Loyalty programs beyond breaking point: 10 problems, 10 solutions
Adam Posner outlines the 10 problems that could be harming your loyalty programs, offering solutions for each.
Loyalty programs are at breaking point. I base this point of view on:
- Member insights from six editions of the consumer loyalty program research ‘For Love or Money’
- Experience working with many and varied brands and their programs over the past 10+ years, and
- 113 programs that I joined for my book on loyalty programs Give back to get back – nine steps to a profitable loyalty program. Since then, I have joined many more as I am addicted to the request: ‘Join our loyalty/rewards/benefits/VIP <insert name here> program.
In this article I will outline 10 loyalty program breaking points. These are within the control of the people managing the program (I have avoided external factors). I am urging managers of loyalty and rewards programs to take a serious look at these 10 breaking points and the details that follow to review their programs and realise their potential as a valuable and viable business asset – one that is profitable to the business and meaningful to their members.
1. Low level of long-term belief in the asset of a program
- Problem: ‘shortermitis’ cost focus versus long-term asset build.
- Solution: realise the potential of a program as a valuable asset based on it being known, owned and controlled.
- Identified and personalised data collected by a program provides the opportunity to be intelligent, relevant and sensitive with known data – your customers’ data.
- Programs enable brands to understand who their customers are (by profile and behaviour – past and predictive).
- They provide the opportunity to drive personalised, relevant and ‘just-in-time’ communications that motivate members back into their business for more spend, more often over the longer term.
- A program is community of customers who have entered into an agreed ‘benefit-exchange’ relationship with the business. They have opted-in to be a part of the program with the caveat that there is still a basic right to unsubscribe or leave a program.
- By contrast a business’s community on social media platforms such as Facebook, Instagram, Twitter and all the others are rented assets. The business has permission to ‘rent the platform’ from the respective social media ‘landlords to engage with their social media community. Rules of access are controlled by these social media landlords.
• Managers of loyalty programs control the strategy, structure of benefits and communication of the program with its members.
Known + owned + controlled = valuable.
An additional asset: acquirer of new customers
A program that builds loyalty outcomes and leverages goodwill and advocacy with its members is a source of new customers. Whether by referral, recommendation or reviews, a delighted member base will attract new members.
Another asset: relationship builder
Perhaps this can be part of ‘known asset’, however it deserves a special mention as a program provides the opportunity to build ongoing and more meaningful relationship with members.
Final asset: financial
Finally, a program must deliver a positive financial return to the business over the longer-term so that is an asset to the business.
2. Program metrics
Problem: program metrics of success are not SMART (specific, measurable, actionable, realistic, time-based) enough.
Solution: identify, measure and report on relevant program metrics of success.
Here are nine program metrics of success every program should have as mandatory:
- Return on loyalty = loyalty program ROI
- member value versus non-member value
- loyalty program revenue contribution versus total revenue, and
- member lifetime value versus non-member.
Program engagement metrics
- Volume of members joining
- depth of membership (how many members as a percentage of available pool of unique customers)
- contactability (by channel) eg. opt-in, mobile
- activity and conversions, and
- member NPS.
There are other metrics such as the infamous breakage metric and if there are tiers, then you can dig deeper by tier as well as benefits earned, redeemed, earn:redeem ratio and behaviours by profiles of members in your program.
3. A data grab
Problem: too much focus on data volume and not enough on quality, intelligent and sensitive use.
Solution: use data sensitively and intelligently.
The days of loyalty programs being a veneer for a data grab are well and truly over. Customers are so much more sensitive to the giving of their personal information and ongoing buying behaviour data.
The latest results of data use – enhancing the shopping experience or invading privacy, highlighted in ‘For Love or Money 2018’ shows that only 50% of members believe that data use is enhancing their shopping experience.23% feel that information collected by a loyalty program is an invasion of their privacy.
Collecting data with a clear reason why sensitively builds trust. If you ask for date of birth, tell them why. Is it for special birthday offers? If you ask for a mobile phone number, tell them why – security check, reissue passwords, send limited offers.
Use data intelligently (relevance is the operative word) to enhance a member’s shopping experiences or lives. A great example is Nike’s first data-driven retail store.
4. Too focused on financial benefits
Problem: a one-dimensional focus on financial benefits becomes a pricing strategy, easy to match (or beat) and a smooth ride to the bottom.
Solution: move programs from transactional moments of materialism to experiences that are remembered and remarked upon.
Transactions are forgotten
- A ‘cash-back’ reward in any form (dollars, discounts, immediate or accrual) is just another financial benefit that is often lost in the noise of price-focused messages.
- While they are a mandatory and expected benefit layer within a program’s structure, they need to be seen as just that – ‘expected’ and hygiene.
- They should not be the focus or main benefit as the reality is that as soon as the expected is delivered, it is then forgotten.
Experiences are remembered
- Experiences that change our physiology (heart-beat) in an uplifting and positive way are remembered and remarked upon.
