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Why Loyalty Programs Are Dead

We’ve all been there before. You get to the checkout counter at your local Duane Reade, and as you’re read your total, you’re asked if you’d like to join their rewards program. If you’re anything like the 3.8 billion consumers who are part of a loyalty program, you’ll probably say yes because of how easy it is. Most loyalty programs have such a low barrier of entry that makes it easy to get on board. All you need to do is provide an email or phone number – and boom, you’re in! But loyalty schemes are expensive to implement, time-consuming to promote, and very costly to manage. It’s time we ask the question: are loyalty programs really making a difference?


What is a Loyalty Program

First, we need to understand what loyalty programs are and why companies invest millions in them. We know it costs a lot less to sell to existing customers than acquire new ones. That’s why so many brands invest in rewarding customers that keep coming back for more. Building stronger relationships by engaging with existing customers is a long-term investment strategy that can really pay off. Customers who feel appreciated are {{10}} times more likely to be loyal to a brand. Yet research shows that only 13% of consumers are genuinely loyal to any particular brand at any given time. With loyalty programs, the barrier for entry is so low that anyone can join at any time. The result is a lack of exclusivity which leads to a combination of low engagement and high disinterest for consumers. On top of all this, the turnover rate for loyalty has increased over the past three years and customers are more likely than ever to jump ship the minute prices drop. So where’s the loyalty come into all this?

The Truth About Loyalty Program Engagement

While consumers belong to an average of 13.4 loyalty programs, they’re only active in 6.7 of them. That means, only 46% of consumers are participating in collecting, tracking, and redeeming rewards. At some point, we’ve got to ask, are loyalty programs really paying off? The short answer is, not really. Let’s take a look at just a few reasons why.

1. Likeability & Trust Drive Loyalty

While customer rewards are one way to increase brand loyalty, 86% of consumers say loyalty is primarily driven by likeability, while 83% of consumers say trust (Rare). That’s right, you read correctly. Millennials specifically are twice as interested in loyalty than other consumers, but they value quality service and personalization over everything else.

While the success of loyalty programs lies in their ability to stimulate customer engagement, most aren’t built to improve other key metrics. Instead, metrics like trust and likeability, which are far more influential to consumer purchasing behaviours, take a back seat when it comes to driving customer loyalty. Instead, brands hurt their trust metrics with loyalty programs which are designed to drive sales and keep customers coming back for more.

2. Rewards Aren’t Customized

People don’t care about loyalty programs. What they actually care about is added value — better customer service, holiday gifts, lower prices, cashback, and exclusive offers. With most loyalty programs, there’s nothing really incentivizing customers to purchase one way or the other.

By nature, the benefits of a free program must apply to as many consumers as possible. Which is why most traditional customer loyalty programs are identical––and so are their rewards. Compensating customer engagement with customized rewards is far more appealing to consumers than pointless points which don’t add up to anything useful. Instead, brands should focus on rewards that give back to users and provide true value to the customer experience.

3. Metrics Are Purely Purchase Based

Most loyalty and reward programs reward customers based on measuring purchasing behavior. While customer engagement is the goal, the other (many) forms of brand participation are ignored. If you’ve ever heard of power users, you’ll start to understand why traditional loyalty programs are measuring loyalty all wrong. Power users are a brand’s most loyal and engaged users. And while they’re twice as likely to buy from brands they love, they’re also more likely to create user-generated content, provide product feedback, and refer friends to your service. Yet none of these behavioral metrics are taken into account when assessing reward eligibility and customer loyalty.

Conclusion

The true reward for loyalty is still unclear to many companies. But ask customers what they’d like in return for their engagement and they’ll give you an answer on the spot. The most valuable form of engagement won’t necessarily happen at the checkout counter, but that’s the only place brands are waiting. We need to rethink what loyalty really means, how we measure it, and how we reward engagement in a more authentic and personalized way.

What can we do different?

Platforms like innercircle are leading the way in redefining the way today’s brand build and maintain their relationships with customers. By approaching loyalty through a fresh lens, they give small businesses the tools they need to engage their most active users and turn them intro their competitive edge –– all while rewarding them in meaningful and impactful ways.

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