Loyalty programs are at breaking point. I base this point of view on:
- Member insights from six editions of the consumer loyalty program research ‘For Love or Money’.
- My experience working with many and varied brands and their programs over the past 10+ years.
- 113 programs that I joined for my book on loyalty programs “Give back to get back - 9 steps to a profitable loyalty program”. Since then, I have joined many more as I am addicted to the request “Join our loyalty/rewards/benefits/VIP <insert name here> program”
For the sake of clarity and context, here is my definition of a ‘Loyalty program’:
“A defined structure of rewards and recognition designed by a business to enhance a member’s life (emotionally, financially & with simplicity) in exchange for desired behaviours that benefit profitable business growth (income and insight)”
Here are 10 loyalty program breaking points. These are within the control of the people managing the program (I have avoided external factors). Although there may be more, I will only go through these 10:
1. Low level of long-term belief in the asset of a program: ‘Shortermitis’ cost focus vs long-term asset build.
2. Program metrics of success are not SMART enough: S=specific; M=measurable; A=actionable; R=realistic; T=time-based.
3. A data grab: Too much focus on data volume and not enough on quality, intelligent and sensitive use.
4. Too focused on financial benefits: A one-dimensional focus on financial benefits becomes a pricing strategy, easy to match (or beat) and a smooth ride to the bottom.
5. Earn-to-redeem rate: The members view is - “It takes too long to be rewarded”.
6. “Tears for tiers”: Adding unnecessary complexity with tiered programs.
7. Expiry of benefits: A contentious issue! It’s good for business (financial impact). It’s not what members want.
8. Team not in love with the loyalty program: Lack of nominated loyalty champions.
9. Mobile loyalty is not provided as an option: This is no longer a nice to have.
10. Communication channel fatigue: Imagine if you could not email your members, what would you do?
Take action to rescue loyalty programs from breaking point.
With the above in mind, I am urging managers of loyalty and rewards programs to take a serious look at these 10 breaking points and the details that follow to review their programs and realise their potential as a valuable and viable business asset – one that is profitable to the business and meaningful to their members.
Breaking point #1: Low level of long-term belief in the asset of a program - ‘Shortermitis’ cost focus vs long-term asset build
Solution: Realise the potential of a program as a valuable asset based on it being - known, owned and controlled
- Identified and personalised data collected by a program provides the opportunity to be intelligent, relevant and sensitive with known data – your customers’ data.
- Programs enable brands to understand who their customers are (by profile and behaviour – past and predictive).
- They provide the opportunity to drive personalised, relevant and ‘just-in-time’ communications that motivate members back into their business for more spend, more often over the longer term.
- A program is community of customers who have entered into an agreed ‘benefit-exchange’ relationship with the business. They have opted-in to be a part of the program with the caveat that there is still a basic right to unsubscribe or leave a program.
- By contrast a business’s community on social media platforms such as Facebook, Instagram, Twitter and all the others are rented assets. The business has permission to ‘rent the platform’ from the respective social media 'landlords' to engage with their earned social media community. Rules of access are controlled by these social media landlords.
- Managers of loyalty programs control the strategy, structure, management and communication of the program with its members.
Known + Owned + Controlled = Valuable
An additional asset: Acquirer of new customers
A program that builds loyalty outcomes and leverages goodwill and advocacy with its members is a source of new customers. Whether by referral, recommendation or reviews, a delighted member base will attract new members!
And another asset: Relationship builder
Perhaps this can be part of ‘Known asset’, however it deserves a special mention as a program provides the opportunity to build ongoing and more meaningful relationship with members.
Final asset: Financial
Finally, a program must deliver a positive financial return to the business over the longer-term so that is an asset to the business.
Breaking point #2: Program metrics of success are not SMART enough - S=specific; M=measurable; A=actionable; R=realistic; T=time-based
Solution: Identify, define, measure and report on relevant program metrics of success.
Here are nine program metrics of success every program should have as mandatory:
Financial metrics of success
- Return on loyalty = Loyalty program ROI
- Member value (revenue:profit) vs non-member value (revenue:profit)
- Loyalty program revenue contribution vs total revenue
- Member Lifetime value vs non-member
Program engagement metrics of success, SMARTly defined
- Volume of members joining
- Depth of membership (how many members as a % of available pool of unique customers)
- Contactability (by channel) eg % opt-in mobile
- % active (based on a behavior eg transact <x> times in predetermined period
- Member NPS
There are other metrics such as the infamous breakage metric and if there are tiers, then you can dig deeper by tier as well as benefits earned, redeemed, earn:redeem ratio and behaviours by profiles of members in your program.
Breaking point #3: A data grab - Too much focus on data volume and not enough on quality, intelligent and sensitive use.
Solution: Use data sensitively and intelligently
The days of loyalty programs being a veneer for a data grab are well and truly over.
Customers are so much more sensitive to the giving of their personal information and ongoing buying behaviour data.
The latest results of data use – enhancing the shopping experience or invading privacy, highlighted in the ‘For Love or Money 2018’ shows that only 50% of members believe that data use is enhancing their shopping experience. 23% feel that information collected by a loyalty program is an invasion of their privacy.
Collecting data with a clear reason why, sensitively builds trust.
- If you ask for date of birth – tell them why eg. Special birthday offer
- If you ask for mobile, tell them why eg. Security check / reissue your password / send limited offers
Use data intelligently (relevance is the operative word) to enhance a member’s shopping experience or their lives.
A great example here from Nike’s first data-driven retail store.
Breaking point #4: Too focused on financial benefits – A one-dimensional focus on financial benefits becomes a pricing strategy, easy to match (or beat) and a smooth ride to the bottom.
Solution: Move programs from transactional moments of materialism to experiences that are remembered and remarked upon.
