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How Loyalty Programs fail. 8 real-life examples.

It is well known that price competition drives profits down. Competing on broader ‘added value’ helps not only to keep profits healthy, but also to drive innovation, therefore benefiting customers. Loyalty Programs, if designed right, significantly benefit organizations and their customers. There are many examples of successful loyalty program implementation and how they benefit ROI. However, what can be more entertaining than to sit back, relax and watch other people failures?

Here is a small list of fabulous failures, witnessed by our team at LOYALME. Being aware of these mistakes can help you avoid them in future.

You don’t know what you are doing

Loyalty Programs have been around for a while and many of us think we can implement something similar for our brand. Unfortunately, apart from a short promo campaign, powerful Loyalty Program contains hidden elements that are hard to copy. Procedures, technologies, data-driven decisions, customer care scenarios, rewards process management, tax related questions - all these areas can be quite unique for Loyalty Programs. Missing any of these elements can seriously damage your brand’s P&L and reputation.

Tip: do not expect your creative or digital agency to do the job just because they know your business well and are happy to help. Partner with a specialized vendor, not only to provide specific solutions (i.e. technology), but also to help with overall management across all channels of organization.

You don’t involve C-level executives

A good, efficient Loyalty Program can significantly influence business indicators. ROI, customer life-time value, marketing contribution, ROMI, cost-to-serve, NPS, satisfaction index or average purchase per client can be your executives’ KPIs. Involving top-level executives and matching program KPIs with their KPIs will guarantee executives’ attention and sponsorship.

Tip: ask your vendor what indicators can be influenced in the short- and long- term. Use this information to inspire C-level executives.

Your rewards catalogue is boring

Do not reward your customers for purchases with the same purchases they just made. Studies show that more than 50% of customers decide to participate in Loyalty Programs because of the attractive rewards catalogue. A boring catalogue means low engagement.

Tip: spend time carefully designing your rewards catalogue. An ideal catalogue should contain a healthy share of your products as well as of services and goods relevant for the participants.

You think short-term

You are giving promises to your boss and colleagues. You are squeezing results out of your agency after 3 month of the launch. But Loyalty Programs is NOT a tool to quickly grow sales. Misguided expectations inevitably create frustration and disappointment. Your vendor gets poor feedback, you get a bad reputation and your P&L suffers.

Tip: for advanced Loyalty Programs, wait at least 8-12 months to see changes in customers’ behavior, and 18 months or more for your profit to exceed invested capital.

Loyalty Program is a toy of 1 department

I have seen it several times. Marketing departments come up with an idea to launch a Loyalty Program. Because of its impact on business, the program becomes a way to build a career for a manager in charge, say, you. All you can think about is launching an ambitious project of your own and to present its impressive results to the headquarters one year later. Unfortunately, there is a big probability that your project will either remain very small or will be abandoned due to a longer pay off than you expected.

Tip: invite experts to conduct interviews with other departments, evaluate potential synergies and find ways to share costs.

You are being sneaky (this one is quite exotic, but I’ve seen it twice)

While proactive thinking is usually a good thing, ‘sneakiness’ can be very dangerous. Trying to hide the true scale of your intentions from your CFO by dividing the project into many little projects can become your worst financial decision. What can happen is that after 12 months you put all the elements together and find out that the project’s NPV is negative. Sunk costs still force you to continue hiding the problem, but you can’t ‘hide an elephant in the room’.

Tip: ask your vendor to build a business case, calculate a realistic NPV and then present these calculations to your CFO. A good case will inspire your CFO therefore your project will have a high priority.

Your project generates the loyalty of your boss only

Although no organizations exist without politics, Customer Centricity should remain the fundamental principle of your Loyalty Program. Often carefully following internal guidelines and maneuvering among executives’ egos we create confusion and frustration among participants.

Tip: Think twice before initiating the launch. Decide if you are willing to fight for your customers’ needs and argue with your boss, therefore seriously risking your career.

You bought a ‘box’

It is very easy to become excited with shiny and powerful technologies that promise a miraculous change in customers’ behavior. But I truly believe that a ‘one size fits all’ principle doesn’t work with irrational human nature. Although there is nothing wrong with technologies themselves, true customer loyalty also requires an alignment of organizational culture, processes and employees’ incentives.

Tip: if your goal is to influence customer behavior long-term and to benefit from growing customer loyalty, ensure careful design of the Customer Engagement strategy.

There are many more ways to fail while launching and running Loyalty Programs. However, partnering with an experienced vendor, involving the C-level in strategy formulation, sharing the project’s cost with other departments create conditions for the project financial success.

Since 2010, LOYALME has helped organizations to design, develop and run Loyalty Programs in B2B and B2C segments. Our ROI-driven approach, technology and deep understanding of Customer Centricity principles enable us to be a long-term partner for companies like Estée Lauder, LVMH, Unilever, Teva, Eli Lilly and others

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