Build vs. Buy a Loyalty Platform: A Framework for Making the Right Decision

The build vs. buy decision for a loyalty platform is the choice between developing and maintaining custom loyalty software in-house, licensing a purpose-built platform, or combining the two by building custom features on top of a licensed platform's core.

It looks like a technology decision. It is a business decision with technology consequences. A brand that builds its own loyalty platform is committing to run a piece of enterprise software indefinitely: an engineering team, a maintenance roadmap, security and compliance obligations, and every new program feature competing with the brand's own product priorities for the same engineers. That commitment makes sense for some organizations and not for most. This guide sets out six criteria for deciding, the costs that build estimates tend to miss, the risks of buying, and the middle path of building on a licensed core.

Key Takeaways

Is build vs. buy a technology decision?

Build vs. buy is mainly a business decision, because the deciding question is whether the loyalty technology itself, rather than the program design, is what gives the brand an advantage.

For most brands, loyalty creates value through program design, member engagement, first-party data and ongoing optimization. None of those requires owning the software. A distinctive program can usually be designed and run on a licensed platform. Building makes sense when the technology is the advantage: when the mechanics or data architecture cannot be delivered by configuring an existing platform, and when that difference produces results competitors cannot copy by licensing the same tools.

When does building a loyalty platform make sense?

Building makes sense when the program's mechanics or data requirements cannot be met by any licensed platform, and the organization can fund an engineering team to maintain the result for years.

The profile that points toward building:

• Unique mechanics. The program's core mechanics cannot be configured on existing platforms without extensive custom work.
• Loyalty is the business model. Membership benefits are the product itself, not an add-on to it, and the technology has to change faster than any vendor roadmap would.
• Incompatible data architecture. Customer data lives in a proprietary system where connecting a standard platform would take more engineering than building loyalty logic inside it.
• Data residency constraints. Regulation or policy requires the data to stay in infrastructure no licensed platform can accommodate.
• Sustained engineering capacity. The organization can staff a dedicated team to build, maintain and extend the platform for three to five years or more, and has accepted that opportunity cost explicitly.

Where data residency is the only blocker, a self-hosted or open-source loyalty engine may meet it without building from scratch, though the brand then carries hosting, security and upgrades.

In Brandmovers' experience, when brands that lean toward building examine these conditions honestly, many find that what they need is a configurable platform with strong integration options, not software built from scratch.

What does building really cost?

Building costs more than the launch budget, because the largest costs come after launch and are rarely in the original estimate.

Large IT projects routinely overrun. McKinsey's research with the University of Oxford, published in 2012 and covering more than 5,400 IT projects, found that "large IT projects run 45 percent over budget and 7 percent over time, while delivering 56 percent less value than predicted," with software projects carrying the highest risk of cost and schedule overruns. The study defined large projects as those with initial price tags above $15 million, and a smaller loyalty build may behave differently; the finding shows the direction of risk rather than a figure to apply. The same risk applies to large platform implementations, which is why both paths belong on the same worksheet.

Four costs are most often underestimated:

• Integration upkeep. The platform must connect to the CRM, point of sale, ecommerce, email and analytics systems, often in real time. Each connection has to be built, tested and then maintained as the connected systems change their interfaces. Build estimates usually cover the first connections, not their upkeep or the new ones later phases need.
• Fraud controls. Loyalty fraud patterns change, so fraud detection is an ongoing workload, not a one-time build. A licensed platform spreads that cost across its clients; a custom build puts it all on the brand.
• Post-launch features. After a year of member data, the program will need mechanics and integrations that were not in the original specification. On a licensed platform many of these are configuration changes; on a custom build each one is an engineering project competing with the brand's other priorities.
• Security and compliance. Loyalty data includes personal information, purchase history and sometimes payment data. A custom platform needs its own security testing, patching and audits, such as SOC 2 and PCI DSS where they apply. State privacy laws apply on either path, including California's financial incentive notice and consent rules for loyalty programs, covered in the terms and conditions guide.

Buy estimates miss costs too: fees that rise with membership, paid custom work, per-connector or per-module charges, and the brand-side engineering needed to integrate with the vendor and maintain those connections.

How do you compare the five-year cost of each path?

Compare the paths on the same five-year worksheet, because a build that looks cheaper in year one can cost more by year five.

Fill in each line with your own estimates and quotes, and model the fees at the member count expected in year five, not at launch. A build is only cheaper over five years if engineering opportunity cost is valued honestly and requirements stay stable enough to keep the later years at the low end.

What does buying a platform provide?

Buying provides proven program mechanics, continued vendor investment, existing integrations, audited security controls for the platform and a defined implementation path.

