Loyalty Programs Lackluster Performance

Today’s consumers are inundated with loyalty cards. In fact, a 2009 loyalty census from Colloquy estimated that membership in U.S. rewards programs was about 2 billion. Despite the swell, companies have long ignored loyalty programs as a valuable interaction channel. But as the importance of customer engagement increases, businesses are starting to see past basic point schemes and recognize the critical nature of their loyalty programs as mechanisms for engaging customers in unique ways to foster retention and sales growth.

The timing is right for this new approach. According to a study from ACI Worldwide,  nearly half of the 2 billion loyalty program members never take advantage of their loyalty program perks; 85 percent said they haven’t heard from their loyalty program provider since the day they signed up;  and 27 percent said that they receive rewards for a promotion they would never buy. “Retailers are missing out on the positive customer interaction from the programs,” says Rob Seward, director, product line manager, ACI Worldwide. “These programs are being set up to generate buying events that aren’t designed with the consumer expectation.”

That’s because many companies have no cross-channel communications strategy for their loyalty programs, no understanding of customers’  preferences, and a dusty industry standard of focusing only on offering points for purchases. “We’re still clinging to the model of points and rewards that was effective 20 years ago, but at this point in time it is seeing diminishing returns,” says Barry Kirk, solutions vice president for consumer loyalty, Maritz Loyalty & Motivation.  “People are still embracing the idea of loyalty programs, but when they show up for them, they don’t see anything there that is particularly engaging.”

Too much focus on “earn and burn,” earning points and redeeming them, is not effective enough to create engaging experiences.  “That’s not the emotional side. [Companies] have to focus on ‘yearn,’”  Kirk advises. He says that brands must find out what customers value and learn the factors that drove them to select a specific brand. “That gets us out of a transactional model. Points-based programs are rational and humans aren’t rational,” Kirk says.

Mark Friedman, chief marketing and business development officer of Soundbite,  agrees that the programs aren’t getting the results they were designed to achieve. “If you combine the two major macro trends—the saturation of loyalty programs with consumers being inundated with communications—you have it set up where organizations are failing,” Friedman says.

To effectively stand out from the crowd and increase member engagement,  companies need to understand consumers’ channel and reward preferences,  acknowledge the social factors that motivate customers to purchase, and design unique and experiential programs around that knowledge.

To read the full article featuring Loyalty 360 members, click here.