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March 27, 2024 by Mack Collier

Research: 97% of Loyalty Programs Fail Due to This Simple Design Flaw

loyalty programs fail

Would you believe that 97% of loyalty programs fail? And 77% of them fail in two years or less.

Why? It’s due to a basic design flaw that many loyalty programs suffer from. It’s a design flaw that reflects a fundamental misunderstanding of why people participate in loyalty programs.

The reason why the average loyalty programs fails is because it is designed to drive purchases from its own members. 97% of Loyalty programs rely completely on transactional rewards. If you participate in the program, you are rewarded with a free product. Or more likely, a discount toward the purchase of a product.

This indicates a fundamental misunderstanding of what drives real brand loyalty. Loyalty is created AFTER the purchase, not before. If you offer rewards to incentivize a purchase, you are building loyalty TO THE OFFER, not to your brand.

Customer Acquisition vs Customer Retention

The average loyalty program is designed like most marketing initiatives; The focus is on customer acquisition, with little or no thought given to customer retention.

Which goes completely against the concept of loyalty.  Customer loyalty IS customer retention. They go hand-in-hand.

When loyalty programs offer solely transactional rewards, the rewards build loyalty to the offer, not the brand. If you tell me that when I collect 1,000 reward points that I can get a free cup of coffee, I might push to get another 200 reward points to add to my 800 point balance to get that free cup of coffee.

But after I get it, my balance goes back to zero. As does my excitement for starting all over to get the next 1,000 reward points for the next cup of coffee.

Now this isn’t to say that transactional rewards don’t have a role in most loyalty programs. They absolutely do, but transactional rewards should be one tool in your loyalty program toolbox, not the whole garage.

Design For Retention, Not Acquisition

True brand loyalty is build after the purchase. It’s built by having a connection with a brand. And those connections aren’t built via coupons and discounts.

They are built by experiences. By access. By understanding. By shared values and passions.

If your loyalty program is rooted solely in transactional rewards, then the program with the best discounts wins. I will only be loyal to your loyalty program as long as you give me the biggest coupon. As soon as your competitor gives a bigger discount, I jump ship. That’s why the vast majority of such loyalty programs fail within two years.

So the key to creating a loyalty program that members are actually…loyal to, is to focus on rewards that offer a better experience for the member.

  • Access to the CEO and key executives at the brand. This communicates to members that they are special, and helps elevate them in stature as being equal with key decision makers at the brand.
  • Free webinars with SMEs. This is a nice perk for your members, and it helps them connect with and understand your brand. For instance, let’s say your brand offers a unique presentation tool for businesses. Having a free webinar with a top presentation expert not only benefits the members directly by educating them on how to become better presenters, it also helps them better understand your presentation software. And that helps them become better salespeople for your brand. And more motivated ones!
  • Early access to new products. This is a big-time perk that creates value for members, and it can be leveraged to create buzz for your new product’s launch! If your technology company has a loyalty program, 3 months before your newest laptop launches, give members early access so they can create online conversations about the new laptop to build excitement for its release. Then pick 10 members and give them the laptop for free to use and review. This will also generate excitement and buzz for the laptop building up to its launch, and that will generate more sales at launch.
  • Free training on how to use your products and services. For instance, if you sell cooking utensils, offer loyalty program members a free workshop with a top chef who shows you how to cook meals using your cooking utensils. This creates value for members, but it also helps them understand how to better use your cooking utensils, which makes them better salespeople for your products!

Notice that none of these rewards are transactional. Yet all will help the loyalty program members forge a deeper connection with your brand.

The best part? You are incentivizing your loyalty program members to sell more products for you. You are giving them rewards that help them better understand your products, and how to use your products successfully. All of the 4 hypothetical rewards above are experience-based. Yet all of them will increase the ability of your program members to generate more sales!

That makes them better salespeople for your products AND makes them more willing to happily promote your products to other customers.

So by simply shifting the focus of your loyalty programs rewards from transactional to experiential, you create more loyal customers AND more sales. 97% of loyalty programs fail because they focus on transactional rewards for members. The 3% that succeed focus on designing a loyalty program that creates amazing experiences for its members.

