Why Loyalty Programs Fail (And How To Avoid Them)

Retail stores, coffee houses and frozen yogurt shops, just to name a few, are literally scrambling over each other to figure out the best way to differentiate themselves from their competitors. As a result, many companies have implemented unique customer loyalty programs to build repeat business.

Typically these programs are gamified and include game elements that encourage participants to perform certain behaviors. By offering rewards, such as points or discounts, company leaders hope to gain more customers, as well keep them coming back for more. While many of these programs have been successful, there are reasons why some fail. Below, we look at some of the top causes of failure.

1. Don’t Know Their Customers — Or They Know Them Too Well

Through social media and analytics software, companies can pinpoint the likes and dislikes, and buying habits of their customers to create a sustainable, and customizable loyalty program. Some companies fail in this area though by disregarding their customer preferences and implement a one-size-fits-all program.

For example, a company that offers a card-based loyalty program, typically in the form of a credit card or special punch card, may be excluding customers who prefer programs that offer a smartphone app. A recent study showed that 59% of consumers would be “more likely” or “much more likely” to join a program that offered a digital app.

While there are opportunities to use customer data to enhance a loyalty program, there is also a fine line between knowing customers and knowing them too well. Becoming too intimate with customers can cause individuals to feel that their privacy isn’t being respected. If this happens repeatedly, customers may shift their allegiances to other companies where they don’t feel their privacy will be “violated.”

A couple of years ago, Target learned this the hard way by figuring out a teen girl was pregnant before her father did. Similar to many companies, Target assigns a Guest ID number to every person who walks through their doors and tracks their purchases by their email address, credit/debit card or name. Target took a step further by analyzing their customers’ data and found patterns among shoppers, especially those who were pregnant. So, Target started sending coupons to their pregnant shoppers depending on what stage of pregnancy Target thought they were in, including the teen who hadn’t told her dad she was pregnant yet. This is clearly an issue any company would want to avoid in order to keep positive customer relations.

2. The Program Is Too Static

When a company neglects its loyalty program, it becomes static and customers quickly lose interest. Companies need to take the initiative of focusing on their customers’ wants, likes and needs when molding and re-developing the loyalty program after it launches. Doing this will lower the chances of the program failing.

One way a program becomes static is when metrics are used to analyze customer feedback, but no steps are taken to act on the results. In an article that described what businesses can learn about loyalty from airline loyalty programs, Irving Fain, highlighted the fact the customers have the ability to make or break your program. Through various platforms, customers have the opportunity to give feedback about positive or negative experiences while involved in the program. Fain noted that it is important for companies to “embrace advocacy when it comes and work just as hard to understand negative sentiment.” Investing time to actively listen and communicate improves customer relations by allowing room for improvement and change, if needed, to keep the loyalty program from becoming outdated.

3. Management And Employees Don’t Embrace The Loyalty Program

Keeping employees in the dark about the ins-and-outs of the loyalty program — as well as lack of consistency of the program from franchise to franchise of a larger company — could eventually lead to program failure. Management ultimately sets the tone for their employees. If the leaders believe in the program, then the employees most likely will, too.

The first step is setting time aside to educate employees about the details of the loyalty program. This is critical because most likely the employees will introduce the loyalty program to the customer and as a result, will be answering any questions they may have. Employees should be prepared to answer questions such as, “How do I receive my reward?” or “Do you have an app for this program?” The employee needs to sound knowledgeable and excited about the program for customers to want to participate.

Starbucks represents one company that has a successful loyalty program, due in part to its engaged employees who drive customer participation. The “chain’s brand experience is manifested in every interaction with a Starbucks employee, whether it’s the person taking the orders or the barista making the drinks,” noted Rick DeMarco and Lisa Chau. As a result, the employees are brand ambassadors for Starbucks who have embraced the culture and loyalty program.

The bottom line is that loyalty programs can be successful, but there are certainly things to avoid when implementing and running them. Companies need to know their customers — just the right amount, and they need to actively listen to their customers’ likes and dislikes in order to evolve the program, and help it remain relevant. Finally, management and employees need to embrace the program so customers will believe in it too. Incorporating these tactics into the goals of a company’s loyalty program will help ensure success.

‍