revamp Consumer Loyalty Programs Are Present Now!
According to Ariela Freed, “There is a confluence of change happening simultaneously that is leading CPG companies to reconsider how loyalty programs can help their core business. First, consumers expect more relevant engagement with brands, across channels, to trust them. Second, ecommerce is leveling the playing field making it easier for new entrants to compete and unlocking access to consumer data which used to be available only through expensive research. Third, advertising is crucial to building brands, but third-party cookie degradation means CPG companies need to capture and use their own first party data to continue to effectively target media campaigns. And lastly, loyalty programs have become more comprehensive, and therefore useful for CPG companies, by affecting the whole consumer relationship not only offering discounts and financial rewards.” To build on Ariela Feed’s CPG industry observations, here are some additional details which reinforce that the conditions for success are upon us:
1. Changing Consumer Expectations: Today’s consumers expect more than just a transactional relationship with brands. They want personalized experiences, rewards, perks, and recognition for their loyalty. Meeting these demands requires a robust loyalty system. Consumers have an appetite to be the recipient of benefits, features, and motivation directly from CPG companies.
2. Competitive Pressure: With consumer preferences shifting, and direct to consumer avenues opening, there is mounting pressure on CPG companies to differentiate themselves. Loyalty programs provide a unique opportunity to establish a competitive advantage in a crowded marketplace. There are so many new currencies of loyalty that brands can harness to entice and engage customers to stay loyal to their brands. CPG brands can learn from other industries that have used variants of loyalty currencies such as trust, confidence, convenience, exclusivity, and wellness, just to name a few, to differentiate their brand offerings from others through their loyalty offerings. CPG brands should be leveraging these human desires and, where logical, embedding them into their loyalty offerings so that they can become less reliant on discounting as a sole loyalty mechanic.
3. The Rise of Direct to Consumer: Social media and new selling channels have changed the way that CPG companies interact with consumers and that is drawing the attention of loyalty practitioners. Historically, the CPG industry has not been a hotbed for consumer loyalty strategy, design, and operational expertise. Most of the world’s leading loyalty practitioners have been employed in the more customary loyalty sectors such as retail, travel & hospitality, and financial services. That, too, is changing as we see an emergence of loyalty practitioners focusing on the CPG sector as the next underpenetrated loyalty frontier. Loyalty professionals understand that this is generally an untapped opportunity for them to make a demonstrable impact in this defined discipline in the CPG sector.
4. Technology Advancements: There are several technological advancements which help pave the way for CPG companies to enable loyalty programs easier and more efficiently than ever. These include:
• Customer Data Platforms which make possible in one place the collection of consumer data and application of insights
• AI and machine learning are allowing the industry to be more efficient, relevant, purposeful and impactful with each consumer interaction
• The proliferation of apps that capture receipt data (such as Caddle, Checkout 51 etc.) now permit CPG companies to award loyalty currencies when their products are not purchased in their channels. This is an important development as most of the volume of CPG companies still originates at mass retailers.
Conclusion
The time is ripe for the CPG industry to fully embrace consumer loyalty programs in 2025. The barriers that once restricted this sector’s ability to connect directly with customers are becoming less significant due to technological advancements and changing consumer expectations. By developing robust loyalty programs, CPG companies can acquire highly valuable consumer insights, increase retention, and enhance product profitability. P&G, Unilever, Kraft, J&J, and Nestlé have demonstrated levels of success, but even their longstanding programs are still far from plateauing and reaching the critical mass and impact that other sectors enjoy.
As the digital scene continues to evolve, CPG companies have the opportunity and propensity to acquire greater control over consumer relationships and ensure long-term success in a competitive marketplace. This will require them to rapidly build the size and profile attributes of their consumer database. It is incumbent on CPG companies to design loyalty solutions that are not overly focused on discounting but rather strike a balance between value and creating emotional worth and connectivity with consumers. This can be achieved by embodying proven human-centric program attributes, benefits, features, and mechanics that bring their brand ethos to life inside their loyalty programs. The ultimate role of a loyalty program is not to make the consumer loyal to the program but rather act as a conduit to make consumers transactionally and emotionally loyal to the CPG companies and their brands.
Richard Schenker is a highly accomplished customer engagement thought leader, loyalty practitioner and partnership curator who has designed, renovated, and managed some of the world’s leading customer loyalty programs. He has an impeccable track record of success at enriching transactional and emotional relationships between iconic brands and their customers, across multiple business sectors. Richard has spent the first half of his career in senior loyalty roles with the Hudson’s Bay Company and Shoppers Drug Mart and the remainder of his career in leadership roles with leading loyalty agencies, Air Miles and Bond Brand Loyalty. Currently he is the Founder & Chief Customer Engagement Officer of Loyal Strategy Consulting, a consulting firm focused on enriching customer loyalty for leading brands. Richard can be reached at: rschenker@loyalstrategyconsulting.com or visit: https://loyalstrategyconsulting.com
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