Why Loyalty Programs Fail & 6 Ways to Fix Them


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Loyalty programs are like bottoms these days, everyone has one. Retailers, airlines, banks, telcos, coffee shops, restaurants; almost anyone who has customers has some form of a loyalty program, even my local bakery has one. Recent studies have shown that consumers will join up to 10 loyalty programs but only be active on 3 – 4 of them. The same studies have also shown that, of any one program the global benchmark is for, around 35% of the base are active. So you don’t have to be a rocket scientist to figure out that there is a huge wastage caused by a number of factors:

    1. An acquisition offer that is only compelling for the first transaction (spend $100 and get $10 off your transaction).
    2. A sign up process that requires no registration. So although there is a low barrier to entry, there’s also an ultra-low level of engagement and investment…let’s face it, if it’s free and easy, it’s got no value.
    3. No compelling transaction stimulation proposition; earning points on something that you purchase once a month means that it will take a month of Sundays before you get anything, and when you do purchase you probably have forgotten your card.
    4. Customers being treated as if your organisation has no clue and get regular generic special deals for Bras when they are a 45-year-old male.

So, here are some things that you can do to improve your program’s engagement:

1. Stop treating your members as if they were anonymous. We recently implemented our offer decisioning engine into a client’s monthly newsletter and doubled the sales because customers were presented with the product offers that were relevant, rather than a generic set of offers for all.

2. Be reactive. Send customers offers in response to things they have done or things they haven’t done that you expected them to do. Don’t just send them a weekly email because you have something to say.

3. Protect your customers from yourself. The great thing about automation is that it makes it easy to contact your customers. The downside is that it makes it too easy to contact your customers. Email open rates range from 12% to 70%…the difference is the relevance of the emails you send. Companies that send “Blast” emails get between 12% and 20%. There is a finite number of times that you can have an irrelevant conversation with your customers. There is an infinite number of times you can have a relevant one.

4. Make sure your program is designed to drive value creating-behaviours with your customers. I can’t tell you how many programs I have seen that are either a cut and paste of the Tesco Clubcard or another program, or designed around the organisation’s agenda or commercial deal. Both are bad. Most organisations have a unique product mix and relationship with their customer. Think about how customers create value for your organisation and how you best deliver value to your customers. Keep it simple and easy to understand.

5. Don’t build your program to derive all its profit by robbing customers. I’ve seen a few programs where the viability of the program is determined by the “breakage” or the value of unused points or credits, which are expired or unredeemed. It’s practically impossible to be successful with these programs, because the more successful the program from a customer perspective, the less financial the programs is. It makes no sense at all.

6. Reward loyalty not disloyalty. There is an interesting phenomenon that occurs when programs are operational. The most aggressive offers are often focused on winback or customers who split their spend between competitors. The net result is that the most disloyal customers often get better offers than the most loyal customers. In some cases customers figure this out and have two memberships, so they can appear to be at risk or split. Therefore they get the best offers.

So if you are going to design a program or redesign a program, think carefully about the value exchange between your program and your customers. Understand clearly how value is created and distributed on both sides of that equation, and make sure your program facilitates this exchange. Have a program that is active, not passive. Be proactive and don’t rely on the program earn and burn policy to do all the work. Make rewards reachable and valuable.

Regan Yan
Regan Yan is the CEO of Digital Alchemy, Asia Pacific's most trusted database marketing partner. Regan is a subject-matter expert in analytical database marketing and customer relationship marketing, as well as an in-demand presenter and keynote speaker at national and international events.


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