The Next Step for Loyalty Programs: Don’t Just Acquire, Engage

When you think of a Ferrari, you think of beauty and power. But what if the stunningly-crafted exterior housed a rickety, bare-bones engine?

That’s the mistake many loyalty programs are making today. While marketers are creating appealing programs and lowering barriers to entry, most of them are undifferentiated once the customer joins, relying heavily on tactics like simple discounts to keep users interested.

Although spending on loyalty is effective, this practice has created an overabundance of “loyalty programs” that actually have nothing to do with loyalty. According to one report, while consumers now belong to 13-14 different loyalty programs on average, they only actively participate in six or seven. Compare this to the year before, when consumers only belonged to just 10-11 programs, but were active in seven or eight. That’s a drop from 80% to 50% engagement in just one year.

Shifting Loyalty Investments

The reason we see this trend is that marketers are investing heavily in acquiring new users, rather than engaging with the ones they already have. Both of these components are vital for a successful program. What marketers need to do is shift their loyalty investments from acquisition, to retention.

According to Ric Elert of Conversant: “We have found most marketers do best when they spend about 70% of their marketing dollars talking to actual buyers, 20% of those

dollars talking to people new to the brand and the remaining 10% on people that just happen onto their website that they’ve never tried to acquire.”

Common Loyalty Mistakes

While the focus on discounts has gotten consumers in the door for loyalty programs, simply treating the programs as a means for distributing cost savings to consumers misses the point.

As Katie Casavant of Kantar Shopcom put it: “It frankly can create precisely the opposite behavior of loyalty. It can create loyalty to the lowest price, wherever that lowest price can be found.”

True loyalty programs create experiences for customers – more and more often, one personalized to their unique interests – to create an emotional connection with the user. One survey by Colloquy found that the desirable millennial demographic, although concerned

about finances, are more likely to cite nonmonetary reasons for their brand loyalty. 63% of millennials in the U.S. have continued to participate in loyalty programs that support their lifestyles or personal preferences, compared with 46% of baby boomers.

In fact, personalizing loyalty programs to create value for the consumer has repeatedly been found to be critical for keeping consumers involved. Capgemini reported that the leading reason for unhappiness in loyalty programs was the lack of relevance, flexibility and value of the rewards, cited by 44% of respondents. Colloquy divulged that 56% of consumers said they were most likely to leave a loyalty program due to irrelevant offers.

What Makes a Lasting Loyalty Program?

In order to turn loyalty programs into vessels for long term engagement, brands need to go beyond sign ups and transaction-based activities such as discounts and awarding points for purchases.

Relevant offers, attainable rewards that can be delivered and redeemed on the spot, gamification and enhanced communication and valuable information all have a role to play in the loyalty programs of the future.

If you’re interested in learning more about how to create value in your brand’s loyalty program, I would recommend downloading eMarketer’s report, “Loyalty Marketing: Creating Stickiness in a Distracted World.”