Why Loyalty Programmes Fail

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Loyalty Programmes are a great way to engage with customers. But not all Loyalty Programmes are successful. Steve Burnstone, CEO at Eighty20, shares some of the reasons that Loyalty Programmes fail, and ways to ensure your programme isn’t among them.

Simply put, a Loyalty Programme fails when the value of the behaviour change it is generating doesn’t offset the costs of running it. This is easiest to measure in terms of financial returns, though outcomes such as brand value created or additional opportunities for customer engagement can factor in, too.

“It’s important to understand what constitutes failure or success for your own organisation,” Steve says. “This means aligning the programme’s objectives with the business’ objectives, so that you know what to measure and how you want to measure it. If the brand value and engagement opportunity is worth the cost, it should be a stated goal for the programme. That said, though,  a successful Loyalty Programme needs to be washing its face – at the very least covering its own costs.”

Which business objectives make sense to align with will differ from sector to sector. “Every sector has its own constraints in terms of what it can and can’t do,” Steve points out. “In FMCG retail, for example, the profit margins are extremely tight, which makes it difficult to give a meaningfully high percentage of value back to customers on their spend unless there is significant manufacturer funding. If the objective is ultimately increased profit, points earn and burn rates, or immediate discounts on purchases, have to be very carefully balanced.”

Sprint promotions – like Checkers’ Little Garden campaign – can help to augment an existing Loyalty Programme and potentially make it more attractive. When well-executed, they can do this by encouraging membership sign ups, increasing foot or online store traffic, increasing sales for the campaign’s duration and improving brand perception.

“Retailers’ programmes may not seem very exciting, compared to more complex programmes, but the return on investment is easy enough to measure,” Steve explains. “Does the customer spend 10% more with us because they belong to our Loyalty Programme? If they do, how much can we afford to give back? And what sort of promotions or partnerships can we enter into to make the programme more rewarding without adding too much effort for our customers to benefit?”

There’s a lot to be said for keeping it simple. “Loyalty Programmes can fail if they are too complicated,” Steve points out. “If customers don’t understand how they work, or if it takes too much effort to earn or use rewards, they simply won’t engage.”

Often the simpler programmes are – and the easier they are to access – the more effective they are in driving behaviour change that has a positive impact on business performance. “We’ve seen very simple programmes of the ‘get nine stamps and the 10th stamp gets you something for free’ variety drive as much as a 10% improvement in performance,” Steve points out.

That said, customers are starting to expect more sophistication, so that these very simple programmes by themselves aren’t generating as positive a customer experience as they used to. Good corporate partnerships, clever apps that work well with your Loyalty Programme, and a network of earning and spending opportunities are becoming increasingly important to consumers.

“Programmes that don’t innovate or evolve are also more likely to fail,” Steve says, “especially nowadays when customers expect more digitalisation and personalisation than ever before. And, of course, good consistent communication with your Loyalty Programme members is very important.”

Loyalty Programmes can use the data they have on each customer’s spending preferences to personalise offers, make earning and accessing rewards easier, choose partners that align well with their brand and their customers’ existing behaviours, and improve communication and the customer experience overall.

The customer perspective is only one side of the story, though. The business perspective is equally critical to a programme’s success, and many cases may even be the root cause for failure. Organisational reporting lines and the approach to programme funding, for example, heavily influence how programmes are supported and handled internally.

“If the loyalty programme isn’t seen as central to the brand and KPI’s are not aligned – if it is seen as a sub-division of a central business function like marketing – while multiple business units are separately held responsible for both funding the programme and achieving the business’s revenue and profitability targets, you’re going to struggle to get your programme to be successful,” Steve says.

This is because in cases like this, executive support is often lacking. At the same time, more profitable business units or product categories may find themselves subsidising less profitable ones, without receiving any benefits for doing so. It’s easy to see how loyalty programme targets can fall by the wayside in favour of business objectives that benefit the category instead.

Discovery Vitality or FNB eBucks are leading examples of loyalty programmes that are central to the brand and the customer value proposition, and that enjoy support across the business. “You very rarely see any marketing material from these companies that doesn’t also promote their loyalty programmes, because they are central to their brand and a key part of their offering,” Steve points out. Loyalty Programmes that are set up as an aside, that don’t fit into the executive reporting structure, and that aren’t centrally funded can battle to achieve good results.

“Business objectives and the incentives offered to employees must align if you want your people to support and drive the programme,” Steve says. “A clear strategy for the programme that works across the business, supported by a solid business case with a holistic understanding of customer value, is key to ensuring a programme adds the value the business needs.”

Often, the devil is in the details when it comes to a Loyalty Programme’s success or failure. “Poor execution and lack of staff buy-in can really hurt a Loyalty programme,” Steve says. “Poor use of data – both big and thick – and poor measurement and tracking can, too. And all of these factors can combine to lead to an inability to change the programme’s design if there is no demonstrable behaviour shift.”

Loyalty Programmes also can’t be used as a substitute for a poor product or bad service quality. “If your offering lacks value, or your customer service is terrible, no loyalty programme in the world is going to keep customers coming back for more,” Steve says.

Recent research into customer service1 indicates that roughly half of customers say they would switch brands after only one bad experience. On the positive side of this, 78% of consumers will forgive a mistake and do business with you again if their customer service experience is excellent.

“A Loyalty Programme can certainly enhance the customer experience, but if it isn’t supported by a great product and excellent customer service there’s only so much you can hope to gain from it,” Steve concludes.


1 40 Customer Service Stats to Know in 2021, HubSpot – https://blog.hubspot.com/service/customer-service-stats

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