There are 5 common mistakes most retailers make that cause their loyalty program to underperform expectations. A lack of personalization, over-reliance on discounts, and failing to align benefits with what customers really want top the list.

When designing your loyalty program, you should consider your brand, customer base, and cost structure. Research indicates programs which are built on customer needs, and integrated with overall company marketing goals, can actually result in lower than expected costs and higher than anticipated returns.

The 5 more common mistakes that cause loyalty programs to fail are:

Mistake #1: Lack of Personalization and Differentiation

Rewards programs that are implemented with a one-size-fits-all approach are, by definition, not personalized, less memorable, and lacking of incentive. This is one reason program engagement is on the decline.

The 2015 Bond Loyalty Report points out that consumers have a finite capacity regarding the number of programs in which they can actively participate.

Mistake #2: Lack of Reward Relevance

Loyalty programs often offer rewards the company prefers to offer, rather than what the customer actually wants or needs.

Capgemini Consulting estimates 44% of negative social media comments  surrounding rewards programs stems from rewards that are not aligned with customer preferences. Failing to align rewards with desires, the report suggests, causes people to perceive the program only as a way to cross-sell or upsell.

Similarly, The Bond 2015 Loyalty Report says authentically fulfilling customer needs is key in making a rewards program desirable and relevant.

Mistake #3: Reliance on Discounts

Rewards programs are often just ineffective ways of routinely delivering discounts that chip away at margins and harm an organization’s financial health. The Bond 2015 Loyalty Report suggests brands that structure rewards programs solely based on discounts often become, “…trapped in an endless cycle of one upmanship and outspending the competition on rewards.”

McKinsey & Company reports discounted rewards reserved only for members doesn’t reward consumers for true loyalty. Non-members often enjoy the same rewards at the check-out where cashiers often swipe a generic rewards card on their behalf.

Mistake #4: Choosing the Wrong Metrics

The Boston Consulting Group found some companies generate 60% of their revenue from loyalty program members. Successful efforts are characterized by first calculating whether a program is beneficial to the customer and profitable to the company. And, McKinsey & Company found many program rewards are not actually tied to profitability.

Mistake #5: Reflection on the Brand

Poorly designed and executed loyalty programs can actually generate the opposite effect than intended. They reflect negatively on those brand organizations which have spent time and treasure building strong customer relationships.

In fact, three-quarters of the Americans surveyed in The Bond 2015 Loyalty Report believe loyalty programs are part of the relationships they have with brands. More than one-third of customers say they would not be loyal to a brand if it weren’t for the brand’s loyalty program.

Simply put, loyalty is about much more than just points, it’s about people.

Designing a Next Generation Loyalty Program

In our next article, we’ll take a close look at “The Five Key Design Principles in the Creation of a Loyalty Program.” Following these principles will help ensure that your program will be rewarding for both you and your members, which results in lower than expected costs and higher than anticipated returns.

Source: WSJ:  Caesars Casino’s Customer Loyalty Program Valued at $1 billion by Creditors