Why Do Loyalty Programs Fail? Problems and Solutions

Loyalty isn’t achieved through a single action and it requires ongoing engagement. Loyalty programs are an effective way to retain your customers. Thus, it shouldn’t come as a surprise that they also increase repeat purchases, average order value (AOV), and Lifetime Value (LTV) and transform satisfied customers into brand advocates. These programs not only offer customers special perks and benefits but also establish an emotional connection between brands and their clients. Loyalty programs help brands achieve their goals but the truth is that nothing is constant in today’s dynamic world. Rising customer expectations, new competition, evolving technologies, and changing buying habits require brands to constantly refine their loyalty programs. According to The Loyalty Report, the average customer is enrolled in 14 loyalty programs but actively engages with only 5-6 of them. There are reasons why half of these programs ain’t working. Let’s uncover the problems with loyalty programs and how to avoid them. 

‍Problems with Loyalty Programs 

Loyalty programs have evolved into an essential tool for numerous brands. Over 90% of businesses have implemented some form of loyalty program for their customers. A well-managed loyalty program can yield significant benefits for businesses of different sizes and industries. Companies spend a lot of money on various kinds of loyalty programs but not all of them succeed. So, why do loyalty programs fail? Let’s talk about it:

Problem #1: Loyalty program with one type of benefit 

77% of reward programs that only use a points-for-purchase system fail within the first two years.

Now more than ever, in the competitive landscape of today’s market, it’s important to provide greater value to your customers via loyalty programs. It is not easy and it takes a lot of time, effort, and creativity but it means a lot to your customers. Focusing on one benefit doesn’t sound like a great idea because not all customers are created equal. It’s crucial to understand that every customer is different and has different objectives about the brand and place of purchase, with different frequency, and lifetime value (LTV). A single benefit for all customers may render your loyalty program ineffective and less appealing to a broad audience. 

Solution: 

• Different customers value different rewards. Diversify the benefits without complicating the program. Identify various customer segments within your loyalty program, such as frequent buyers, high spenders, and new customers. Tailor rewards specifically for these segments to enhance their engagement and satisfaction.
• Establish a feedback system to learn more about the features that your customers find the most valuable. Use this feedback to adjust and add new benefits over time. 
• Offer members of your loyalty program various perks, including early access to new products and VIP-level customer support.

Think about loyalty program partnerships. By collaborating with other brands you can enhance each other’s rewards programs through a variety of incentives such as gifts, freebies, or merchandise.

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Problem #2: Complicated Loyalty Program 

Another major factor contributing to the failure of loyalty programs is their complexity. Complex program conditions, excessive text, and legal jargon can cause customer frustration. A well-thought-out loyalty program should be easy to use. The idea of reading through a lengthy set of terms and conditions might discourage customers. Sometimes the points system is hard to understand and doesn’t seem logical. For example, spending $240 might give you 797 points. So, if your rewards program is hard to understand or unclear for customers they won’t use it. 

Take Old Navy, for example, a beloved American brand known for offering affordable, high-quality clothing for the entire family. In 2021, Old Navy updated their loyalty program to enhance the shopping experience for their customers. However, the program has faced criticism due to its unclear rules on earning and using points, leaving many members confused about how to collect and redeem their rewards. To make matters worse, Old Navy's rewards program extended benefits not just to members, but to all customers, making them less exclusive. 

That’s why it’s crucial to maintain a simple and understandable loyalty program for customers. 

Solution: 

• You should ensure the process of signing up for the loyalty program is quick and easy. Request only essential information (name, date of birth, email) and offer social login. 
• Simplify your loyalty program. Your customers need to know how your loyalty program works, how to get points, and how to use them. Guide your customers through the program easily with clear instructions and a user-friendly interface.

You can guide customers through the program with clear instructions and a user-friendly interface. 

Consider Dagne Dover as an example. Founded by three remarkable women, Dagne Dover is known for stylish, highly functional bags. The company has created a rewards program called Dagne Rewards. The loyalty scheme rules are straightforward. Customers can easily understand how to accumulate and use points.

The number of points awarded per dollar spent varies according to the customer's tier level. 

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• Talk to customer loyalty experts, specializing in loyalty consulting. They can help you design a loyalty program that is straightforward, impactful, and easy for customers to understand and engage with. 

