Maximize Loyalty ROI: Program Pitfalls To Avoid

Loyalty programs can be a raging success (hey, Starbucks!) or a dumpster fire (looking at you, Subway Sub Club), and the line between the two is thinner than you think. They can be the spark that ignites customer loyalty, but they can easily burn a hole in a company's budget if mishandled. With retailers vying for the golden ticket of lifelong loyalty, some are finding themselves singed by poor investments. The secret? Knowing where to fan the flames and where to douse them. Let’s discover some of the most common loyalty money pits and how to steer clear of them to keep your loyalty program burning bright.

It isn’t easy to put a price on lifelong customer loyalty. But every day, thousands of retailers try, and some are putting it in the wrong places.

Companies dedicate nearly one-third of their marketing budgets to loyalty programs and customer relationship management, according to Antavo. Eight out of 10 companies with an existing program expect to refresh their loyalty initiatives within the next three years, and the average investment to do so is $375K.

Note to those eight in 10: plan carefully.

Over decades of developing, evolving and managing reward programs, loyalty experts have discovered – often the hard way – that there are a lot of safe-looking places where companies can lose their loyalty dollars.

10 Loyalty Money Pits

More than three-quarters of loyalty programs that rely on transactional models fail in their first two years, research shows. So, loyalty pros have been exploring more innovative models. This introduces risk, but it’s necessary.

Risk is not unavoidable, however. Here are 10 areas, traditional and new, for minimizing investment uncertainty.

1. Losing members at registration. Member enrollment is the moment of truth for a rewards program; when the retailer “meets” its new customer. Unfortunately, the registration process can be highly vulnerable to breakdowns. A consumer might incorrectly enter the information by miskeying her own email address, the person at the register might transpose phone digits, or data sets might leak because of a tech glitch. Regularly scheduled audits that ensure data reaches the analytics stage can track, resolve and prevent these breakdowns. Another registration risk is that the process is so clunky or asking so many questions that prospective members drop out because it's too onerous. Five "golden" questions is plenty to get started! 
2. The wrong welcome gifts. There’s a reason 63% of consumers register for rewards programs solely for the initial membership gift – we love free stuff! But often, the perk doesn’t fit the event. It might be unnecessarily rich, such as 25% off certain purchases for a month (this just trains customers to expect discounts). Or it can be a booby prize (“Here’s $5! … On one purchase of $50 of more”). These small gestures can make or break credibility. Signup bonuses should reflect the brand promise, not be arbitrary giveaways.
3. Breaking mobile promises. Mobile apps and loyalty go together like hamburgers and fries, especially among food merchants. (“Loyalty is the single-biggest driver of digital adoption,” McDonald’s CEO Chris Kempcziski said in an earnings call about the My McDonald’s Rewards app.) Apps are pretty affordable, but they do require ongoing care and feeding after being launched into the world. This is where exclusive offers should live – a major engagement opportunity, but one that takes regular nurturing.
4. By collecting too much data. More is not necessarily better when it comes to shopper insights. Before launching a program, an organization should clearly establish the initiative’s purpose and goals. Then it should isolate the data it would need to meet that end. Chances are it will be far less information than anticipated. Firsthand experience has revealed an organization can realize 80% of its loyalty goals with just 12 to 15 data points. Finding them typically requires A/B testing or a reliable third-party provider, but it's soooo tempting to ask a million questions. Don't. 
5. The long-haul path to purchase. A merchant might track how many loyalty members showed up for its grand opening, but does it keep tabs on how often they visit during the next 30 days? Sometimes companies overlook mapping the customer journey because they invest so much in acquisition. They showed up! Now, getting them to come back is the hard part, but with much better long-term results. As a result, important touchpoints go unnoticed, and therefore, so do challenges. For example, do members lose interest because it takes too long to earn a reward? Mapping could track and identify that, and course correct.
6. Cookie-cutter “personalization.” Even if a retailer establishes the necessary data to collect to meet its loyalty goals, it can still lose money by going cheap on analytics. The result: one-size-fits-all communications and offers derived from broad sets of data. (Hmmm, a lot of people who buy juice are parents, so, ergo, let’s assume all juice buyers have children!) These customers deserve better. Retailers should consider cutting back on general marketing expenses in favor of trusted analytics systems, including machine learning.
7. Selling products rather than the company. Diapers are expensive, but few people put off getting them when needed. This doesn’t stop Pampers from telling stories about what it is as a brand. The Pampers Club program highlights its efforts to reduce carbon emissions and its product safety accreditations. The app offers services, such as a digital sleeping coach, to establish the Pampers brand as a parenting expert. By revealing what it is as a brand, Pampers becomes more than a product. (Others, including REI, are strong at this as well.)
8. Unnecessary reinvention or relaunch. Not every reward program needs a makeover, yet every year it seems hundreds of them are revamped and relaunched. Many of them likely would achieve the same gain in member activity for less money by simply adding a relevant perk, such as exclusive product samples or free returns. An occasional reboot can be exciting, but repeatedly doing it, without clear reasoning, could cause brand confusion and cynicism: “If this program keeps getting redone, why should I trust it?” Or more likely these days, "I wonder what I'm losing?" since most programs are getting less rich and harder to achieve status. (Hey, American Airlines! It's me, one of your Executive Platinums who feels no love from you...)
9. DIYing the program. The fact that there are millions of rewards programs in operation does not mean they are easy to build. Rather, the sheer number of them makes building a good program more challenging. Even if the marketing team has a brilliant idea, executing it could require operations and analytics expertise beyond their scope. Many merchants try to get around this cost by copycatting a competitor’s program, but they’re only copying a look. The processes behind the program matter more than the model.
10. Derailed training. The annual retail employee turnover rate is around 60%, according to McKinsey, and half of frontline retail workers plan to leave their jobs within the next few months. Companies should proactively budget loyalty program training as they do customer marketing and store maintenance, to avoid the “set and forget” mindset. There’s a lot of specialty expertise out there, so retailers might benefit from looking outside for help to get the most up-to-date thinking and best practices. Or maybe consider an EMPLOYEE loyalty program?

Make That Customer A Forever Customer                       

Companies have many ways of quantifying the value of a long-term customer. Less reliable are the formulas that calculate the investment. Customers are a moving target, after all.

This is why retail loyalty initiatives can be so effective – they anticipate and follow the customer on the journey. If retailers and brands invest in keeping pace, they can spot the sinkholes in advance.

It may not be 100% foolproof, but it should improve the 75% failure rate.

Collaborate with Incendio and receive guidance on optimizing your investment. Contact us today at Info@IncendioWorks.com.

A version of this article originally appeared in Forbes.