Customer loyalty programs can offer amazing opportunities for both customers and brands, but not all programs are created equal.

History proves there are right and wrong ways to strategize a customer loyalty program for your business. So, what are the worst mistakes you can make?

Any action that disrupts customer retention, energizes customer churn, or blemishes your brand’s value proposition falls into that undesirable category. One of the primary weaknesses in loyalty programs is stakeholders’ failure to recognize how consumers want to engage with their company, preferring tactics that suit the business instead.

How do rewards programs work?

The most popular system revolves around allocating points to customers for various engagement activities, which include:

• Joining the program
• Providing personal contact and demographic details
• Responding to surveys
• Posting reviews
• Buying products
• Referring the brand to friends and family
• Celebrating birthdays as brand loyalty members

Once the points accumulate, the idea is that the recipients can convert them to dollar-value rewards or savings via discounts, freebies, exclusive introductions, and securing sought-after invitations to participate in unique brand events. The promotional term attached to these program types is “cashback rewards.” This can compound and network as follows:

• Allocating seasonal or unique event points (multiple times the standard allotment). For example, a Hilton Hospitality Rewards member gets three times reservation points for off-season bookings and bringing in a convention project.
• Some programs function around tier systems, slotting customers into privileged reward levels based on their historical purchases, CLV (customer lifetime value), and other extraordinary engagement metrics with the brand. This presents pitfalls, as we’ll see below.

When loyalty programs work well, what results can you expect from them?

Customer loyalty program strategies are driven by real results, and many available statistics answer this question. For example:

• A KPMG report reflects that 75% of consumers would switch brands for a better loyalty program.
• Emotionally connected customers spend up to 2x more with their preferred retailers, for an up to 306% higher lifetime value (Motista).
• Upping customer retention by 5% yields at least a 25% net revenue increase (Bain & Company).
• On average, well-orchestrated loyalty programs in e-commerce accelerate order quantity increases of around 319%.
• Brands see 60 to 70% success selling to brand-loyal customers, compared to 5 to 20% of new.
• The best-performing loyalty programs generate member revenue increases from 15 to 25% annually (McKinsey).
• Loyalty leaders grow revenues roughly 2.5 times as fast as their industry peers (Harvard Business Review).

What can you expect to happen when your loyalty program doesn’t work so well?

With so much potential, organizations can have very high expectations for their loyalty programs. Unfortunately, it’s not always easy.

• 37% of consumers say it takes five or more purchases for them to consider themselves loyal to a brand. That’s a high bar for a program structured with faulty touchpoints.
• The average American belongs to just over 16 loyalty programs, and actively uses fewer than half of them. This means that if your program doesn’t stand up to the test, the chances are members will gradually disengage or abruptly resign.
• Even a program that’s working well can be derailed, and poor service is a major obstacle to loyalty. 86% of Gen Zers, 85% of Baby Boomers, and 74% of Millennials have little tolerance for disappointing company interactions. They routinely jump ship in frustration when things go awry.
• A single toxic touchpoint contaminating an otherwise engaging CX is enough to swing 72% of loyal customers to a competitor.

Six mistakes to avoid with your customer loyalty program

Here’s a quick rundown of some of the most common issues companies experience in building successful customer loyalty programs. If any of these sound familiar, it’s time for a check-up!

1. Exaggerating brand features and benefits.

The primary takeaways from this are:

• Program members love pleasant surprises delivered by offers that underpromise and over-reward.
• Conversely, they express anger, frustration, and disenchantment when loyalty benefits fail to meet the hype.

Mature and sophisticated loyalty programs have developed separate brand identities in their own right. Indeed, as much as a robust program image can elevate a struggling brand, a downgraded reputation may weigh heavily on a famous one.

The bottom line is that customers have a low tolerance for unrealistic program undertakings. Why? It goes to the core of the program’s integrity.

2. Failure to understand the points system.

It’s crucial to appreciate that points have no value until they convert to a valued benefit. So, here are some low-tolerance situations every cashback program should take into account:

