Retail Loyalty Program Risks & Resolutions

My dad told me that experience is what you get what you don't get what you expected. I think there are a lot of consumer loyalty program managers who have gained a lot of experience.

Forrester reports that 80 percent of all retailers offer customer loyalty programs but two-thirds of them are ineffective. Aberdeen Group reports that 74 percent of retailers report "partial to no tangible improvements" from their customer loyalty programs. Ouch.

To do better when setting up your retail loyalty program, here are some of the most common challenges and mitigation techniques.

  • Loyalty programs cannot be run by just marketing. The most effective customer loyalty programs leverage cross-functional teams with representatives from stores, finance, merchandising, strategy and marketing.
  • Retail loyalty program managers who fail to report the payback of their reward programs put those programs at risk of abandonment. It is essential that any retail loyalty program demonstrate clear financial rewards to the business.
  • Many program managers over-concentrate their loyalty objectives and activities toward the most profitable customer segments. While this segment should most certainly be pursued, there is likely a bigger revenue opportunity with consumers who are not yet in these segments. In my experience, I've always achieved a bigger total revenue impact (but not necessarily bigger margin impact) by applying targeted programs toward the much larger group of lower value customers. This technique can be further aided by identifying profiles and patterns of your top customers and then finding similar traits among customers who are less engaged.
  • Irrelevant marketing communications or blasting loyalty members with irrelevant messaging remains common. It's also a top factor in reducing program effectiveness and contributing to member abandonment. A lack of personalized, relevant, timely and contextual communications as well as not using customer preferences, purchase history and digital footprint behaviors results in a failure to turn customer insights into marketing actions. It's similarly critical to test messaging and offers across the four permutations of customer segment, message/offer, channel and timing.
  • Consumers cite unclear value propositions, lackluster program benefits and irrelevant offers as reasons they don't join rewards programs.
  • Insufficient incentives are a top cited factor among members who drop their programs. This will be reflected in your breakage rate calculation.
  • According to a research study by Edgell Knowledge Network, titled "State of the Industry Research Series: Customer Loyalty in Retail", 81% of loyalty members don't know the benefits of their programs, or how and when they will receive rewards. The research cites this as a top reason why consumers are not loyal to the brand.
  • A loyalty survey done by Maritz Loyalty Marketing reported that the majority of consumers abandon rewards programs because they grow tired of waiting for the points to accumulate. 70% of the consumers polled cited the length of time it takes to accrue points. In the 18 to 24 age group, that figure grew to 79%. It takes six to nine months of spending on average to accrue enough points to redeem them for rewards. The study also found that individuals who earn more than $125,000 annually are willing to increase spend to accumulate points. But they are very selective and will drop an existing rewards program for a new or better program.
  • The top two technology challenges include data integrity issues (having clean customer data) and siloed systems (such as customer data in CRM, marketing data in marketing applications, purchase transaction data in ERP, billing data in legacy systems, survey data in another database, multiple channel conversations in separate databases, and shadow systems.) Merchants often struggle with automated retail technologies and complain of a lack of integration across channels. For example, consumers sign up for loyalty programs online or via email, however, the store loyalty cards or POS systems are not updated. Achieving a unified, cross-channel loyalty program requires a central customer system of record (likely being the CRM application) with real-time integration or synchronization to related applications. There is a strong benefit if your loyalty application is embedded within your CRM system, as opposed to being a separate system that must then be integrated.
  • Like store layouts and merchandise displays, customer affinity programs have a lifecycle. Themes, messaging, promotion and rewards need to be experimented and refreshed periodically (no less than annually).
  • Incentives and rewards must be consistent across channels. If consumers find that different channels deliver difference experiences they will lose faith in the retailer and/or game the system. A prerequisite to omnichannel engagement and offers is to make sure internal departments (such as stores and e-commerce) are not competing with each other.
  • Don’t confuse "loyalty" with "rewards." Loyal customers consider their favorite brands first. Loyalty denotes advocacy while rewards are one small tool used to create that affinity.
  • Don’t confuse "loyalty" with "retention." These terms are both important, but apply different programs to achieve different goals. Loyalty is measured by customer share and uplift, among other metrics. Retention is often gauged by renewals or repeat purchases and measured by customer churn and Customer Lifetime Value.
Consumer Loyalty Program