3 common missteps that undermine loyalty strategies

Re-evaluate customer loyalty strategies to deliver increased marketing ROI

Companies in every consumer industry are investing in loyalty programs to improve the performance of their brands and achieve a better ROI on marketing. According to estimates, more than 60% of retail and hospitality brands have loyalty programs, collectively spending more than $300 billion annually. That’s a massive investment, and brands often emphasize the strategic role of their loyalty strategies in investor relations statements. Yet, most organizations struggle to achieve the loyalty success they envision. 

The challenges of loyalty marketing start with misplaced assumptions about how loyalty programs really work.

If these patterns resemble your brand’s loyalty program, you are not alone. And, if you’re not sure of your program’s metrics, you will be surprised by what you find.

Another indicator that loyalty success may be elusive is the consistent rate of change in loyalty designs and structures across industries — from adjusting reward structures, to shifting from dollars to points, to adding tiers and many other changes. The numerous changes suggest that few brands have found the key to unlock customer frequency. So, if a brand is emulating the design of another company’s program, there’s a good chance that it is following a program that is struggling to find success.

Most loyalty program performance challenges can be traced to a few key missteps that are shared by many companies.

Misstep No. 1: Brand-centric vs. customer-centric focus

Many loyalty program strategies start with the objective of influencing customers to buy more often, buy a greater range of products, and increase basket size. These are all sound business goals, but they start from a brand-centric point of view. They describe the behaviors a brand would prefer to see from its customers.

Misstep No. 2: The loyalty design process … ready, fire, aim

Misstep No. 3: The ‘loyalty incentive trap’

Because many loyalty programs are measured by the consistency of customer return, brands often fall into the “loyalty incentive trap.” Brands initially attract customers by promoting brand differentiators and then sign them up for loyalty programs. Once brands can track customer data, they see the erratic customer purchase behavior that is typical in most consumer categories and misinterpret it as underperformance. As a result, they often begin aggressive discounting and offer incentives to try to “regain” the customer frequency they expect.

A key driver of the loyalty incentive trap is that brands often prioritize the importance of marketing performance metrics—join rate, frequency trends, redemption rates, lapsed customers—over data that reveals customer insights: demand triggers, customer values, behavioral/product segmentations, and brand differentiators. These customer insight elements reveal where and when the best market opportunities exist to grow sales and traffic within your loyalty program.

Ultimately, underperforming loyalty program designs result in wasted resources and costs. Marketing budgets and personnel are precious resources. Ineffective strategies can distract the organization from the real drivers of customer success and, ultimately, result in missed business objectives.

Getting loyalty strategy right

To start from a customer-centric perspective, some key inputs are required to feed the strategy.

• Mine customer data for behavioral insights – Analyze customer purchase patterns to reveal customer segmentation schemes and insights around brand usage to feed the marketing strategy.
  • If a loyalty program already exists, customer insights can be found in the transactional data. However, most loyalty platforms aren’t designed to offer the analysis needed to mine for customer behavioral patterns. Customer data often needs to be exported to an alternative tool for analysis.
  • If a brand doesn’t have loyalty data, it’s critical to understand what other data is available to build customer and behavioral hypotheses. Often, tokenized credit card data or other customer identifying data can be an invaluable tool to look at behaviors of the overall customer base.
  • Finally, qualitative data is often needed to add contextual insights. Quantitative data can identify the “what” of behavioral patterns and customer segments, while qualitative feedback from customers adds context to the “why” and identifies the “jobs to be done” that your brand serves best. Through customer interviews, surveys and other qualitative research methods, you can learn more about the customer journey, including the situations that trigger demand, key competitors considered and the decision criteria that drive brand choices.
• Build a cohesive customer storyline – Leverage behavioral insights and analytics to build a story about customer segments, values and behavioral triggers that can be shared within the organization. Establishing a unified understanding of customer insights across the organization, and especially among the executive team, is critical to build buy-in with key stakeholders for new strategies.
• Understand competitive positioning – Gather data to build clarity for where the brand wins and loses, and why. Identify the brand elements that are compelling to customers in the market and can drive market share. Prioritize the differentiators that best position the brand to win within each target customer segment.
• Identify strategic opportunities – Identify the markets and customer segments and the strategies that offer the best opportunities for the brand to capture market share and define the metrics for success.

Once the insights and opportunities for a brand are clear, the loyalty strategy can be designed to maximize the brand experience and build brand affinity:

• Establish clear loyalty program objectives using customer-centric insights.
• Integrate the loyalty program into the customer experience.
• Set up a reward structure that is attractive enough to encourage membership but is also financially viable for your organization.
• Build a roadmap for execution and establish clear metrics for success.
• Adapt and learn as new customer insights are captured.