Loyalty rewards programs, which have been around since the 1700s, have changed dramatically in recent years thanks to innovations in technology and the emergence of e-commerce. But not all of those developments have actually advanced customer loyalty.

Loyalty rewards programs aren't working well...

One average, each US household belongs to 30 loyalty programs, but 16 of those are inactive. A recent study by Accenture also found that 71% of people claim modern loyalty programs do not create loyalty.

According to another study, by CapGemini, a high percentage of loyalty programs today are failing: In fact, 53% of consumers surveyed said they had abandoned at least one loyalty program within the previous year. That means companies are putting money and energy into programs that aren't generating loyalty—or turning a profit. The key reasons, according to the study, are…

  • A lack of reward relevance, flexibility, and value (44%)
  • A lack of a seamless, multichannel experience (33%)
  • Customer service issues (17%)

... but they're important

Yet, loyalty programs are still one of the best ways for marketers to reward current customers and keep them interested in a brand and its products.

That's especially important because gaining a new customer costs 5-25 times more than keeping an existing one, according to Frederick Reichheld of Bain & Company.

In short, marketing dollars are best spent on nurturing current relationships with known customers.

And over the past 20 years, research, data, and experience have shown us what actually works.

Top 10 Loyalty Rewards Program Best-Practices

Here are the Top 10 best-practices that produce results. (Spoiler alert: Big Data and branded apps are nowhere in sight.)

1. Make it easy to join and use

The best loyalty reward programs are easy to join and fast—both for customers and for the employees signing them up. If a program takes too long or asks for too much information up front, customers will bail.

Similarly, loyalty programs that are ultra-convenient to use encourage participation, whereas those that require customers to input codes, or show coupons each time they check out, do not.

If you set the bar low and can imagine the laziest person on earth actually using your loyalty program, you'll create a successful program—not necessarily because your customers are lazy, but because they are incredibly busy and already overburdened with too much information and responsibility.

2. Consider text-to-join platforms

According to the 2016 Bond Loyalty Report study of brand loyalty programs, 57% of consumers prefer interacting with a customer loyalty program through a mobile device.

Text-to-join loyalty programs, whereby customers simply text their first name to a number, are the most efficient and effective. These programs enable customers to simply give their phone number to the clerk when they make a purchase, and they text customers only when customers earn or redeem points. In addition, they enable customers to opt out at any time by simply texting "STOP" to cancel.

3. Avoid cards and apps

Customers don't want to carry another card or download another app, research shows. According to the same Bond Loyalty Report, 49% don't even know whether there is an app available for the rewards programs they belong to—which means they didn't bother to look.

And, according to a CodeBraker study, 70% of shoppers say they would use a mobile version of their loyalty cards if they didn't have to sign into a website or download an app.

4. Offer smaller, more frequent rewards to start, and increase rewards later

If you reward customers frequently, they will be more likely to use the loyalty program you provide—even if you offer smaller rewards as a result.

Stay top-of-mind with ongoing rewards that save customers money; research shows 57% of customers sign up for a program to save money. If you try to take rewards away from loyal customers down the line, your customers will be at your door with pitchforks and torches. Or, worse, they'll post scathing reviews on Yelp and Google.

5. Use a clear structure with few rules and no tricks or expiring rewards

Customers prefer loyalty rewards programs with a clear structure that are easy to understand and don't have expiring rewards or any other tricky qualifiers, limitations, or hidden exceptions.

They just want to shop at their favorite businesses and get rewards without spending more than two seconds thinking about how any of it works. They also want to earn points and spend the rewards without finding some reason (hidden somewhere in 8-point font) why it doesn't work the way they hoped or assumed.

6. Skip personalization in favor of reward dollars

Loyalty programs that use reward dollars take the guessing game out of what customers want to receive as their reward. Using reward dollars also eliminates the "creep factor" associated with using data to predict a customer's desires based on his/her purchasing behavior and then presenting a reward that is eerily customized—or, on the flipside, totally off base. Just because a husband buys his wife's feminine products each month does not mean he wants a free perfume or mascara as his reward.

7. Protect (or don't collect) customer data

Technology is (usually) not your friend, and tracking your customers' spending habits doesn't necessarily improve their opinion of your brand. Most customers do not even value emails they were not expecting to receive, let alone some data-driven reward offer that makes them feel spied on.

Considering that data mismanagement and poorly executed personalization has left consumers skeptical of Big Data-driven loyalty programs, use any personal data you collect from consumers to provide truly outstanding, customized offers.

Either do that (along with everything in your power to protect customers against a data breach) or protect your brand—and consumers—by not collecting data in the first place.

8. Don't burden yourself with unnecessary program management

Marketers start out with the best of intentions, but most simply do not ultimately have time to manage their loyalty programs or analyze report data. Do you really have time to "mine" all of the personal data you collect? Ensure your loyalty program will produce results without creating an unnecessary management burden.

9. Don't require much employee training

Similarly, if a loyalty reward program requires additional technology, equipment, or special training for employees, it's probably too complicated or expensive. In addition to requiring a bigger investment up front, it will make your brand more vulnerable to both technological and user errors.

10. Build partnerships

Consider building partnerships with large employers, colleges, clubs, and local media that will enhance your loyalty program's effectiveness.

* * *

Loyalty programs are a terrific way to engage customers and simultaneously spread the word about your brand. By following the Top 10 best-practices outlined here, you'll help ensure your loyalty rewards program is actually creating customer loyalty.

More Resources on Loyalty Rewards Programs

Five Ways to Successfully Promote Your Loyalty Rewards Program

How to Promote Loyalty Rewards Programs [Infographic]

10 Benefits of a Loyalty Rewards Program [Infographic]

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image of Ray Clopton

Ray Clopton is the president and CEO of Wilbur, a new app-free, card-free loyalty rewards program that requires only a mobile number and first name.

Twitter: @RayClopton