Research: 97% of Loyalty Programs Fail Due to This Simple Design Flaw

What it is, and how to change it

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Would you believe that 97% of loyalty programs fail? And 77% of them fail in two years or less.

Why? It’s due to a basic design flaw that many loyalty programs suffer from. It’s a design flaw that reflects a fundamental misunderstanding of why people participate in loyalty programs.

The reason why the average loyalty programs fails is because it is designed to drive purchases from its own members. 97% of Loyalty programs rely completely on transactional rewards. If you participate in the program, you are rewarded with a free product. Or more likely, a discount toward the purchase of a product.

This indicates a fundamental misunderstanding of what drives real brand loyalty. Loyalty is created AFTER the purchase, not before. If you offer rewards to incentivize a purchase, you are building loyalty TO THE OFFER, not to your brand.

Customer Acquisition vs Customer Retention

The average loyalty program is designed like most marketing initiatives; The focus is on customer acquisition, with little or no thought given to customer retention.

Which goes completely against the concept of loyalty.  Customer loyalty IS customer retention. They go hand-in-hand.

When loyalty programs offer solely transactional rewards, the rewards build loyalty to the offer, not the brand. If you tell me that when I collect 1,000 reward points that I can get a free cup of coffee, I might push to get another 200 reward points to add to my 800 point balance to get that free cup of coffee.

But after I get it, my balance goes back to zero. As does my excitement for starting all over to get the next 1,000 reward points for the next cup of coffee.

Now this isn’t to say that transactional rewards don’t have a role in most loyalty programs. They absolutely do, but transactional rewards should be one tool in your loyalty program toolbox, not the whole garage.

Design For Retention Over Acquisition

True brand loyalty is build after the purchase. It’s built by having a connection with a brand. And those connections aren’t built via coupons and discounts.

They are built by experiences. By access. By understanding. By shared values and passions.

If your loyalty program is rooted solely in transactional rewards, then the program with the best discounts wins. I will only be loyal to your loyalty program as long as you give me the biggest coupon. As soon as your competitor gives a bigger discount, I jump ship. That’s why the vast majority of such loyalty programs fail within two years.

So the key to creating a loyalty program that members are actually…loyal to, is to focus on rewards that offer a better experience for the member.

• Access to the CEO and key executives at the brand. This communicates to members that they are special, and helps elevate them in stature as being equal with key decision makers at the brand.

• Free webinars with SMEs. This is a nice perk for your members, and it helps them connect with and understand your brand. For instance, let’s say your brand offers a unique presentation tool for businesses. Having a free webinar with a top presentation expert not only benefits the members directly by educating them on how to become better presenters, it also helps them better understand your presentation software. And that helps them become better salespeople for your brand. And more motivated ones!

• Early access to new products. This is a big-time perk that creates value for members, and it can be leveraged to create buzz for your new product’s launch! If your technology company has a loyalty program, 3 months before your newest laptop launches, give members early access so they can create online conversations about the new laptop to build excitement for its release. Then pick 10 members and give them the laptop for free to use and review. This will also generate excitement and buzz for the laptop building up to its launch, and that will generate more sales at launch.

• Free training on how to use your products and services. For instance, if you sell cooking utensils, offer loyalty program members a free workshop with a top chef who shows you how to cook meals using your cooking utensils. This creates value for members, but it also helps them understand how to better use your cooking utensils, which makes them better salespeople for your products!

Notice that none of these rewards are transactional. Yet all will help the loyalty program members forge a deeper connection with your brand.

The best part? You are incentivizing your loyalty program members to sell more products for you. You are giving them rewards that help them better understand your products, and how to use your products successfully. All of the 4 hypothetical rewards above are experience-based. Yet all of them will increase the ability of your program members to generate more sales!

That makes them better salespeople for your products AND makes them more willing to happily promote your products to other customers.

So by simply shifting the focus of your loyalty programs rewards from transactional to experiential, you create more loyal customers AND more sales. 97% of loyalty programs fail because they focus on transactional rewards for members. The 3% that succeed focus on designing a loyalty program that creates amazing experiences for its members.

On Thursday, the Paid version of Backstage Pass Launches!

Starting this week, the free version of Backstage Pass will drop to one issue a week, every Monday. The issue that runs every Thursday, starting this week, will be for paid subscribers. This week’s paid issue will feature a detailed breakdown of The North Face’s very successful XPLR Pass loyalty program, currently with over 20 million members! What’s interesting about XPLR Pass is that The North Face has struck a nice balance between transactional rewards, and experience-based rewards, as we talk about in this issue. So it will be a perfect transition from this issue to seeing the real-world application of these concepts in the Thursday issue.

But you can only access that issue if you are a paid member. And I am currently running a special introductory LIFETIME discount on paid memberships. This discount runs through Wednesday, so this is your last chance to score a great deal. This is the one and only lifetime discount I will ever run. The regular monthly price for the paid version of Backstage Pass at launch will be $7.50 a month. But with the 20% lifetime discount, it drops to $6 a month! The regular annual price for the paid version of Backstage Pass at launch will be $60 a year. But with the 20% lifetime discount, it drops to only $48 a year! Click here to lock in the discounted prices!

Remember, that special lifetime discount expires August 1st at 12:00 am. Thank you for your support, hope to see you on Thursday, and while you are thinking of it, please click the Like button for me! Thank you!

And say Hi on Substack!

Mack