5 Loyalty Program Challenges — and How to Overcome Them


November 7, 2018


Mike Bradley

VP, Strategy

​Mike is a data-driven, results-oriented marketing practitioner with deep experience activating highly successful relationship-marketing initiatives.

On average, a consumer belongs to 13 loyalty programs but is active in only about six or seven, according to The Loyalty Report 2017. Although gaining and retaining membership can be difficult, the benefit is that 57% of customers spend more on brands to which they are loyal.

How do brands tap into that majority?

Here are five loyalty program challenges and the solutions for overcoming them.

Challenge No. 1: Limited customer engagement
A whopping 54% of loyalty program members are inactive, according to the 2017 COLLOQUY Loyalty Census. Although these customers do make the choice to sign up, many never engage or opt out after only a few months.

Solution: Customer relevance
Brands must leverage data to gain insights into customer behavior and interests to tailor experiences, offers, and messages to an audience of one.

The Loyalty Report 2017 explains that customers sign up when the process is easy and if they want to receive the specific offers and discounts. These customers will abandon a program if it takes too long to earn rewards or the rewards are irrelevant.

Challenge No. 2: Lack of differentiation
Many brands resort to off-the-shelf loyalty constructs or “me too” value propositions. This makes it challenging to gain attention, attract new members, and retain existing members.

Solution: Innovate around the brand experience
Brands must offer something unique that their customers can’t get anywhere else. The best advice is to keep it simple and deliver on the “best of the brand.” For example, Costco’s differentiator is $1.50 hot dogs. Domino’s succeeds with the Domino’s Tracker, which allows customers to easily monitor the status of their order.

Challenge No. 3: A siloed loyalty program experience
An eMarketer study finds that only 2% of marketers claim to have all channels integrated to provide a cohesive, personalized experience from one channel to the next. The result is that often a loyalty program is a separate initiative, managed independently and within its own channel.

Solution: Begin with the customer in mind
By listening to customer feedback through voice-of-the-customer research and analyzing digital engagement metrics, brands can begin to understand the when, where, how, and why customers engage. These insights will identify and help prioritize the activities that will have the greatest impact on customer behavior and return on investment.

Challenge No. 4: Loyalty to the discount vs. loyalty to the brand
Too often, brands don’t reward customers beyond the transaction. Yet 75% of consumers want to be rewarded for nontransactional engagements like taking a survey or interacting on social networks.

Solution: Establish transactional, engagement, and emotional loyalty goals
Beyond transactional rewards, brands need to design loyalty initiatives that build emotional connections. Transactional and behavioral metrics like frequency, spend, and retention can be combined with experience metrics like email and website engagement and emotional metrics like NPS and share of wallet to create a complete view of loyalty program impact on customers and the brand.

Challenge No. 5: Managing loyalty currency liability
Points-based loyalty programs create a new form of currency that brands must be prepared to account for. More than 50% of accumulated points, with an estimated worth of $50 billion, are never redeemed. Unclaimed rewards can create a significant financial liability on a company’s balance sheet.

Solution: Financially sound program design
A brand should estimate the financial impact of various value exchanges and select the most appealing ones for its business. For example, establishing an accelerated points expiration policy can help reduce program liability.

Achieving loyalty program success can be challenging. However, the brands that rank high in member satisfaction — JetBlue, Walgreens, Chick-fil-A, and Sephora — share a common approach. They put the customer at the center, leverage data to gain insights that drive results, enable technologies that enhance the customer experience, and offer value propositions that are financially incremental.

Brands like these follow tried-and-true solutions and have had success overcoming loyalty program challenges.

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