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When Loyalty Programs Go Wrong

Recognizing and rewarding your best customers makes good business sense. So how can a loyalty program go wrong? How can it not work? It’s quite simple; the strategy gets lost in the execution. Here are loyalty principals that when not executed well can significantly impact the success of your loyalty program.

Ignore these 4 Loyalty Principles at Your Own Peril

1. Not So Rewarding Rewards

Have you checked your rewards lately to see how well they fare in today’s cost versus value department? It could be that while they might have made sense 2 or 3 years ago, they don’t hold water in today’s economy or with customers’ changing perception of value.

If you have points program with high customer breakage rates, it may mean that customers are earning points, but they are not actively engaged in your loyalty program.  They don’t see a value in redeeming points the points, so they let them expire. Or that the number of points required for redeeming points is too high.

Take a look at the changes to frequent flier programs as an example. American, Delta, and United airlines have switched the way customers earn redeemable awards miles. Instead of being based on distance-traveled, passengers now accrue miles based on the price of their fare, favoring those who buy expensive last-minute tickets or seats in first or business class.

On Southwest Airlines, the number of points you earn per dollar is based on the type of fare. The more expensive fare types earn more points. And the higher the fare the more points you earn. So expensive ‘business select’ fares earn more rapidly.

Southwest Rewards Program Earn

Southwest Rapid Rewards is also unique in it’s approach to redemption rules. Southwest Rapid Rewards has increased redemption rates for Wanna Get Away fares by ~6%, but in the process, they’ve made redemptions for Business Select and Anytime fares much more reasonable. It no longer matters what kind of ticket you redeem for, you’ll get roughly the same value per dollar of airfare. Redemption rate rules for the Southwest Rapid Rewards program as follows:

  • Previously Business Select fares cost ~ 120 points per dollar. That dropped to ~ 78 points per dollar.
  • Previously Anytime fares cost ~ 100 points per dollar. That dropped to ~ 78 points per dollar.
  • Previously Wanna Get Away fares cost 72 to 74 points dollar. A 6% increase makes it 76 to 78 points per dollar.

Related Article: Loyalty Program Breakage: Health Measure of Program

2. Relevancy and Personalization 

For brands to remain relevant they need to create loyalty programs that recognize consumers as individuals with a level of service that goes beyond the traditional brand experience. Findings of a global study, Retail 2018: The Loyalty Divide, indicate that consumers that demand more personalized experiences

    • Immediate Gratification
      • 74 percent of consumers note immediate benefits are more appealing than accumulating points
      • 72 percent of consumers note an effortless loyalty program with automatic offers is appealing
      • 69 percent of consumers note personalized offers based on stated preferences as appealing
      • 66 percent of consumers note personalized offers based on purchase history as appealing
      • 58 percent of consumers note personalized content and communications as appealingPersonalized Offers

It used to be that you could reward customers next year for their purchase this year, but pair our society’s instant gratification mindset with the speed of social media and digital experiences, and chances are you need to speed up the frequency of your rewards in relation to program participation. There’s a direct correlation between engagement and rewards.

How to Improve Failing Loyalty Program

3. Go Beyond Rewarding Top-Tier Shoppers

One of the core principles of loyalty marketing is that you reward that top percentage of your customers the most since they are responsible for a greater share of your revenue. Nowadays, we have the capability to segment and create programs that are effective to that next tier down. Those customers might not be your very best customers, but they are still good customers and as such, are worthy of a program that will help engage and grown their relationship with you.

tiered reward structure

4. Understand the Life Cycle of Your Loyal Customers

How does your program fit into the life cycle of your customer? Say, you cater to business travelers. What happens when they leave the business world for retirement and stop traveling? All of a sudden they might be dumped from all those special perks and an otherwise golden relationship could go sour. Plan for how you can keep those loyal relationships positive, even after they no longer fit the typical best customer profile. Devise a plan that acknowledges their past loyal relationships and turns them into brand loyalists who continue to be advocates.

Updated 5/1/2018


Sallie Burnett
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