Loyalty programs – it’s time to eat some humble pie

By Adam Posner of The Point of Loyalty

It seems to me loyalty programs are going through a wave of popularity.

In my view (yes confirmation bias exists here), some of the reasons I have been reflecting on, in no particular order are:

  1. The ‘crumbling cookie’ and the urgency to gain zero- and first-party data
  2. The rising cost of new customer acquisition and a swing towards investing in existing customer retention and growth
  3. The realisation of abundant revenue existing customers return to a business
  4. Publicly listed companies with loyalty programs now declaring their programs’ success measures in annual reports
  5. Loyalty technology advancement and seamless integration into existing tech infrastructures
  6. The building of loyalty programs to solve customer/world problems and not just be a platform for points and perks (this is slow and one of the missions in my loyalty life)
  7. A wider industry education, research and content creation focus
  8. The rise in seniority of dedicated loyalty roles in organisations (some are even on Executive Leadership Teams)

And there are more…. (do you have any others?)

With all of these mixing into a perfect storm of program popularity, my call out is …

STOP.

TAKE A BREATH.

BE HUMBLE.

For sustainable success, place your program under the ‘Failure Factor Microscope’.

Why loyalty programs fail. 10 failure factors ranked.

In November 2019, The Wise Marketer and the Loyalty Academy™ produced The Delphi ReportTM – Why Loyalty Programs Fail

A group of 34 experts from 14 different loyalty markets around the world were selected as a “Delphi Panel” to identify a comprehensive list of potential causes of future loyalty program failure and through a defined method, these “failure predictions” were ranked.

The report defines in more detail the methodology for the ranking with detailed commentary. You can download a copy here.

More than 10 failure factors were ranked with those outside the top 10 also provided in the report.

Various reasons behind each factor’s ranking are provided in the report with verbatim commentary from the panellists (worth reading!).

The ranking of 10 reasons why loyalty programs fail

While the list was compiled in 2019, the failure factors identified remain relevant in 2022 as a mirror to reflect your loyalty program against.

(If repeated in 2022, there may be movement in the rankings and some of the commentaries would vary due to the panellists involved and advancement in programs over the past few years).

Whether you agree or disagree with the factors and or their rankings is not the point.

The point is, for sustainable success, it’s a good start to reflect on these and their relevance to your program’s success.

From reflection, move to the actions you can take to mitigate the risks of these failure factors impacting your program. (See note at end of the article regarding a Risk Mitigation Action Plan).

Let’s get into the list…

1. Poor use of data

This factor goes deep and wide in determining what ‘poor use’ means. Some specifics provided in the report included inadequate segmentation, little or no use of data for personalisation and many variations on not turning data into insights for useful action.

“Effective gathering, updating and use of data is critical to understanding member value, preferences and what program considerations will drive behaviour to meet objectives and KPIs. Understanding member value and adopting personalisation are ultimately affected by the poor use of data, thereby increasing the risk of attrition through ineffective engagement.”

NOTE: At the time this article was written there was a massive data breach at one of Australia’s telco companies Optus (for those outside of Australia) which will have massive implications on all organisations collecting and using data.

Let’s face it folks data sits right at the heart of loyalty programs. As an industry we need to be more transparent on

  • why we ask for data that we do
  • what we are doing to make it secure
  • how we will use it
  • where it is stored
  • how long will we hold the data for.

Our loyalty program research report For Love or Money™ 2022, highlights the number one consideration members have when providing their data to loyalty programs is DATA SECURITY. The research was compiled in the first quarter of 2022 and we will see what the residual impact will be when we repeat the research in 2023.

2. Proving performance

Inability to prove performance with the metrics that matter was ranked #2 as an underlying cause of potential program failure. Focusing on costs rather than program ROI as one of the pressure points for this failure factor was a theme that came through in the report.

“Organisations that treat the program as a cost centre are bound to have their program fail”

3. Inadequate communications and dialogue

The commentary supporting this failure factor included the absence of preference driven, multiple communication channels. There were also views that relevant communications based on personal and lifestyle attributes were often missing.

“(There’s) no excuse for not delivering the right offer at the right time using the right media”.

4. Inadequate C-Level support

The absence of senior leadership support impacts program success.

“C-Level must be committed, passionate and totally informed along the loyalty path.”

5. Too much friction

This failure factor focuses on difficulties created for members to interact with a program – from joining, engaging (eg identifying membership), earning and redeeming.

“Friction affects enrolment and engagement, resulting in poor KPI’s”

6. Weak or absent soft benefits

Concerns about programs with little or no benefits to create emotional bonds lead programs to a high potential for failure. (This one has had some vast improvements over the years with programs working hard to move from transactional connections to emotional interactions).

“Customers increasingly value experiences, strong brand values and connection. Loyalty programs that focus on ‘do this/get that’ are becoming increasingly irrelevant”

7. Employee disengagement

Wider teams in an organisation with a program having little or no knowledge about a program (lack of education and training) and enthusiasm towards a program are some of the inputs to this failure factor.

“Poorly trained/engaged staff can kill a program while at the same time escalating the investment costs!”

8. Inadequate funding

This failure factor brings to light fundamentals of program design and earn-rate modelling. If the funding of rewards are based on a threshold of disengagement ie it takes too long to earn a reward, failure looms on the horizon.

“Low funding results in low activity of members and therefore is the beginning of the end.”

(This failure factor is closely linked to #10 Poor funding allocation)

9. Lame rewards

This factor is open to interpretation and will differ widely by category and customer. Whatever ‘lame’ represents; it does give a sense of urgency to make sure lame does not become a reality.

“Reward offerings are lame when they do not resonate with the membership. Poor reward choices; same as everybody else; no uniqueness to the rewards offering, etc. all spell trouble for the program.”

10. Poor funding allocation

This factor is about robust financial modelling (or lack thereof) and the how weighting of a budget across a program’s value segments needs careful consideration.

“This is an important factor. Many program operators are still treating everyone as equal.”

But wait there’s more…

Other failure factors outside the top 10 are identified in the report as well as ‘honourable mentions’ which include (not limited to) – over enrolment impacting funding, lack of loyalty program management experience and perhaps the elephant in the room that in some way shape or form impacts all of the failure factors – the seamless enablement of a program through the relevant technology stack!

In summary, for sustained loyalty program success, there needs to be time and focus set aside for reflection.

It’s not all strawberries and cream, champagne and celebration.

We need to regularly eat some humble pie.

Have a happy loyalty day!

P.S. We have developed a Loyalty Program Failure Factor Risk Mitigation Action Plan Workshop (what a mouthful) which is designed for programs ready and willing to review their program for sustained success. Email adam@thepointofloyalty.com.au to find out more.