How is your loyalty program doing these days?

If it isn't thriving, the four issues discussed in this article could be at fault. They're among the most common problems that afflict customer loyalty programs and torpedo success in customer value marketing.

Issue 1: Breaking Badly

Breakage occurs when customers earn points but never redeem them for rewards. In some instances, breakage is good and can reduce program costs and liability. But if breakage gets out of control, you risk alienating your customers rather than building loyalty.

Good breakage occurs when those members who passively participate in your program do not receive rewards. Passive members don't work the system; they may not even realize they're members. If they get a reward, it's purely by accident. They're not being induced by the program to make incremental changes in their spending. So, it's OK by you if they don't redeem that reward.

Bad breakage happens when customers get so frustrated with your program that they'd rather lose out on a reward than jump through your hoops. It can also occur when your rewards are too small or so irrelevant that they don't motivate the members to visit your store or even your website to redeem.

In short, bad breakage is a sign that your program isn't actually building customer loyalty—and could be destroying it.

Focus groups and other qualitative research among your program members can help you identify the type of most prevalent breakage. If the needle points toward bad, then it's time to step back and re-examine—and probably refresh—your loyalty program before it reaches its own breaking point.

But you need to be careful...

Issue 2: Overreliance on Self-Reported Data

Proceed with caution and a few grains of salt when you review that customer research—or any self-reported data from your customers. When customers complete your survey, questionnaire, or rating scale, their answers may not accurately reflect their opinions, actions, or intentions.

Why isn't self-reported data reliable? Here are three specific reasons to be cautious of the information customers provide themselves:

  • Customers simply may not be able to provide the level of detail asked of them. There are limits to customers' self-knowledge, and many important experiences and feelings happen at a subconscious level.
  • The survey process itself can impact behavior. For example, someone may never have considered making a particular purchase—until you suggested it.
  • People aren't always truthful; they typically over- or under-inflate when answering. It's not necessarily intentional—they may inadvertently match their response to what they perceive the desired answer should be.

So, what's the solution? First, don't ditch the data altogether. It's excellent for big-picture guidance and general direction. But do consider comparing it to industry averages and definitely bolster it with objective, quantitative measurements—especially actual transactional data, which is the most accurate reflection of customer behavior.

Issue 3: Hoarding Customer Insights

One primary purpose of any loyalty program is to gather valuable customer information. Once you have it, make sure to share it across your organization. Why? One reason: a bigger bottom line. The fact is, by spreading that data wealth, particularly with your merchandising team, you can score even higher returns.

Your merchandising team might not immediately see the gold lurking in your raw customer data. Help them out by creating analyses that demonstrate how they can use the data. Here are two examples.

Market Basket Analysis

Shows: Combinations of items that tend to be purchased together

Benefit: Allows you to more effectively merchandise, market, and communicate with your customers

Case study: One CCG client found that customers who purchased items in Category X were more than twice as likely to also buy in Category Y. Using this information, the company could (among other uses)...

  • Merchandise products from both categories within visual range of each other to maximize multi-unit sales
  • Train associates to cross-sell appropriate items
  • Promote items from both groups together to create more multi-item purchases

Merchandise Allotment Analysis

Shows: Gaps between actual and projected customer sales at the market and store level

Benefit: Helps you track under- and over-performing stores relative to market averages at the product and category level

Case study: One CCG client discovered it could potentially realize $200 million in incremental revenue on an annualized basis by bringing underperforming locations up to "average" product performance levels.

Issue 4: Ignoring Trends in Your Customer Loyalty Program

Your customer engagement data can also tell important stories about what they're looking for based on behavior.

Ignoring trends in your everyday life might brand you a rebel, but ignoring trends in your loyalty program could brand you unsuccessful. That's because the ability to identify and interpret the analytical trends revealed by your data is the key to really understanding how well your program is performing.

It's easy to get stuck looking at loyalty program metrics as snapshots. You might be focused only on the number of sales, capture rates, or enrollments for a particular week. But the story really unfolds when you analyze where these KPIs are trending over an extended period.

Trend analysis—the practice of collecting and studying information to identify patterns—is often used to predict future events. But it's also a valuable tool for investigating the circumstances that influenced events in the past, allowing you to make informed improvements for the future.

Rather than simply looking at your program's latest capture rates, consider whether they have been fluctuating week over week. Perhaps they declined during the holiday season. Upon further investigation, you may discover the dip was due to stores' focusing on throughput and not asking every customer for their loyalty ID. Armed with that insight, you could take appropriate action and retrain employees to ask at every transaction.

If, for example, you conduct focus groups to help improve your customer loyalty program, pay attention to points of pain. The information you get could help you solve issues for specific groups.

* * *

By checking for the four aforementioned issues and correcting any problems you spot, you'll set your loyalty program up to help your company thrive.

More Resources on Customer Loyalty and Retention

Four Steps for Driving Customer Loyalty With Data Science

Five Ways to Successfully Promote Your Loyalty Rewards Program

Four Steps to Increasing Customer Loyalty and Retention With Social Media

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image of Sandra Gudat

Sandra Gudat leads Customer Communications Group Inc. (CCG), a full-service retail marketing agency. She guides CCG's clients using a strategic, data-driven approach to CRM and loyalty.

LinkedIn: Sandra Gudat