Beyond Points: AI rewrites the rules of retail loyalty

This shift was brought into sharp focus this week by Dis-Chem’s announcement that its revamped ‘Better Rewards’ programme returned R350m to consumers in just 100 days. To put that figure into perspective, the retailer has matched the value historically delivered by its previous programme over a full year, in a fraction of the time. With a projection to return over R1.5bn within its first year, this is not merely a marketing tweak; it is a signal that the tectonic plates of retail loyalty are shifting beneath our feet.

The headline numbers, impressive as they are, obscure a more profound transformation. The real story here is not just about discounts; it is about the weaponisation of data. It is about how Artificial Intelligence (AI) is moving loyalty from a passive ‘earn-and-burn’ mechanic to a hyper-personalised, behaviour-driving ecosystem.

The big difference between loyalty and rewards

But before examining this transformation, a critical distinction must be drawn between rewards programmes and loyalty programmes, which are often conflated but serve very different strategic purposes.

A rewards programme is transactional by design. It incentivises specific behaviours through points, discounts, or cashback, operating on a quid pro quo basis that appeals to economic calculation and rationality. But rewards are a short-term strategy: drive this purchase, encourage that basket size, increase visit frequency.

By contrast, loyalty programmes are more durable. Loyalty programmes are all about creating an emotional bond between customer and brand that persists even when the discounts evaporate. True loyalty is the preference that survives competitive pricing, or the inertia that favours one retailer over another despite equivalent offers.

Marry rewards and loyalty to build brand and business equity

The smartest retailers use sophisticated strategies that deploy a hybrid model. Rewards act as the hook, drawing consumers into the ecosystem with immediate, tangible value. A loyalty programme has features that hold and embed the relationship so deeply in the customer's life that switching becomes unthinkable.

For example, think of how difficult it would be to end your Discovery Healthy contract if you have one, because it is so deeply embedded into your life and solves so many big problems for you. The solutions you get include travel, health and weight management solutions and advice. But customers also get rewards, like travel promotions and savings on healthy food, which nudge their behaviour.

This is what’s so clever about Disc-Chem’s strategy. It operates at a promotional and a brand-building layer. What Dis-Chem and its peers are engineering is not simply a ‘better rewards’ system, even though that is its name. The architecture this retail pharmacy chain uses converts transactional participation into enduring loyalty, attracting customers and keeping them.

The death of the ‘average’ shopper

For years, retailers relied on broad demographic segmentation, grouping customers by age, race, or Living Standards Measure (LSM). You were a ‘suburban mum’ or a ‘young professional’, and you received generic offers to match. Thabiso Msimanga, Head of Customer Growth and Engagement at Dis-Chem’s innovation unit, X, Bigly Labs, argues that this methodology is now obsolete.

“Gone are the days when we could segment customers into a single group and create generic marketing campaigns,” Msimanga notes. The new frontier is the ‘segment of one’.

This is where AI becomes the differentiator. By leveraging machine learning models, retailers can now treat every individual interaction as a unique data point. A customer is no longer just a parent; they are an individual who might be buying nappies, sports supplements, and hypertension medication simultaneously. The ability to analyse these basket combinations in real time enables a level of personalisation previously impossible.

We have seen this trajectory in the wider market. Clicks, a long-time leader in this space, has effectively utilised AI models like ‘aiRecommend’ to tailor offers, reportedly doubling the incremental sales uplift from personalisation over the past three years. Shoprite’s Xtra Savings similarly revolutionised the grocery sector by removing friction and offering immediate cash savings, driven by a sophisticated data engine that understands precisely what brings a customer back to the till. And what drives loyalty and makes them stay.

Dis-Chem’s entry into this high-tech league, however, carries a distinct flavour. By anchoring their data strategy around healthcare, they are using AI not just to sell more toiletries, but to solve a complex economic equation: affordability versus access.

An ecosystem of value

The architecture of the ‘Better Rewards’ programme reveals a strategic pivot from a traditional retail reward scheme to an integrated loyalty and lifestyle ecosystem. It is no longer about a retailer operating in a silo. This is a clever system that focuses on creating a ‘web of value’ to generate brand loyalty.

The partnerships are key. By integrating with Capitec (South Africa’s largest retail bank by client numbers), Dis-Chem has tapped into a base of 25 million potential shoppers who receive an additional 5% saving just for using their bank card. Add to this the ‘Pharmacy Boost’, which rewards customers for filling prescriptions, and you create a compounding value proposition. A customer can stack a 10% instant discount, a 5% pharmacy reward, and a 5% banking incentive. But it is important to recognise that the reward is part of a holistic system that improves the customer’s life and also generates deep loyalty.

The ‘stackability’ does two things. Firstly, it offers the consumer a lifeline. As CEO, Rui Morais rightly points out, when medical inflation outpaces income growth, affordability becomes a barrier to access. R350m back in pockets isn't just a saving; for many, it is the difference between adhering to a chronic medication schedule or skipping a month.

Secondly, for the retailer, it reinforces behaviour. AI analyses data from these interactions to predict when a customer is likely to lapse in their medication or when they are due for a refill, prompting timely, relevant interventions.

The economic imperative: Health as currency

The most intriguing aspect of this shift is the convergence of retail, insurance, and healthcare funding. Morais has been vocal about the "commodification" of healthcare, and his vision envisions a future in which good health behaviour literally funds cheaper healthcare.

The data generated by a loyalty programme is a goldmine for actuarial modelling. If a retailer knows you buy vitamins regularly, fill your chronic scripts on time, and choose healthier food options, you are a lower risk to an insurer. Dis-Chem’s integration of its medical insurance products with the loyalty programme—offering up to 100% off for policyholders who maintain good health scores—is the practical application of this theory.

It is a symbiotic model: the customer gets affordability, the insurer gets lower claims ratios through better adherence, and the retailer secures the basket spend. This ‘shared value’ model, pioneered globally by the likes of Discovery, is now becoming the standard for retail sustainability.

The road ahead

The success of Dis-Chem’s first 100 days of Better Rewards is a vindication of the ‘instant gratification’ model. The South African consumer, battered by high interest rates and inflation, has little patience for nebulous points that might be redeemable in a year. They value the R10 they save at the till today infinitely more than the R100 they might get next Christmas.

However, the long-term winner in this space will not be the one who gives away the most margin. It will be the one who uses AI to embed discounts into a broader system that solves customer problems and that drives loyalty. Using AI is a win, because the future of loyalty lies in prediction—knowing what the customer needs before they do.

We are now in the age of intelligent, immediate, and integrated programmes that blur the line between rewards and loyalty by design. The winners will be those who understand that rewards solve the customer's wallet problem (delivering affordability when it matters most) while solving the customer's life problem, and embed solutions so deeply into daily routines that the relationship transcends transactions. This is the level at which the loyalty lock-in kicks in.