5 Loyalty Program Hurdles That Retail CMOs Must Overcome

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.