Is your loyalty program struggling? For the past decade, I have worked with companies like yours to optimize their loyalty programs to achieve greater success. I show companies how to increase signups and participation while also reducing churn rate. If you need help, email me today and we can discuss how to increase the efficiency of your loyalty program.

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Filed Under: Customer Acquisition, Customer Engagement, Customer Experience Design, Customer Loyalty, Loyalty programs

November 30, 2023 by Mack Collier

How AI Can Revolutionize Your Company’s Loyalty Program

Using AI With a Loyalty Program

One of my core competencies is helping companies design and execute customer loyalty programs. I’ve written before on what makes an amazing loyalty program. Today, I want to talking about using AI with a loyalty program.

In the competitive landscape of customer retention, businesses are increasingly turning to artificial intelligence (AI) to elevate their loyalty programs. AI offers unparalleled opportunities to personalize experiences, predict customer behavior, and optimize reward structures. Let’s explore four compelling examples of how AI can be seamlessly integrated into loyalty programs, transforming them into powerful tools for customer engagement.

Disclaimer: Whenever you are designing a loyalty program or improving an existing one, always focus on improving customer experience. The experience and relationship that your customer has with your brand is what drives loyalty. If your loyalty program focuses strictly on encouraging additional transactions, then you run the risk of having the customer assign loyalty to your price or sale, rather than your brand.

Remember, you build loyalty after the purchase, not before.

Four Ways to Use AI to Improve Your Loyalty Program

Personalized Rewards with AI Algorithms

One of the most impactful ways AI enhances loyalty programs is through the implementation of sophisticated algorithms that analyze individual customer behavior and preferences. This enables businesses to tailor rewards and incentives with remarkable precision.

Example: Starbucks Rewards Program

Starbucks, a global coffeehouse chain, leverages AI to analyze customers’ past purchases, preferences, and even the time of day they visit. The Starbucks Rewards program uses this data to offer personalized rewards, such as favorite drink discounts or exclusive promotions. This level of personalization not only strengthens customer loyalty but also encourages higher spending and more frequent visits.

You can view an in-depth write-up on how Starbucks is using AI to improve its Starbucks Rewards loyalty program by clicking here.

Predictive Analytics for Anticipating Customer Needs

AI-powered predictive analytics is a game-changer in loyalty programs, enabling businesses to anticipate and fulfill customer needs before they are explicitly expressed. By analyzing historical data and patterns, businesses can proactively offer relevant rewards and incentives, enhancing the overall customer experience. When done correctly, anticipating future purchases before the customer realizes they actually need those items or services provides convenience to the customer. And that helps drive loyalty and advocacy.

Example: Amazon Prime

Amazon Prime utilizes AI-driven predictive analytics to recommend products, personalize shopping experiences, and anticipate user preferences. In the context of their loyalty program, this translates to tailored recommendations, exclusive deals, and timely offers based on a member’s browsing and purchasing history. The result is a highly individualized and engaging loyalty experience that keeps customers coming back. Additionally, member-specific discounts and services help drive demand for Prime and encourage signups.

Bonus: Amazon is also leveraging AI to shorten delivery times as we head into the Christmas shopping season. This means more products can be eligible for Prime’s magical 2-day shipping.

Chatbots for Seamless Interaction and Rewards Redemption

AI-driven chatbots have become integral to modern customer  service, and when integrated into loyalty programs, they offer a seamless way for customers to interact, inquire, and redeem rewards. This not only enhances customer convenience but also ensures a consistent and personalized brand experience. When leveraged correctly, AI-powered chatbots can actually deflect customer service tickets, leading to a significant cumulative cost savings.

Example: Sephora Beauty Insider Program

Sephora’s Beauty Insider Program employs AI-powered chatbots to assist members in real-time. Customers can inquire about product recommendations, learn about new arrivals, and even redeem rewards through the chat interface. The AI chatbot not only streamlines the customer journey but also provides personalized assistance, fostering a deeper connection between the customer and the brand.

Sidenote: I love how Sephora clearly illustrates the perks at each level of its Beauty Insider program right on its homepage. The visitor can clearly see which perks are for each tier, and how to level up to the next tier. BTW, here’s a very detailed review of the Beauty Insider program with a focus on its perks an rewards.

