How NOT to design your Loyalty Scheme

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By: Wise Marketer Staff |

Posted on April 30, 2015

How NOT to design your Loyalty Scheme

In the US, a well-regarded brand recently implemented its first loyalty programme but it could have been a much more effective programme had it been planned, structured and executed differently. In fact, although it could have been significantly worse, the initial customer feedback alone was so bad that the programme immediately began harming brand loyalty, according to Tyler Walton, marketing manager for Clutch, who here examines what could have been done for a stronger effect.

The programme revolves around loading a gift card with a fairly high minimum cash value in order to earn and redeem rewards. In short, if they want to participate in the retailer's loyalty programme, loyal customers need to use an existing gift card (or one purchased in-store or online), then sign up online or through the brand's rewards app, then register up to five gift cards in the rewards account, then pay for a purchase with either  the physical gift card or a virtual gift card via the app, then choose one of three possible rewards after spending a certain minimum amount. Thereafter the cycle begins again.

Instead, suggests Walton, here is a different approach that would most likely have served the brand - and its customers - much better:

  • Point-Of-Sale Programme Promotions

    Before looking at the implications of the programme's "clunky" enrolment process, let's first look at the company's strategy to promote the programme: Between its website, social media, radio and billboards, the rewards programme is certainly being promoted. Yet, the brand is failing to capture significant customer enrolment because the programme is not effectively promoted where and when it matters most - in the store.

    Understandably, due to fast-paced nature of its transactions, the company may not want to explain the programme to every customer. Yet the cashier could at least mention the new programme for an initial introductory period. A small flyer on how to sign up could be handed to interested patrons to read on their own. Instead of utilizing simple in-store human interaction, the stores have a little stand nestled between products.

    Due to the mass advertising, many customers know about the programme but have no intention of joining. Customers are finicky. You can blast them all you want, but if your messages aren't relevant and timely, they won't take as much action.  

  • Easy Enrolment and Utility This could be the programme's biggest problem area. You can envision a customer's reaction when told you must pay with gift cards in order to earn rewards.

    Cashier: "Want to sign up for our rewards programme?"

    Customer: "Sure, what do I have to do?"

    Cashier: "It's easy. Just load a gift card, sign up online or download our app, and continue to reload it."

    Customer: "Maybe next time."

    Actually you don't have to envision customer reactions. Drones of them are already sounding off on the app's reviews board. Here's just a small sampling of the reviews collected already:

    "Hate it. You have to inconveniently load/reload a gift card".

    "Having to load money on a gift card in order to use the rewards card is just plain weird and a big waste of time".

    "App revolves around gift cards??? What a joke".

    Why would you invest so much money in development and promotion and then create an explicit barrier to enrolment? Many customers view gift cards as a tool to gift others not themselves so their initial reaction is naturally apprehensive. Yes, many customers visit the store frequently, but they don't want the process of loading money on a gift card just to receive rewards.

    Loading the gift card seems to benefit the store more than the customer. It is more convenient to swipe the credit card you already have in your wallet than constantly reload a gift card or link your credit card to auto-reload the app. Is the company trying to save on credit card processing fees at the expense of inconveniencing their best customers?

    The easier you make it for costumers to do business with you, the happier they'll be. While it is normally best to sign up new loyalty members at the point-of-sale, the store's high volume of transactions makes this difficult. Thus, the cashier should activate a standard loyalty card with instructions on the back explaining how to sign up online or through the app. Placing potential loyalty cards in customers' hands while keeping up with foot traffic is a win-win situation.  

  • Drive Less Valuable Customers To Be More Valuable Once you make it easier for customers to join, the more customers you'll capture data on. Some revered brands claim they are only trying to reward their best customers, not drive loyalty across all customers. But surely no customer is worth ignoring until you know them and what they might be worth to you? Incentivising a monthly customer to visit one more time per month is just as valuable as incentivising a weekly customer to visit one more time per month.

    The store's current programme intentionally ignores customers who don't visit frequently. Everyone is different, but most probably wouldn't load a gift card unless they planned on using it within a month. Let's say there is a load minimum of US$25 and a conservative US$7 average ticket value. The store would be discouraging customers who visit less than four times per month to join their programme. By not incentivising each customer to visit one more time per month, the store is missing out on US$84 per year. Extrapolate that to millions of customers, and you have a very big missed opportunity.

    The brand should therefore seek to enrol all types of customers. By removing unnecessary barriers to enrolment, more customers will join. Once the company captures data across all levels of customers, it can start segmenting like behaviours and engage members with targeted promotions. Instead of just offering standard rewards to its best customers, the brand can encourage all customers to increase their lifetime value.

The scariest part about the company's new rewards programme is that it could actually reduce brand loyalty. Having come to expect a high level of customer experience, a substandard programme will actively change many customers' perception of and affinity for the brand.

Once-loyal customers are now questioning the entire company on the app reviews: "I'm almost inclined to boycott the company", and "I wonder if the management is starting to take its loyal customers for granted?"

"The moral of the story is that if you are going to implement a loyalty programme, design it around real customer feedback, and make it easy to enrol. Otherwise, don't do it at all or you'll end up causing more harm than good," concluded Walton.

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