THE CLARUS Blog

5 Reasons Why Loyalty Programs Fail (And How to Make Sure Yours Doesn’t)

U.S. companies spend approximately $2 billion a year on loyalty programs. But 77% of loyalty programs that solely rely on a transactional model fail within their first two years. 

That is a startling statistic in today’s environment where customer retention is more critical (and harder to obtain) than ever.  

So, why do loyalty programs fail? And how can you make sure yours is a massive success?

 

1. Make Sure Your Loyalty Program Has Clear Goals

When you decide your brand wants to create or revamp a loyalty program, assuming you have company buy-in from top to bottom, the first item on your meeting agenda should answer the question: What do we want from this program? 

Without goals attached to measurable KPIs, your loyalty program is doomed to fail. If you launch a loyalty program without specific goals, a “set it and forget it” mentality will just make matters worse. 

Your annual goals tied to the program can change from year to year, but your measurement KPIs to assess its performance should be constant from Day 1 of the launch. 

Learn more about loyalty program KPIs. 

Management guru Peter Drucker once said: “Only what gets measured, gets managed.” 

These are words your loyalty staff should live by daily. 

 

2. Design a Loyalty Program That Isn’t the Same Old, Same Old 

We’ve all heard the term “cookie cutter” applied to loyalty programs. This is the type of loyalty program you want to avoid because it is a run-of-the-mill offering. If it fails to engage, entice, or personalize, then it might be time to consider a change. 

Many transactional-based loyalty programs serve a distinct purpose and are efficient in the member acquisition department. But programs that reward more for engagement (like getting points for social shares, etc.) are known to build more loyalty. 

Traditional loyalty programs are great for acquiring members and collecting first-party data, especially with the end of third-party cookie data ending in 2023. But 81% of traditional loyalty program members would sign up for a premium loyalty program. 

Acquiring members to your traditional loyalty program starts the journey to developing long-term relationships. 

A premium loyalty program targets your best customers, introduces them to elevated benefits, and creates a different type of member relationship. 

Premium loyalty members pay an annual fee and are rewarded every time they engage and receive benefits like instant discounts, free shipping with no minimums, and VIP experiences.   

A premium loyalty tier allows a brand to offer benefits that extend beyond typical transactional incentives. The goal of a premium loyalty program is to get your best customers engaging more, spending more, and advocating for your brand. 

Your brand acquires most of its members through traditional loyalty programs and retains them through a premium loyalty tier. 

To truly differentiate your loyalty program, listen to your customers, identify their pain points, and learn what makes them unique.  

Strive to offer your members a loyalty program that is unique and offers compelling value. 

 

3. Show Your Members That Your Loyalty Program Is an Extension of Your Brand 

This is where a misalignment between company and member needs can be detrimental to the overall product. 

Your loyalty strategy must be aligned with your brand promise and be relevant to your members. 

If your corporate goals don’t reflect the program value offered members, there will be problems. 

When you’re creating your rewards structure, make sure there is an even value exchange around what you want from members, and what members want from your brand. 

Focus on a loyalty program design that is simple and creates a memorable member experience. 

Some great examples of loyalty programs that mirror their brand promise are REI, lululemon, and Best Buy Totaltech. 

For a mere $20 lifetime membership, REI Co-op makes many members’ dreams come true. 

They enjoy various adventures offered around the world, which are heavily discounted for members. 

While the program offers transactional benefits, the star attraction is the experiential element 

 This allows members to participate in and experience the brand lifestyle, which builds lasting emotional connections.  

 Tailoring your loyalty program benefits around the desires of your customers should always be your brand’s goal.  

Lululemon’s premium loyalty program carries an annual membership of $168. 

This fee includes:  

  • A free pair of yoga pants  
  • Free workout classes  
  • Curated events.  
  • Live digital workshops designed and facilitated by Lululemon to help navigate all of life’s twists and turns.  
  • Passes for members’ friends and family  
  • Early access to select product releases  

 Lululemon knows how valuable these experiences are to their loyal members. The experiential benefits satisfy an emotional desire for exclusivity.   

Best Buy Totaltech has an annual membership fee of $199 per year, or $179 if you have a Best Buy credit card. Members receive:    

  • Unlimitedtech support from the Geek Squad.  
  • Round-the-clockconcierge service.     
  • Freeinstallation of many appliancesand products.  

 This pilot programlaunched in several Best Buy stores around the country earlier this year and shows the importance of giving your customers loyalty options.     

Best Buy has a traditional program called My Best Buy, where members earn points for every eligible purchase.     

Having a traditional loyalty program with a premium loyalty tier, like Best Buy Totaltech, makes sense for retailers and covers all your bases.    

 

4. Your Brand Should Optimize Your Loyalty Program Regularly 

This point reinforces why you can’t go with a “set it and forget it” approach toward your loyalty program. 

Optimization can’t occur without acquiring actionable customer data and understanding it. Find out what your members like, what they don’t like, and what doesn’t make sense to them. 

Even the smallest of tweaks can drive performance and revenue. 

No test is too small and no obstacle too large. You can reap surprisingly impactful results from even the slightest changes to your program. 

Optimization is a continuous process that needs to be able to pivot on a dime. 

Read why optimization needs to be a way of life for your loyalty program. 

Being agile and adapting to the needs of your customers make it easier to keep track of your program goals and build trust with your members. 

Customer data is the Holy Grail of loyalty programs. Brands with loyalty programs receive a plethora of customer data and insights that can be used to personalize offers and magnify engagement. 

But if you aren’t mining and leveraging your customer data effectively, it can create irreparable problems for your loyalty program. 

If your customer data isn’t being used effectively, your loyalty program will suffer. 

 

5. There Has to be Top-down Alignment on Your Loyalty Program 

In many ways, this is the most important piece of your loyalty program puzzle. Because without it, your brand can’t truly make loyalty a priority. 

Every department at your brand must live and breathe your customer loyalty strategy, your loyalty program, and your members’ satisfaction. 

Too often objectives like loyalty programs become siloed projects and only a handful of people monitor their progression. 

Before you can truly get your loyalty program off the ground, you need brand alignment from the top down to make it a success. 

 

Ensure Success from Your Loyalty Program 

If long-term member retention if the goal, then there are several areas you need to execute on to create and maintain a successful loyalty program. 

Address customer pain points and offer valuable benefits, both transactional and experiential. This creates a comprehensive feel to your program and attracts consumers. 

Make your members feel special and make your program benefits desirable. 

Since the pandemic, everything has been flipped upside down and earning consumer trust is crucial. 

Combining a traditional loyalty program with a premium tier gives your customers options and encourages engagement. 

Consumers have a multitude of choices. So, if your brand is willing to invest in launching or revamping your loyalty program, make sure it’s a memorable one. 

If you truly listen to and understand your customers, you will create a lasting, successful loyalty program. 

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