Fraud Detection and Enhanced Security

AI plays a critical role in safeguarding loyalty programs from fraudulent activities, ensuring the integrity of rewards and the trust of program participants. By employing machine learning algorithms, businesses can detect and prevent unauthorized access, fraudulent redemptions, and other security threats. This can help drive program signups as members feel their data, information and rewards will be protected.

Example: Delta SkyMiles Program

Delta Air Lines utilizes AI to monitor and identify irregular patterns in SkyMiles account activities. This includes detecting potentially fraudulent mileage redemptions or unauthorized access. The AI system triggers alerts and takes preventive measures to protect the integrity of the loyalty program and the rewards accrued by its members. Many SkyMiles members will accrue miles for years and set them aside for a special trip, so giving them additional peace of mind that account activity is being given an additional monitoring layer via AI is a comfort to members.

Conclusion:

In conclusion, these examples illustrate the transformative impact of AI on loyalty programs, from personalized rewards to predictive analytics, seamless interactions, and enhanced security. As businesses continue to embrace AI technologies, the future of loyalty programs promises even more tailored, engaging, and secure experiences for customers in all industries.

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Filed Under: Customer Experience Design, Customer Loyalty, Loyalty programs

July 27, 2023 by Mack Collier

5 Loyalty Program Hurdles That Retail CMOs Must Overcome

retail loyalty program

Loyalty programs have become ubiquitous in retail, with brands large and small launching initiatives to incentivize repeat purchases and gather customer data. But even as adoption grows, retail CMOs grapple with lingering concerns around cost, complexity, sustainability, and more that come with implementing a productive retail loyalty program.

Let’s take a closer look at the Top 5 concerns that CMOs have about launching a retail loyalty program, and find a solution for each:

1 – Concern Over High Costs

Rolling out a loyalty program requires significant upfront investment in the underlying technology infrastructure and integration needed to run the program, track activity digitally, and surface data insights. Ongoing costs also pile up for funding rewards, customer service, marketing and other program elements. Especially given slim margins in retail, proving a positive ROI can be difficult. Still, the average ROI for loyalty programs is approximately 10%, and roughly 80% of companies with a loyalty program are planning to up their investment in that program over the next 3 years.

Strategies to Address Cost Concerns:

  • Start small and scale program complexity over time rather than overinvesting initially before proving value. The reality is that whenever any new marketing initiative is launched, mistakes will be made at first. And mistakes cost money. Launching your retail loyalty program with a more limited scope allows you to lower the initial investment, while more easily proving ROI. This will make it easier to justify a greater investment to scale out the program as it grows. One company that utilized this strategy in launching and growing its retail loyalty program is Walgreens. The retailer rolled out its loyalty program in select markets first, then scaled program aspects to the national level, after worth had been proven.
  • Offer tiered benefits aligned to reasonable repeat purchase levels rather than overextending perks. Remember to balance rewarding customers for purchase behavior they are already engaging in with trying to encourage new purchase levels. If customers can see the benefits from additional purchases as being helpful, they will pursue them.
  • Leverage lower cost digital rewards like free shipping, exclusive content, early access along with discounts. For example, Publix’s Club Publix loyalty program gives members a sneak peek on the weekly ad. Every Tuesday, members can access the new circular that will publish the following day. This not only gives a tangible benefit to members at very little cost to Publix, but it also makes members feel appreciated to get early access to upcoming sales.
  • Closely track attributable lift in purchase frequency, order values, and margin impact from the program. Keeping a closer eye on what’s working (and what isn’t) for members allows you to be more engaged and flexible in pursuing incremental improvements to program efficiency.

2 – Anxiety Around Execution Complexity

Well-planned loyalty programs require tight integration of technology systems across channels, extensive employee training, setting program policies and architecture, significant customer education, and complex point tracking and redemption procedures. That’s a mouthful of a sentence, and it can easily become a headache for the retail CMO that’s trying to take a loyalty program from the drawing board to implementation.

