As customer experience increasingly becomes a source of competitive advantage, it makes sense for a loyalty programmes to be part of the picture, building a positive relationship between customer and brand even after the initial purchase.

Yet statistics show that 77% of transaction-based loyalty programmes fail within the first two years. So what’s going wrong?

Here are three key issues we’ve found – and what to do about them:
 

Issue 1: The rewards aren’t worth the effort

Imagine your utilities company had a loyalty programme, and to earn additional points, you could complete a quiz about saving energy in your home. And as a reward for all your hard work? Your points would earn you an indoor thermometer – the kind you can pick up in any home electronics or DIY store for under a tenner. It’s not really worth the time and effort, is it?

I use this example because it’s something we’ve seen done in other sectors. And mixed in amongst other (more exciting) rewards, it might work. But the value of any reward needs to be on par with the amount of effort it takes to earn it.

A study by Colloquy found that 56% of customers had stopped participating in a loyalty programme because the rewards they were offered “weren’t of interest”.

So finding valuable rewards to offer is important. That doesn’t mean expensive rewards – they just need to be perceived as valuable by your loyalty members.

How to fix it:
Survey your loyalty programme members (or high-value customers) to find out how they feel about the rewards you’re currently offering (if you have a programme) and the types of rewards they’d like to see.

Steer clear of money-off vouchers / discounts on your own products. These can be hard to sustain value from; plus, they encourage price-conscious shopping habits rather than a value-add relationship.

Consider offering an extra service, such as a session with a personal stylist, or free training on how to get the most out of your product. Or maybe your loyalty members would find more value in experiential rewards, which could be provided through a partnership with a third party? For example, you might be able to offer concert tickets, discounted hotel stays or other “experience” related rewards.

Most consumers feel that loyalty programmes are for brands to show their loyalty to their best customers – not the other way around. So to keep them active in the programme, you’ll need to ensure that the rewards on offer are worth customers’ time and effort, and are relevant to their interests.

 

Issue 2: Interacting with the programme is difficult

Some businesses seem to build complexity into their loyalty programmes like it’s going out of style (it was never in style, by the way). If your consumers need more than basic math skills to work out your points conversion scheme, it’s too complicated.

And similarly, if your mobile app is too slow or your online loyalty portal difficult to navigate, if customers struggle to see how many points they have or which rewards they can redeem, many of them will give up. It’s simply too much effort.

Customer effort has become a big talking point lately, because it’s a key part of the overall customer experience. An easy interaction with a company equates to a good experience; a difficult interaction, a bad one. And bad customer experiences won’t lead to loyalty.

How to fix it:
Test your loyalty programme as though you were a customer. Or better yet, have someone who is unfamiliar with the programme test it out, while you or your team observe. Look for things like:

  • How complicated is it to redeem points for the desired reward?
  • How many steps does it take to see your points balance or the rewards that are available to you?
  • How easy is it to access the programme via different channels and devices (e.g. a mobile app versus a desktop)?
  • How consistent is the experience across these channels?

Once you’ve identified any issues, work with the relevant teams to simplify the process and create a more consistent experience. Before you roll out any changes, consider testing them with a small group of customers to get feedback.

 

Issue 3: Earning rewards takes too long

Not many runners give up on a race when they’re within reach of the finish line, and for your customers, the same principle applies. When they can see that they’ve nearly reached their goal, they’re more likely to keep going to achieve it.

This is called the goal gradient effect – people get more motivated to reach a reward the closer they are to it. That means the reverse is also true: If a reward seems too far away, members may struggle to reach it, and are more likely to drop out of the process before they get there.

This might not sound like much of an issue, but it can have a significant impact on loyalty and customer sentiment. A recent study found that failure to reach a reward can result in negative sentiment towards the business – a sentiment which tends to be stronger among the brand’s most loyal and active customers.

And it’s not just your customers’ feelings that are the issue – the researchers found that failure to reach a reward tends to lead to reduced purchases in the long run.

How to fix it:
To encourage continued participation, make sure the number of points required to reach a reward is actually achievable without a customer having to spend their entire paycheck with your company.

Another principle that can help here is the endowed progress effect. Researchers found that when loyalty members were given a boost towards a reward, they actually put in more effort to reach it than those who weren’t.

This means that you might give customers a starting points balance, for example, to move them closer to their first reward. Or if a customer has been stuck at the same points balance for a while and hasn’t purchased recently, consider offering them double points on their next purchase to encourage them to keep pushing forward.

 

Bringing it all together

If your programme isn’t delivering the value you’d hoped for, check it against each of these criteria. Ultimately you’ll need a combination of all of these things – worthwhile and achievable rewards, plus effortless engagement with the programme – to earn long-term loyalty.

And keep in mind that customer loyalty is dependent on more than just the programme itself – you’ll need to deliver a positive experience throughout the journey to keep them coming back.

Our Horizon Loyalty Hub is designed to deliver engaging, effortless loyalty programmes – and to create great experiences at every touchpoint. Learn more about how Horizon can help you grow loyalty through amazing customer experiences >>