Transactions are forgotten
- ‘Cash-back’ rewards in any form (dollars, discounts, immediate or accrual) is just another financial benefit that is often lost in the noise of price focused messages.
- While they are a mandatory and expected benefit layer within a program’s structure, they need to be seen as just that – ‘expected’ and hygiene.
- They should not be the focus or main benefit as the reality is that as soon as the expected is delivered, it is then forgotten.
Experiences are remembered
- Experiences that change our physiology (heart-beat) in an uplifting and positive way are remembered and remarked upon.
- Programs need more focus on rewards that are experiences to remember, moments of joy, and unexpected delight so that the optimum outcome is – “oh wow!”.
- A program delivering a positive memorable experience through benefits earned or interaction will change behavior. Members will return to the business and tell others, two behaviours that are profitable for the business.
Breaking point #5: Earn-to-redeem rate – The members’ view is “It takes too long to be rewarded”.
Solution: The need for speed. This is function of the type of program and the behaviour required by the member to earn the reward(s) for redemption.
In For Love or Money 2018, earn rate was viewed by members as the #1 factor where programs need to improve.
- The balance between effort (easy or difficult) and reward (aspirational and worthwhile vs transactional and small) is a critical element in the psychology of loyalty programs and the connection between motivation and behaviour.
- A continued focus on improving the earn-to-redeem rate should be on the agenda for all loyalty program managers.
- Also, how long it takes for your members to earn their first reward is key to building momentum and habit.
Breaking point #6: “Tears for tiers” = adding unnecessary complexity is added with tiered programs.
Solution: Move programs from clutter to calmness. From complexity to simplicity.
Tiers add complexity and “tears for tiers”
- Tiering levels of rewards based on achievement of defined behaviours have a place in certain categories where a high frequency of spend occurs (airlines, gaming, hotels, some retail).
- They motivate aspiration and certainly enhance the ego of the higher tiered members.
- By their very format, they also add a layer of complexity to the program to explain, execute and manage.
- Unless clearly connected to behavior, try to avoid the “tears for tiers”.
- Say your program’s proposition out loud and see if you can make it aspirational and meaningful in 15 seconds or less (then try it in 10 secs). If you can, well done. If you can’t refine it until you can.
- In all of the complexity that a program can create, look for simplicity – joining, earning, redeeming and interacting (For love or money 2018 again highlights that the simple ingredients of a successful loyalty program rank highly in the 24 SPV ingredients).
- In a world of choice clutter where attention, emotional energy and time are scarce, let the program add a layer of simplicity to the life of the member rather than another pain point and overload.
- “Shhh...secret tier”. Consider covert tiering to avoid complicating the program’s proposition. Test and learn with various segments without committing. Hint: A secret tier can help to create structure to a surprise and delight strategy.
Breaking point #7: Expiry of benefits - This is a contentious issue! It’s good for business (financial impact). It’s not what members want.
Solution: Be brave and be different – promise the NO expiry benefit. Then work hard to ensure they do not become a liability, which means get them back to redeem and spend more!
- Programs with any accrued benefits create a liability.
- A strategy to mitigate this risk and most often executed is the expiry of these benefits - be it by time or inactivity.
- The reality is members want the opposite. In both the 2016 and 2017 ‘For Love or Money’ research studies, the number one ingredient of successful programs of 24 as ranked by members, is the non-expiry of benefits/rewards.
- Imagine if there was no expiry in your program – what would you do differently?
Do not expire benefits
- It’s a tough ask and perhaps out of touch with the economics of a profitable program, yet therein lies the opportunity.
- When you focus on what members really want and you never expire the benefits, that should fire up your focus into motivating members to redeem their benefits, delivering one of the outcomes a program is set up to for – motivating members back to redeem (and spend more).
Breaking point #8: The team is not in love with loyalty program - Lack of nominated loyalty champions.
Solution: Outside of the loyalty program operations/marketing team, appoint a loyalty champion in every member facing part of the business.
Here are three strategies to help your team and relevant loyalty champions love your program!
1. Excite: Invite your team to be involved from the beginning (ask them for their views on what works, what doesn’t and how to improve it). Excite them with the vision of your program – 10 words or less. Take the vision to the level of practicality so that they know how the program makes a difference to them, to the business and most importantly to their customers.
2. Explain: Ensure they understand all aspects of how the program works and the benefits to members so that they express it clearly and quickly (remember the 10 seconds or less).
3. Expect: Set the relevant metrics of success for them to achieve and ensure they understand what part they play in the impact of these metrics to the business.
Breaking point #9: Mobile loyalty is not provided as an option - This is no longer a nice to have.
Solution: Mobile loyalty is mandatory.
For love or money 2018 highlights the increase in desire from program members to be able to interact with the program via mobile and even better to integrate it with payments.
There has been a 160% incremental increase (since 2017) in preference to use a mobile app to receive rewards/benefits at the same time as paying with a preferred payment method.
Whilst a loyalty card is still widely used to interact with a program, this has decreased significantly in preference by members since the 2017 study.
Breaking point #10: Communication channel fatigue - Imagine if you could not email your members, what would you do?
Solution: Consider the ‘octopus’ effect of communication channels.
For loyalty programs, email is the one channel most used, most abused and most likely to wear itself out.
In order to manage the wear-out factor, an octopus approach to channel use should be adopted.
Think of the arms of an octopus as different channels to communicate. Build up capability and use of each arm:
- Mobile (SMS)
- In app messaging
- Social media
- In-store people
- In-store POS/Media
- Direct mail
So, from here it’s in your hands.
Please consider each of the 10 breaking points, strengthen them and lead your loyalty program beyond breaking point! Shortermitis = my made-up word for the illness created by short term benefit focus