Why Loyalty Programs don’t work? (based on 36 interviews)
I spent weeks analyzing loyalty programs and talking to their managers when we have been designing OpenLoyalty App. I conducted 36 interviews. Below, I present the conclusions that I gathered.
Programs burn out
Even the best loyalty programs burn out over time. To keep your customers interested, you have to refresh the formula every few years. Some managers I talked with have just introduced their third loyalty program. In fashion industry, programs change quite frequently — I’d say every 4–5 years.
Customers don’t want cards
Only programs of everyday used brands have the chance for a place in customers’ wallets. This is usually 2–3 cards. All the others have to construct their programs to work without a card. It’s a good idea to base a program on an identifier such as phone number, e-mail or name. Phone number or e-mail are obviously the best, as they allow you to communicate with customers.
Luxury brands customers don’t want to collect points
The customers of luxury brands (but also many everyday brands) don’t want to collect hundreds of thousands of points only to learn that they can’t afford the offered rewards anyway. In best programs nowadays, points are collected implicitly and the program is based on advancing subsequent levels. Customers receive additional bonuses depending on the level they are. Sometimes the levels are kept confidential and the customer is surprised with unexpected bonuses like movie tickets, a private consultant or vip sales.
Discount rates are risky
Offering your customer a discount rate seems like a good idea, but it involves a strategic threat. When a company wants to improve its results for a given quarter or month, sooner or later it will offer discounts to all its customers. It will undermine the legitimacy of the entire customer loyalty program. To avoid this, you should offer values other than simple price reduction.
Difficult to predict customer needs
What best motivates your customers to purchase again? Determining it can be very expensive and may require a number of quantitative and qualitative research. The necessity of conducting market research effectively deters from going into loyalty programs. It’s good idea to start from ready-made, proven mechanisms first and then optimize their performance.
Difficult to develop logistics and financial processes
The nightmare of every manager (or even Board) is creating new processes in several departments of the company at the same time.
You probably don’t want to create new logistics and financial processes in your company unless it’s really necessary — most of our clients don’t. Therefore, we propose two solutions: 1) adjusting your loyalty program to existing processes (e.g. using eCommerce as a platform to receive bonuses), 2) full outsourcing of the loyalty program — along with logistics and even suggesting prizes.
ROI difficult to estimate
If you conduct a dedicated analysis and design stage, you will need to create dedicated software. Then, you need a minimum of several months of work and a minimum of tens of thousands of euros — it’s another effective blocker. It is difficult to assess ROI of a program before it starts, so it’s difficult to justify expenses for implementation. The wisest thing to do would be to reverse the process — to start a loyalty program quickly and cheaply and see what benefits it generates in the basic version. It is much easier to develop a program that already brings profits.
P.S. If you are interested in loyalty programs, we will be happy to share our experience and present you our Open Loyalty solution.
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