The recent fervour around customer loyalty programs has reached fever pitch, as retailers try ardently to win a share of consumer spending, which by all reports is subdued or declining. The trouble is, with everyone trying to get in on the action, consumers are becoming more discerning and more critical of programs that don’t deliver.

Today, most people have signed up to dozens of membership rewards programs – frequent flyer programs, frequent shopper programs, credit card rewards points programs, daily deals sites or promotional mailing lists – but how successful are these programs in driving loyalty?

Loyalty programs, at their core, are all about changing long-term consumer behaviour, so that a customer presented with two or more choices will opt for the choice that they perceive rewards them best. The ultimate goal is that over time this behaviour is transformed from a conscious choice into an unconscious loyal habit.

There are several reasons why dangling a loyalty program carrot to entice a consumer to shop is not as simple as it may first seem. Here are seven loyalty sins to avoid:

  1. The program is not generous enough to adequately reward or motivate loyalty, or is designed in such a way that redeeming loyalty benefits takes too long or is too difficult. This can be summed up with the phrase, “It’s just not worth it”. Phoney or miserly loyalty rewards are usually the result of incentives being tied to old, non-customer objectives such as increasing a retailer’s market share, populating a database or market research.
  2. The program is a copy-cat scheme, designed with little understanding about what matters most to your unique customer, based instead on other existing programs offered by competitors. This is a ‘one size fits all’ miscalculation. It may be quick to build, but it leaves you with no distinguishable point of difference. Also consumers are loyal for a number of different reasons, not just the promise of points or vouchers, so you should invest time to understand what is most desirable and carefully create the program around the customer. For example, your customer may be drawn to exclusive experiences such as special events, one-on-one advice or ‘master classes’, and you may not need to offer discounts at all.
  3. Staff culture does not have a relentless focus on the customer. Poor customer service is the enemy of customer loyalty. Having changed the customer’s behaviour and encouraged them to consider your brand, a negative experience can drive them away forever, or worst, prompt them to discourage others away too. Even average service that doesn’t recognise a VIP customer could also create a negative experience.
  4. Poor-quality customer data and information or lack of use by marketing decision makers. Having collected information that was willingly provided by your loyalty program members -such as their date or birth, where they live and other contact information – combined with transactional data such as how often they shop and what they buy, many retailers do nothing to enhance the experience or engage with the loyal customer on an ongoing basis. It could be as easy as sending the customer a birthday gift voucher, a newsletter, or suggesting products that complement ones already purchased. Some innovative retailers use customer data very effectively, such as using it to design the store layout or product range, or inviting local customers to events in store or in the local community.
  5. The program is not well monitored or was poorly implemented without enough testing. This is the ‘set and forget’ mistake and it means that the full potential of the program won’t be realised. If the program needs to be refreshed or just tweaked, you can discover this quite easily by measuring how well it is delivering the desired outcomes such as repeat purchases or higher value purchases.
  6. Management thinks technology is the only solution. Loyalty is more than a card, so you can’t rely on swiping a card at the point of purchase to create a loyal customer. Even new digital channels that are breaking new ground in attracting, engaging and retaining loyal customers, are only as effective as the dedicated, knowledgeable and responsive team driving them. Technology is an enabler, not a solution all by itself.
  7. Management has little involvement in the program and fails to staff the rewards team with senior business leaders.


So, who does it well? The Woolworths Everyday Rewards program is a loyalty program that works well in driving loyalty. It offers regular supermarket shoppers a comprehensive range of benefits and various ways to engage and feel rewarded – from discounts, gift cards for multiple stores, petrol vouchers, exclusive offers, partner programs and competitions. The rewards are easy to redeem (some are redeemed automatically) and customers can engage with blogs and other social media channels to gain current information about what’s on offer.

I also think Myer are doing it well. The Myer One program is very popular with customers – nearly two thirds of transactions at Myer are made by Myer One members. That’s an impressive level of penetration, and also shows how the program is driving behaviour. Myer can further enhance its loyalty offering by analysing the transactional data such as frequency, monetary values, as well as basket contents to tailor offers and promotions. It also makes it very easy for customers to feel rewarded, by automatically sending gift vouchers to eligible customers, so they can realise the benefits of loyalty without the hassle of time-consuming redemption processes.

Retailers and service providers must recognise what loyalty means for their customers and design a program accordingly. Most people are loyal because it makes them feel special, so creating loyalty starts with creating a special, memorable, engaging experience.


Nick Spooner
BY Nick Spooner ON 11 July 2012
Nick Spooner is CEO of Salmat Digital, leading their digital marketing and communications business. Since moving to Sydney in 2000 from London, Nick has been COO at Ninemsn, chief digital officer at Network Ten and has also worked in various senior roles at Optus.