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5 Reasons Why Retailers Fail at Building Successful Loyalty Programs

5 Reasons Why Retailers Fail at Building Successful Loyalty Programs
Published On
March 15, 2023

In today's competitive retail landscape, a successful loyalty program can be the key to winning customers and increasing sales. However, many retailers struggle to create a program that truly resonates with their audience. In this blog, we'll explore 5 common reasons why retailers fail at building successful loyalty programs and you can build a successful one.

If loyalty programs were easy, every retailer would have a successful one. But alas, creating a program that keeps customers coming back is no cakewalk.

  • 71% of loyalty programs fail to generate meaningful engagement- Accenture
  • The average American household is enrolled in 21 loyalty programs but is only active in 9 - Colloquy
  •  62% of consumers say that they are unlikely to modify their spending habits to maximize rewards

These statistics show that there is a significant gap between the potential of loyalty programs and the reality of their effectiveness for many retailers.

Customer expectations have completely changed in the last 10 years

10 years ago, customers had limited options, and this lack of choice was a significant factor in their loyalty to a brand. Now, customers have everything at their fingertips and demand instant satisfaction. To win them over, brands need to show they care. So, the old earn-and-burn schemes are out, and 68% of customers bail on brands that don't seem to care.

It's time to update loyalty programs for today's customers, not those from a decade ago. Read more about customer expectations from Loyalty here.

What are retailers really trying to achieve with their loyalty programs?

Why do retailers bother with loyalty programs? Are they just trying to win a gold star for customer appreciation, or is there more to it than that? Let’s discover:

1. Collect Customer Data
Data is the new oil, and loyalty programs are the oil rig for retailers. Loyalty programs enable retailers to collect data by incentivizing customers to provide personal information such as their name, email address, and purchase history. This data can then be used to curate personalised marketing strategies & make data-driven decisions.

2. Creating Stickiness to Drive Retention
The main motive behind any loyalty program is to keep the customers coming back for more by incentivizing them with rewards or discounts. This not only enables retailers to reduce churn but also encourages customers to spend more than usual, increasing the Average Ticket Value. 

3. Reward Loyal Customers & Build Brand Advocacy
With the right rewards and incentives, brands can turn customers into brand cheerleaders by making them feel appreciated and valued. It also provides retailers with a competitive edge to stand out in a crowded market by differentiating themselves from their competitors.

Now, the question to ask here is, Are retailers truly able to achieve this vision? RARELY.

But why are they not able to do that? Let’s explore 5 common reasons why retailers fail at building successful loyalty programs. 

5 Mistakes Retailers Make When Building Loyalty Programs

Building a successful loyalty program isn't just about creating an attractive reward system or offering discounts to customers. It's about creating a habit- a habit of loyalty towards the brand.  To do this, retailers need to avoid common mistakes that can turn customers away from their loyalty program and fail to create a lasting habit of loyalty. 

So here are 5 reasons which will help you understand why your loyalty program is not getting you the results:

1. Loyalty Program is too complicated for customers

One of the biggest mistakes retailers make when building loyalty programs is creating overly complicated reward structures. Loyalty programs with confusing point systems or complicated redemption processes can quickly turn customers off and lead to disengagement.

What you should do instead: Simplicity is key when it comes to loyalty programs. Make it easy for customers to understand how the program works and what they need to do to earn and redeem rewards.

2. No Personalization

Personalization today isn't just a nice-to-have, it's a need-to-have. Customers today expect a personalized experience from their favorite brands, and loyalty programs are no exception. A one-size-fits-all approach to loyalty rewards and communications can be ineffective and fail to engage customers.

Major reasons why retailers fail to provide personalization in their loyalty programs are: 

  • Lack of customer data
  • Lack of resources or skills
  • Technology limitations, etc. 

