WHY LOYALTY PROGRAMS FAIL
The ranking of 10 reasons why loyalty programs fail
A group of 34 experts from 14 different loyalty markets around the world were selected as a “Delphi Panel” to identify a comprehensive list of potential causes of future loyalty program failure and through a defined method, these “failure predictions” were ranked.
- Poor use of data
This factor goes deep and wide in determining what ‘poor use’ means. Some specifics provided in the report included inadequate segmentation, little or no use of data for personalisation and many variations on not turning data into insights for useful action.
“Effective gathering, updating and use of data is critical to understanding member value, preferences and what program considerations will drive behaviour to meet objectives and KPIs. Understanding member value and adopting personalisation are ultimately affected by the poor use of data, thereby increasing the risk of attrition through ineffective engagement.”
NOTE: At the time this article was written there was a massive data breach at one of Australia’s telco companies Optus (for those outside of Australia) which will have massive implications on all organisations collecting and using data.
Let’s face it folks data sits right at the heart of loyalty programs. As an industry we need to be more transparent on
- why we ask for data that we do
- what we are doing to make it secure
- how we will use it
- where it is stored
- how long will we hold the data for.
Our loyalty program research report For Love or Money™ 2022, highlights the number one consideration members have when providing their data to loyalty programs is DATA SECURITY. The research was compiled in the first quarter of 2022 and we will see what the residual impact will be when we repeat the research in 2023.
- Proving performance
Inability to prove performance with the metrics that matter was ranked #2 as an underlying cause of potential program failure. Focusing on costs rather than program ROI as one of the pressure points for this failure factor was a theme that came through in the report.
“Organisations that treat the program as a cost centre are bound to have their program fail”
- Inadequate communications and dialogue
The commentary supporting this failure factor included the absence of preference driven, multiple communication channels. There were also views that relevant communications based on personal and lifestyle attributes were often missing.
“(There’s) no excuse for not delivering the right offer at the right time using the right media”.
- Inadequate C-Level support
The absence of senior leadership support impacts program success.
“C-Level must be committed, passionate and totally informed along the loyalty path.”
- Too much friction
This failure factor focuses on difficulties created for members to interact with a program – from joining, engaging (e.g. identifying membership), earning and redeeming.“Friction affects enrolment and engagement, resulting in poor KPI’s”
- Weak or absent soft benefits
Concerns about programs with little or no benefits to create emotional bonds lead programs to a high potential for failure. (This one has had some vast improvements over the years with programs working hard to move from transactional connections to emotional interactions).
“Customers increasingly value experiences, strong brand values and connection. Loyalty programs that focus on ‘do this/get that’ are becoming increasingly irrelevant”
- Employee disengagement
Wider teams in an organisation with a program having little or no knowledge about a program (lack of education and training) and enthusiasm towards a program are some of the inputs to this failure factor.
“Poorly trained/engaged staff can kill a program while at the same time escalating the investment costs!”
- Inadequate funding
This failure factor brings to light fundamentals of program design and earn-rate modelling. If the funding of rewards are based on a threshold of disengagement ie it takes too long to earn a reward, failure looms on the horizon.
“Low funding results in low activity of members and therefore is the beginning of the end.”
(This failure factor is closely linked to #10 Poor funding allocation)
- Lame rewards
This factor is open to interpretation and will differ widely by category and customer. Whatever ‘lame’ represents; it does give a sense of urgency to make sure lame does not become a reality.
“Reward offerings are lame when they do not resonate with the membership. Poor reward choices; same as everybody else; no uniqueness to the rewards offering, etc. all spell trouble for the program.”
- Poor funding allocation
This factor is about robust financial modelling (or lack thereof) and the how weighting of a budget across a program’s value segments needs careful consideration.
“This is an important factor. Many program operators are still treating everyone as equal.”
But wait there’s more…
Other failure factors outside the top 10 are identified in the report as well as ‘honourable mentions’ which include (not limited to) – over enrolment impacting funding, lack of loyalty program management experience and perhaps the elephant in the room that in some way shape or form impacts all of the failure factors – the seamless enablement of a program through the relevant technology stack!
In summary, for sustained loyalty program success, there needs to be time and focus set aside for reflection.
It’s not all strawberries and cream, champagne and celebration.
You can download a copy of the full report here.
