CX + Loyalty Strategy

5 Loyalty Program Challenges — and How to Overcome Them

Editor’s note: This post was originally published in November, 2018, and has been updated for comprehensiveness and relevancy pertaining to the importance of customer experience in today’s loyalty program landscape. 

On average, a consumer belongs to 14.8 loyalty programs but is active in only about six or seven, according to The Loyalty Report 2019. Although gaining and retaining membership can be difficult, the benefit is that 36.5% of customers spend more on brands to which they are loyal, and 59.3% will refer their peers to these brands.

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 Personalization
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 2019 explains that when brands connect with customers in the right channels, right place, right moments, and with the right messaging, there is a 6.4x lift in member satisfaction with the program, a 5.2x lift in how long members stay with the program, and a 3.5x lift in member spend.

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 3% 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 non-transactional 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 — Sally Beauty, Domino’s, and Walgreens, and Chick-fil-A — 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.

By Mike Bradley

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