• Proven mechanics. Points, tiers, referrals, receipt validation and promotions are built and tested across many programs, so the brand's work is program design rather than engineering.
• Continued investment. The vendor updates fraud controls, adds capabilities and builds new connectors, which a custom platform gets only if the brand's own team builds them.
• Integrations. Existing connectors cover common systems. For example, BLOYL™ has confirmed integrations with Salesforce, HubSpot, Adobe Marketo, Microsoft Dynamics, Mailchimp, Shopify, Adobe Commerce, SAP and Epicor.
• Security and compliance. The vendor's certifications cover the platform itself; the brand should review the vendor's SOC 2 Type II report and still meets its own obligations. Brandmovers holds SOC 2 Type II and PCI DSS.
• Speed. Brandmovers' implementation benchmark to build and launch a program is 90 to 120 days (disclosed by Brandmovers); compare that with the build team's own estimate for the same scope. The phased launch guide covers what to include at launch.
• Program expertise. Full-service partners add strategy, creative, compliance and analytics, which a custom build has to source separately. The platform buyer's guide compares the models.

What are the risks of buying?

The risks of buying are lock-in, dependence on the vendor's roadmap, configuration limits and vendor change, and most can be reduced through the contract and the evaluation.

• Lock-in. Moving platforms later means migrating members, balances and history. Require full export of member data, transactions, balances and configuration, in a usable format, and defined vendor support during the exit.
• Roadmap dependence. A feature the program needs may not be on the vendor's roadmap. Test during evaluation whether the platform can be extended through documented interfaces rather than waiting for the vendor.
• Configuration limits. Some mechanics may not fit the platform's model. List the program's must-have mechanics and have vendors demonstrate them, rather than relying on slides.
• Vendor change. Pricing, ownership or product direction can shift. Agree on pricing terms, service levels and notice periods in the contract, and keep a migration plan. The sunset and migration guide covers moving platforms.
• Vendor security and stability. A vendor breach or failure affects every client program. Review the vendor's audit reports and incident history, and ask about its financial position and ownership.

What is the middle path between build and buy?

The middle path is to license a platform's core engine and build only the features that are genuinely distinctive on top of it, through the platform's documented interfaces.

Many of the reasons brands give for building are really reasons to customize: a unique member app, a proprietary recommendation engine, an unusual earn mechanic, a connection to a specialist data source. A composable approach handles these by keeping the commodity functions (points ledger, tier logic, reward catalog, member records) on the licensed core and building the distinctive layer on top. The brand's engineers work on what competitors cannot copy, and the vendor maintains the rest. The trade-off is dependence: custom features rely on the vendor's interfaces, so changes to or retirement of those interfaces become the brand's problem. Confirm version and retirement policies in the contract.

The useful question for any team inclined to build is: which specific requirements cannot be met by configuration, or by custom work on top of a platform's interfaces? The answer usually shows whether the need is a full build or a targeted one.

Two situations change the analysis. A small or simple program may not justify either path, so check first what the existing commerce or point-of-sale system already offers. Multi-brand groups, or brands consolidating programs after an acquisition, should test whether one core can run several programs, currencies and brands, and cost the migration of each legacy program.

What are the six criteria for the decision?

The six criteria are competitive differentiation, engineering capacity, time to market, five-year cost, data requirements and pace of change.

How do you run the evaluation?

Run the evaluation by sorting requirements, testing vendors against them, costing both paths on the same worksheet, and proving the riskiest requirement before committing.

1. Sort requirements. List every requirement and mark it standard, configurable or genuinely unique. Only the unique items can justify building.
2. Test vendors on the unique items. Use a structured RFP and require live demonstrations of the must-have mechanics and integrations.
3. Cost both paths. Complete the five-year worksheet for building and for buying, including opportunity cost and time without a program.
4. Prove the riskiest requirement. Run a small proof of concept on the requirement most likely to break the decision, before signing a multiyear contract or starting a build.
5. Set review points. Agree on the metrics that will show whether the choice is working, such as launch date, integration stability and the cost of each new feature, and review them at set intervals.

Conclusion

The build vs. buy decision is really a decision about what the brand's engineers should spend the next five years on. For most brands, the value of a loyalty program lies in its design, its member experience and its data, not in owning the underlying software, which points to buying or to building a distinctive layer on a licensed core. For brands whose technology is the advantage, building can be right, provided the full five-year cost is counted. Which of your requirements would still be unique after a vendor had tried to configure it?

Sources

• McKinsey & Company, "Delivering large-scale IT projects on time, on budget, and on value" (Bloch, Blumberg and Laartz, October 1, 2012)