- Programs need more focus on rewards that are experiences to remember, moments of joy, and unexpected delights for the optimum outcome.
- A program delivering a positive memorable experience through benefits earned or interaction will change behaviour. Members will return to the business and tell others, two behaviours that are profitable for the business.
5. Earn-to-redeem rate
Problem: the members’ view is ‘it takes too long to be rewarded.’
Solution: Speed. This is the type of program and the behaviour required by the member to earn the reward(s) for redemption.
In ‘For Love or Money 2018’, earn rate was viewed by members as the number one factor programs needed to improve upon.
- The balance between effort (easy or difficult) and reward (aspirational and worthwhile versus transactional and small) is a critical element in the psychology of loyalty programs and the connection between motivation and behaviour.
- A continued focus on improving the earn-to-redeem rate should be on the agenda for all loyalty program managers.
- Also, how long it takes for your members to earn their first reward is key to building momentum and habit.
6. Tears for tiers
Problem: adding unnecessary complexity is added with tiered programs.
Solution: move programs from clutter to calmness.
Tiers add complexity
- Tiering levels of rewards based on achievement of defined behaviours have a place in certain categories where a high frequency of spend occurs (airlines, gaming, hotels, some retail).
- They motivate aspiration and certainly enhance the ego of the higher tiered members.
- By their very format, they also add a layer of complexity to the program to explain, execute and manage.
- Unless clearly connected to behaviour, try to avoid the ‘tears for tiers’.
- Say your program’s proposition out loud and see if you can make it aspirational and meaningful in 15 seconds or less (then try it in 10 secs). If you can’t, refine it until you can.
- In all of the complexity that a program can create, look for simplicity – joining, earning, redeeming and interacting (‘For love or money 2018’ again highlights that the simple ingredients of a successful loyalty program rank highly in the 24 SPV ingredients).
- In a world of clutter where attention, emotional energy and time are scarce, let the program add a layer of simplicity to the life of the member rather than another pain point and overload.
- ‘Shhh…secret tier’. Consider covert tiering to avoid complicating the program’s proposition. Test and learn with various segments without committing. Hint: A secret tier can help to create structure to a surprise and delight strategy.
7. Expiry of benefits
Problem: this is a contentious issue! It’s good for businesses financially, but it’s not what members want.
Solution: be brave and be different – promise the no expiry benefit. Then work hard to ensure they don’t become a liability – get them back to redeem and spend more!
- Programs with any accrued benefits create a liability.
- A strategy to mitigate this risk and most often executed is the expiry of these benefits – be it by time or inactivity.
- The reality is members want the opposite. In both the 2016 and 2017 ‘For Love or Money’ research studies, the number one ingredient of successful programs of 24 as ranked by members, is the non-expiry of benefits/rewards.
- Imagine if there was no expiry in your program – what would you do differently?
Do not expire benefits
- It’s a tough ask and perhaps out of touch with the economics of a profitable program, yet therein lies the opportunity.
- When you focus on what members really want and you never expire the benefits, that should fire up your focus into motivating members to redeem their benefits, delivering one of the outcomes a program is set up to for motivating members back to redeem.
8. The team is not in love with the program
Problem: lack of nominated loyalty champions.
Solution: outside of the loyalty program operations/marketing team, appoint a loyalty champion in every member facing part of the business.
Here are three strategies to help your team and relevant loyalty champions love your program. 1. Excite 2. Explain 3. Expect.
- Excite: invite your team to be involved from the beginning (ask them for their views on what works, what doesn’t and how to improve it). Excite them with the vision of your program – 10 words or less. Take the vision to the level of practicality so that they know how the program makes a difference to them, to the business and most importantly to their customers.
- Explain: ensure they understand all aspects of how the program works and the benefits to members so that they express it clearly and quickly (remember the 10 seconds or less).
- Expect: set the relevant metrics of success for them to achieve and ensure they understand what part they play in the impact of these metrics to the business.
9. No mobile loyalty
Problem: mobile is no longer a nice-to-have, and you don’t have it.
Solution: mobile loyalty is mandatory.
For love or money 2018 highlights the increase in desire from program members to be able to interact with the program via mobile and even better to integrate it with payments. There has been a 160% incremental increase (since 2017) in preference to use a mobile app to receive rewards/benefits at the same time as paying with a preferred payment method.
While a loyalty card is still widely used to interact with a program, this has decreased significantly in preference by members since the 2017 study.
10. Communication channel fatigue
Problem: imagine if you could not email your members. What would you do?
Solution: consider the ‘octopus’ effect of communication channels.
For loyalty programs, email is the one channel most used, most abused and most likely to wear itself out. In order to manage the wear-out factor, an octopus approach to channel use should be adopted. Think of the arms of an octopus as different channels to communicate.
Build up capability and use of each arm:
- Mobile (SMS)
- in app messaging
- social media
- in-store people
- in-store POS/Media
- direct mail
Adam Posner is The Point of Loyalty CEO. Download his latest annual ‘For Love or Money’ loyalty report here »