What you should do instead: Use customer data and insights to create personalized rewards and communications that are tailored to each customer's interests and preferences. This could include offering personalized discounts based on purchase history, sending targeted communications that highlight products or services that the customer is likely to be interested in, or providing exclusive rewards based on their loyalty status.

3.  Offering Irrelevant or Momentary Rewards

Customers want to be rewarded with something that they value and can use, not something that's completely unrelated to their interests or needs. It has to be something motivating or memorable. Offering rewards that are not relevant to a customer's interests or purchase history is not going to be effective in building loyalty or driving repeat business.

When retailers fail to offer relevant rewards, it can lead to a lack of engagement with the loyalty program, which defeats the purpose of having one in the first place.

What you should do instead: Think outside the box and offer personalized rewards that truly resonate with your customers.  Consider offering rewards that go beyond just discounts or points, such as exclusive access to events or products, personalized recommendations, or surprise gifts.

4. Purely transactional

Loyalty programs that only reward customers for purchases may be effective in driving sales, but they do not necessarily build true loyalty. Customers want to feel like they are being rewarded for more than just their transactional behavior.

When retailers focus solely on transaction-based rewards, it can create a transactional relationship with their customers. Customers may feel like they're only valued for their purchases, which can lead to a lack of emotional connection with the brand. This is problematic because emotional connections are often what drive long-term customer loyalty.

What you should do instead: Acknowledge and reward other types of engagement, such as social media sharing, referrals, reviews, etc. By diversifying the rewards offered through your loyalty program, retailers can ensure that they are meeting the needs and expectations of their customers, beyond just transactional incentives.

5. Store-Only earn & burn

Loyalty programs that are not integrated across different channels and touchpoints can lead to confusion, frustration, and ultimately, disengagement from the program.  Customers want to be able to easily redeem rewards from anywhere, whether it's in-store, online, or via mobile. By not providing an omnichannel experience, retailers miss out on the opportunity to build a stronger relationship with their customers and drive repeat business.

What you should do instead: Make sure your loyalty program is in sync with your CRM system and ensure that your loyalty program is seamlessly integrated across all channels to provide a consistent and convenient experience to your customers allowing them to redeem & earn points everywhere.

6. Relying solely on SMS communications

While SMS messaging has been a popular and effective communication tool in the past, customers today are looking for new and innovative ways to engage with brands. By limiting their communication to SMS, retailers miss out on opportunities to connect with customers through channels such as social media, chatbots, and mobile apps. This leads to a lack of engagement, ultimately leading to the loyalty program’s failure.

What you should do instead:  Aim to diversify your communication channels and offer customers a choice in how they receive communications about their loyalty program.  While SMS may work for some customers, others may prefer email, social media messaging, or even push notifications through a mobile app. By offering so, you can not only meet the preferences of different customers base but also improve loyalty engagement.

Read more about the 5 Key Features of the Top Loyalty Management Software

It’s time to move away from your Traditional Loyalty Program

In 2023, it's more important than ever for retailers to take a hard look at their loyalty programs and consider making changes to better meet the needs and expectations of today's consumers.

If you’re a retailer and are struggling with any of the above mistakes, Xeno’s Next-Gen Loyalty Program might be the savior for you. Here’s what it entails: 

  • Integrated CRM+Loyalty
  • Omni-channel earning & redemption by default
  • Offer exclusive experiences & special benefits.
  • Continuously engage customers with instant gratification & surprises
  • Run loyalty communications across Whatsapp, Facebook & Instagram too.
  • Personalized loyalty journeys for each customer 

 If you need help in building an effective loyalty program, talk to our team of experts today.

Book a Loyalty Demo here →

Frequently Asked Questions

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Marketing & Content Strategist

Anisha Arora is an experienced Marketing & Content Professional who often breaks down complex topics for readers here. She collaborates with various teams to seamlessly combine different viewpoints and knowledge about customer retention, CRM, loyalty, and marketing technology. When she's not working, you'll find Anisha sipping coffee and binge-watching her favorite TV shows.

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