Why do so many loyalty programmes fail?

By Rikard af Sandeberg, Director, Product Management & Marketing Nordics

Customer engagement is more important than ever. It’s well accepted that it costs more to attract a new customer than retain an existing one (five times as much, according to Lee Resources). So it’s vital that companies forge an emotional connection with the customer base. Research from Customer Thermometer shows the primary reason people connect with a brand is because it shows it cares about them. In turn, once this connection is formed, loyal customers are much less price-sensitive, highlighting the difference driving brand advocacy can make.

It’s therefore worrying that Capgemini data reveals 77 per cent of loyalty programmes fail within the first two years and often, customers on loyalty programmes are no more loyal than those who aren’t. When you consider exactly how costly this will prove not just in monetary terms but also for customer retention, it’s staggering that this remains an issue. However, before businesses consider running an impactful customer engagement strategy, they must first understand why traditional loyalty programmes aren’t a success, particularly as customer habits and expectations continue to change with the times.

Here are three reasons the vast majority are unsuccessful.

  1. Retention programmes are transactional

Despite the correlation between businesses that show they care about consumers and brand loyalty, The Capgemini research shows that a staggering 97 per cent of retention programmes are transactional. Although to many companies this may seem like the way the system works, it means only consumers that purchase a product or service are rewarded.

This type of ‘you scratch our back, we’ll scratch yours’ mentality isn’t always sustainable when it involves consumer spending. At first it may interest customers to engage with an organisation, but once it becomes apparent rewards are only available to those who regularly purchase products, the allure soon wears off.

It also tends to reward the customers who are most likely to stay loyal anyway. On the basis that, as consumers, we are most likely to seek out loyalty programmes with brands we already like, businesses can end up spending money to retain the very customers they had the least chance of losing to begin with. In essence, they’re subsidising purchases that would have been made anyway.

  1. Fragmented user experience (UX)

Today’s customer-facing businesses are all focused on multi-channel delivery – from retail and travel to insurance and banks. However, far too many organisations fail to offer a seamless link between online and offline channels. In fact, 79 per cent of retention programmes use mobile channels, yet just 24 per cent allow mobile redemption. This can prove hugely frustrating for consumers, especially engaging with a brand remotely.

Imagine you’ve made a purchase with a brand that runs a loyalty card scheme and at the point of purchase you’re informed you have accrued enough points to qualify for a reward. However, before taking advantage you need to present a physical copy of a downloadable voucher that expires in the next two weeks, rather than simply presenting the copy on your device. It’s this level of complexity and irrational UX that turns many consumers off a brand.

  1. Failing to meet expectations

The final reason so many loyalty programmes fail is lack of personalisation, which in turn ensures customer expectations aren’t met. In this day and age, a ‘one-size fits all’ approach simply doesn’t work.

Worryingly then, is the trend towards only using tiering as segmentation and ignoring the vast amounts of consumer data available to personalise the offer even further. This harks back to the issue of transactional programmes, as typically the more money a customer spends with a brand, the better their rewards. Of course, sometimes there’s a place for this depending on the company, but it’s important to consider how a more detailed personalisation strategy could be more impactful.

Customers also need to care about – and understand – the rewards they’re receiving. A study by Edgell Knowledge Network investigating the loyalty programmes of 60 retailers found the vast majority of customers (81 per cent) weren’t aware what their rewards entitlements consist of or how they’re redeemed. With the average consumer being a member of an estimated 18 loyalty programmes, yours need to be clear and stand out.

Our ‘Connected Customer’ research report found that a strong and lasting relationship happens when a company becomes a meaningful part of a customer’s everyday life. This is only possible through a loyalty programme that adds true value to the user’s life. For example, Virgin Money invested in lounges for its customers which offered no banking services at all. Instead, the hotel lobby-style areas offered customers free newspapers, magazines, Wi-Fi and refreshments, as well as an area to watch TV and even play grand pianos. The programme resulted not only in increased brand loyalty but also a 200 per cent increase in sales at lounges located near a store.

There is more to customer engagement than stale old loyalty programmes. Businesses should look at the expectations and requirements of their client-base and mould their offering around this. Find a challenge customers suffer from and provide a solution which directly resolves it – from insurance and cyber protection to travel and concierge. It is this type of smarter engagement that ensures programmes are successful and result in meaningful, long-lasting and fruitful customer relationships.