Here’s Some Ideas For Simplifying Rollout:

  • Conduct pilot programs with small customer segments to refine operational processes before full launch. Recall the example of Walgreens above, it selected individual markets to test run its loyalty program before going national. This process helps give your retail brand tighter control over the process at launch, and lets you make ‘smaller mistakes’, before a more grand rollout.
  • Invest in user-friendly program management software and automated tracking to streamline administration. Employee training will be key and help create a smoother launch.
  • Create detailed protocols for customer service teams to easily explain program policies and procedures. Integration is key, when a customer contacts your support team, they need to understand all aspects of the loyalty program so they can give the same level of support as with all other areas of your business. A consistent experience across all brand touchpoints is vital to customer satisfaction, and creating customer loyalty.
  • Minimize complicated tier structures and redemption options that create friction. Prioritize easy enrollment.  Target has simplified its loyalty program down to just Target Circle, which allows for digital registration. This greatly reduces signup friction and gets members onboarded and in the program quicker.

3 – Fear of Diminishing Engagement Over Time

Even successful loyalty launches see attrition as customers initially excited about perks and benefits lose interest when the novelty wears off. This is because poorly designed loyalty programs build loyalty to a particular offer or sale, not to the brand. You build loyalty AFTER the purchase, not before.

Strategies to Keep Members Loyal to Your Loyalty Program:

  • Continuously add new benefits and offers rather than remaining static after launch. If the majority of the perks of your loyalty program are tied to short-term sales, members will lose interest once those sales expire. Find ways to tap into existing behavior and encourage more participation.
  • Provide surprise bonuses and value-adds at random to reengage lapsed users.
  • Remember that your loyalty program will work best when it is rewarding existing behavior, versus attempting to incentivize new behavior. If the member views the perks of your loyalty program as a reward for activities they are already taking (such as purchases), this encourages them to continue to engage in those activities.
  • Mine your data and determine where you are losing members. Find the churn points and work to eliminate them.

4 – Concerns Around Data Privacy and Security

Collecting customer transaction data, contact info, and purchase patterns raises obvious data privacy considerations. Ensuring data practices are transparent, securing sensitive information adequately, and avoiding misuse are top-of-mind for your program’s members, as they should be for you.

Best Practices for Data Protection:

  • Provide easily accessible and understandable privacy policy explaining data practices. Clearly explain what data is collected, and how it will be used. Also, make sure your loyalty program’s data collection policy is easily accessible to all members.
  • Allow customers control over data sharing preferences and opt-out abilities. This will help alleviate concerns over your data collection policy, and help establish trust.
  • Limit internal data access to essential personnel, with air tightsecurity and usage protocols. Safeway ensures that only key decision makers have access to member data.
  • Any member data that is stored in conjunction with your retail loyalty program should be secure and encrypted.

5 – Questioning Long-Term Program Sustainability

If your program’s benefits focus heavily on discounts or giveaways, margins can easily erode. An additional problem will be that members will become more loyal to the giveaways or discounts than the brand itself. And if stringent requirements make points redemption difficult, perceived value diminishes. Achieving optimal behaviors to drive growth long-term is an elusive balancing act.

Steps for Building a Lasting Retail Loyalty Program:

  • Structure rewards aimed at driving incremental visits and purchase rather than discounting. Remember, we want to reward members for behavior they are already engaging in, instead of trying to incentivizing new behavior. Remember earlier I mentioned how Club Publix members get a sneak peek at that week’s sales. This is a simple way to give a tangible benefit to members that ties into existing behavior without trying to force the member to do something new in order to get a ‘treat’.
  • Measure cost per point redeemed and adjust accrual rates and caps to maintain profitability.
  • Monitor program analytics closely to identify perks and behaviors with highest ROI. Likewise, identify the activities that aren’t producing, these could actually be contributing to member churn.
  • Continually experiment with reward types and messaging to refine most value-driving features.
  • Ask members for feedback! Regularly survey members and find out what features they like and dislike, as well as any suggestions they have for additional perks or benefits. When you can add a member-suggested feature, make sure to communicate this to members. Letting members know you are listening and implementing suggestions as you can is a great way to build trust and…loyalty!

 

One Final Note About Building a Successful Retail Loyalty Program

Whenever I first begin working with a client on structuring a retail loyalty program, I remind the client that there must be a clear benefit to both the retailer AND the member for participating. As long as the member can always easily understand how the program benefits them, they will stay a member. So have that in the back of your mind at every stage of planning, development and execution; How will this change benefit the member?

As long as you can consistently ask and answer that question, the potential for success for your retail loyalty program will always be higher.

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Filed Under: Loyalty programs, Retail

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