How to transform failing loyalty programmes

Karen Wheeler
VP Country Manager
Affinion UK
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As we all know, customer engagement has never been more important. With Lee Resources calculating that it costs five times more to attract new customers than retaining an existing one, forging an emotional connection with the customer base should be a key priority for any company.

A Customer Thermometer study highlights that the foremost reason people connect with a brand is because it shows it cares about them. The benefits of making such a change? Purchasing decisions made by loyal customers are much less driven by price, highlighting the difference brand advocacy can make.

Marketers embarking on loyalty programmes with this in mind should therefore consider that Capgemini data shows 77 per cent of such schemes fail within the first two years and often, customers on loyalty programmes are no more loyal than those who aren’t. It’s staggering that this remains an issue when you consider how costly such failure will prove both financially and in terms of customer retention. This is why it’s key that marketers considering running an impactful customer engagement strategy understand the reasons why traditional loyalty programmes may not succeed.

  1. Transactional retention programmes

Despite the correlation between businesses that show they care about consumers and brand loyalty, the Capgemini research shows that a staggering 97 per cent of retention programmes are transactional. Although this may seem like the way the system works, it means only consumers that purchase products or services are rewarded.

A ‘you scratch our back, we’ll scratch yours’ mentality isn’t always sustainable when it involves consumer spending. At first it may interest customers to engage with an organisation, but once it becomes apparent rewards are only available to those who regularly purchase products, the allure soon wears off.

It also tends to reward the customers who are most likely to stay loyal anyway. On the basis that, as consumers, we are most likely to seek out loyalty programmes with brands we already like, businesses can end up spending money to retain the very customers they had the least chance of losing to begin with. In essence, they’re subsidising purchases that would have been made anyway.

  1. Siloed user experience (UX)

Customer-facing businesses are all focused on multi-channel delivery. However, far too many organisations fail to offer a seamless link between online and offline channels. In fact, 79 per cent of retention programmes use mobile channels, yet just 24 per cent allow mobile redemption.

Imagine you’ve made a purchase with a brand that runs a loyalty card scheme and at the point of purchase you’re informed you have accrued enough points to qualify for a reward. However, before taking advantage you need to present a physical copy of a downloadable voucher that expires in the next two weeks, rather than simply presenting the copy on your device. It’s this level of complexity and irrational UX that turns many consumers off a brand.

  1. Ignoring customer expectations

The final reason so many loyalty programmes fail is lack of personalisation, as in this day and age, a ‘one-size fits all’ approach simply doesn’t work.

Worryingly then, is the trend towards only using tiering as segmentation and ignoring the vast amounts of consumer data available to personalise the offer even further. This harks back to the issue of transactional programmes, as typically the more money a customer spends with a brand, the better their rewards. Of course, sometimes there’s a place for this depending on the company, but it’s important to consider how detailed personalisation could be more impactful.

Customers also need to care about – and understand – the rewards they’re receiving. A study by Edgell Knowledge Network found the vast majority of customers (81 per cent) weren’t aware what their rewards entitlements consist of or how they’re redeemed. With the average consumer being a member of  18 loyalty programmes, yours need to be clear and stand out.

Our ‘Connected Customer’ research report found that a long-term relationship happens when companies become a meaningful part of a customer’s everyday life. This is only possible through a loyalty programme that adds value to the user’s life. For example, Virgin Money invested in lounges for its customers. Instead of banking services, the hotel lobby-style areas offered customers free newspapers, magazines, Wi-Fi and refreshments, as well as an area to watch TV and even play grand pianos. This resulted not only in increased brand loyalty but also a 200 per cent increase in sales at lounges located near a store.

Stale old loyalty programmes aren’t the answer to increasing customer retention and satisfaction levels. To add real value, marketing teams should consider the expectations and requirements of the client base and tailor their offering. Understand the challenges and issues facing customers and provide a solution – from insurance and cyber protection to travel and concierge. By taking this approach to smart engagement, loyalty programmes are increasingly likely to hit home and result in customer relationships which are meaningful, long-lasting and fruitful.

About Karen Wheeler

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