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Problem #3: Irrelevant or Low-value Rewards 

Low-value and irrelevant rewards can seriously reduce the effectiveness of a loyalty program by failing to engage or motivate the target audience. The perceived value of being a part of the program decreases when the rewards do not match the needs or interests of the participants, which lowers customer engagement and loyalty. This misalignment can also signal that the company doesn't fully grasp or value its customers, leading to decreased trust and loyalty. Ultimately, such issues can transform a potentially powerful tool for boosting customer loyalty and repeat business into a neglected or even counterproductive effort. 

A participant in a loyalty program, eager to leverage their membership benefits, is likely to monitor their points closely, aiming to redeem them for rewards. However, if the vast sum of points gathered is insufficient to claim even a basic reward, such as a small household item, this situation could lead to disillusionment with the program. 

Solution: 

• Personalized rewards are the answer. These rewards are customized based on each customer's shopping behavior and preferences, ensuring that the rewards and messages received are relevant to them. Consequently, customers are more inclined to use these rewards, enhancing the effectiveness of loyalty programs. However personalization is only effective when you have data. Use data-driven marketing automation tools to send messages tailored to each customer’s preferences and past interactions. 

Birthday reward emails are excellent methods for cultivating emotional loyalty with your customers. What’s more, they can help you test your personalization strategy. 

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Problem #4: Innovation Lag in Loyalty Strategies

We’ve already discussed how increased competition and the constantly changing needs of customers are impacting the loyalty market. This underscores the importance of staying up to date with the latest trends in loyalty programs. Due to the continuous emergence of new technologies and creative methods for keeping customers engaged and loyal, there's always room for improvement in any loyalty program. Unfortunately, some brands overlook emerging trends and persist with outdated loyalty programs that no longer bring results.

Solution:

Your loyalty program should be fun and engaging, and one of the best ways to achieve this is by introducing gamification. 

Incorporate elements of gaming such as achieving different levels of status and tiers, leveling up and unlocking new features, undertaking missions and challenges, taking quizzes, exercising, competing with other members of the loyalty program, setting goals and receiving feedback on progress, among other features. The gamification field is largely untapped, presenting numerous possibilities for fresh and innovative concepts in loyalty schemes. 

For example, through the mobile app, PetSmart Treats provides users with a gamified experience. Users play to collect "treats" and points, which they can then use to get special coupons. These coupons give discounts on many pet items and services.

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Problem #5: Weak Program Promotion 

No one will know about your loyalty program if you don’t promote it. A weak promotion is another reason why your loyalty program fails. Without it, even a well-designed loyalty program may go unnoticed, preventing it from serving as a differentiator in competitive markets. Lack of adequate promotion could result in underutilization of the program, which would mean missed opportunities to collect customer data and insights. This information could help shape business strategies and enhance customer satisfaction overall.

Solution: 

• Create a webpage for the loyalty program on your website to outline its benefits and enrollment process, making it easier for customers to understand how to join the program and what they gain, thereby enhancing engagement and retention. 
• Email the details to your subscriber list. This way you can directly inform and engage with your customers, offering them exclusive rewards and incentives that encourage repeat business and deepen their loyalty to your brand. 
• Promote your loyalty program on social media platforms that align best with your marketing goals. For instance, if you offer gamified loyalty programs, consider platforms that offer engaging and entertaining features such as Instagram, Snapchat, or TikTok. For referral-based loyalty programs, platforms that enhance sharing and word-of-mouth promotion, such as Facebook, WhatsApp, or X would be ideal. Meanwhile, for rewards-focused loyalty programs, platforms that highlight your products and services, such as Pinterest and YouTube, are preferable.
• You need to put up signs about loyalty programs in your store to inform and encourage customers to join, highlighting the benefits and rewards they can earn through repeat purchases.
• You need to teach your staff about the loyalty program so they can confidently promote it to customers, explaining the benefits and how to join. 

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Conclusion:

The success of loyalty programs hinges on their ability to offer diverse benefits, maintain simplicity, present relevant and valuable rewards, stay innovative, and be effectively promoted. Addressing these common pitfalls can transform a failing loyalty program into a powerful tool for customer engagement and retention. By continually evaluating and adapting these aspects, businesses can ensure their loyalty programs remain appealing and beneficial to their customers, fostering lasting relationships and driving sustained growth.