• SPEED: When members want to redeem points, respond quickly. Why? One of the most annoying loyalty program touchpoints occurs when companies drag their heels on delivering rewards.
• ALIGNMENT: When the effort to earn rewards doesn’t align with the reward value (i.e., the hype exceeds the realistic benefits), the motivational energy behind it escapes like air from a pricked balloon. For example, it’s a severe downer if the points allotted to $1,000 brand purchases equate to $10 cashback (i.e., a 1% effective discount).
• ROLLBACK RISKS: A move that can seriously damage brand reputation is when the company retracts a popular program offer on discovering it’s an ROI-losing proposition. For example, in 2021, eBay broke the news to its Bucks Program members that it was retiring the 1% earnings reward on everyday purchases – a benefit subscribers loved and accepted as a membership staple.
  • eBay tried to soften the blow by communicating that, starting on a specific date, member-earned bucks (points) “will have a 12-month redemption window, so there’s even more time to score those big savings.” In addition, the company said:
    • “You can also earn extra rewards through the eBay Mastercard(R), earning up to 5x points on eBay purchases.”
    • “Open a new eBay Mastercard, spend $250 in the first 30 days, and receive a $50 statement credit.*
    • “We hope you will continue to enjoy savings and deals on the brands you love. Plus, all the exciting finds you’ve come to expect on eBay: from the rare to the retro to the right now.”
  • While the step back wasn’t enough to kill the program, eBay buyers were less than happy with the change, posting numerous negative reviews.
• DISCOURAGEMENT: The same drop in engagement occurs when:
  • The starting points accumulation lacks incentive. For example, when the average consumer’s annual purchase value is $500, customers may find a $1,500 minimum purchase to qualify for program membership a mountain too high to climb.
  • The tasks for earning points are too challenging or the rules too complicated, the entire program is in danger of failing. It’s vital for customers to get excited about how easy it is to earn points, redeeming them, and the reward value intrinsic in the points accumulated.
    • For example, Old Navy (a GAP-owned retailer), created so much complexity in its presentation that members had no vision of how to earn or deem points or what rewards awaited them.
    • The final nail in the coffin was lack of integrity. Old Navy offered rewards to anyone, not only program members, erasing a vital ingredient that gives these programs a glow – exclusivity.
• BONUS DRAMA: Extra points for special events and seasonal promotions can go dramatically wrong. Consider the case of the Green Stamp debacle, in which stores thought it would be a differentiating reward to offer loyalty members double stamps when shopping at their outlets.
  • The notion went viral, with the competition offering triple and quadruple stamp offers, inflating average stamp value to nearly ten cents on the dollar. Loyalty left the stage as shoppers tracked the stamp trail to where they could collect the most.
  • So, what had started with good reward intentions and innovation turned into regional price wars fueled by amateurishly concealed price promotions under unprepared third-party stamp providers.
  • Eventually, the initiative dissolved, the stores threw in the towel, and things returned to traditional lower prices with no stamps attached.
• CLEAR TIERS: Structure your tiered points system strategically. What is a tier system? For example: Standard-tier members of jewelry brands who buy from $500 to $5000 annually may qualify for costume line discounts and gifts, at best. On the other hand, the program doles out genuine diamond and gold carat rewards to Platinum members (purchases of $5,000 plus).
  • Here’s the thing in the example above: If the Standard-tier customers feel the dividing line is unfair, they will become resentful. It’s crucial for each tier to make sense to the overall customer base, avoiding under- and over-appreciation/recognition perceptions.

3. Under-investing in the program.

Only think of a loyalty program if you’re ready to commit capital to the venture. A recent study showed that 69% of C-suite executives have increased loyalty investment, with more than half (55%) saying their investments will continue to grow. These investments encompass a strategic approach, resources, and budgets that cover:

• Anticipated rewards, SM advertising, public relations, and a broadening administration infrastructure.
• Structuring data feedback and a schedule with NPS and CSAT pulse surveys to gauge the program’s robustness in detecting obstructions. Why? Persistently undesirable touchpoints in a program can unravel all the value delivered by the positive ones.

4. Inappropriate or irrelevant offers.

Your customers must interpret your program offers as recognizing them personally, offering genuine value, and matching their demonstrated loyalty metrics.

For example, a handbag offer sent to male members or male apparel sent to female members may go straight to spam, creating the impression of being “irrelevant” – not good for bolstering one’s brand image.

This brings us to another point: Watch the signs!

• Loyalty programs generally accompany extensive data feedback. Ignoring the direction this offers is almost unforgivable.
• Unopened emails, negative reviews, and other adverse reactions are early obstructive touchpoint signals. Allowing them to persist may derail the entire initiative.

Alternatively, customizing program messages, aligning rewards with customer characteristics, and good timing (as directed by the data) can make a massive difference to your success. Instead of disengagement, it results in eager anticipation of “what’s next in an exciting lineup.”

5. Missed opportunities with customers who don’t know about your program.

Simply put, failure to tell customers about your loyalty program kills the initiative out of the gate. The latter doesn’t magically appear without focused messaging, intensive promotion, emailing, and other communications. With the right start, it’s a springboard for things to go from strength to strength. So, your strategy requires explanations of:

• The program’s manifesto
• How it welcomes customers into the fold
• The treasures awaiting collection
• The tasks required to uncover them

Why does this error occur? Promoting the program overlaps investment decisions (see above) because it requires capital injection, creating the groundwork for marketplace traction and customer excitement. Still, two must-do, relatively inexpensive initiatives include:

• Aligning your data feedback to monitor signups and first impressions.
• Allocating points to joining customers who provide personal details and respond to an onboarding process.

6. Failure to protect program members’ IDs.

Hacking, ransom attacks, and stealing customer information are rampant Cyber crimes in the US and worldwide economies. Against this backdrop, when a loyalty member volunteers personal information, they accept the risk of dark web exposure. So, if criminals succeed in stealing millions of IDs in one fell swoop, the publicity will likely collapse even the most robust programs like a pack of cards.

For example, In December 2013:

• Cyber-criminals penetrated discount retailer Target, stealing credit and debit card data from 40 million accounts (i.e., customer names, credit/debit card numbers, expiration dates, and CVVs).
• Shortly after that, card replicas popped up all over the marketplace.
• How did it happen? This was the result of a malware attack that contaminated thousands of point-of-sale (POS) machines via third-party vendors not up to speed on cyber protections.

One can imagine the brand damage created by such an event and customer reluctance to enroll in a program with this level of ID threat.

Customer loyalty programs: Looking ahead

Establishing a loyalty program to bolster customer retention has gained traction in every industry. Still, developing this kind of a program requires a clear customer journey and several new touchpoints – each one of which can derail a customer journey if defective. All the brand loyalty strategy errors above begin with losing sight of the CX from the customers’ perspective and glossing over personalizing the program.

As a customer experience leader, Sogolytics covers loyalty program structuring from end to end. We’ll help you install a robust feedback system that’s agile enough to avoid the pitfalls, conflicts, confusion, and cybersecurity risks itemized above. With us in your corner, the rewards, tiers, feedback, and promotions stay on track to meet your ROI and customer retention objectives.

So what’s next? If you want these takeaways to be actionable and take your brand to the next level, our team is ready to provide the needed resources. Learn how SogoCX can help!