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Loyalty Programs

10 Biggest Loyalty Program Mistakes

Written by 
Brad Davis
October 13, 2019

While the concept behind a loyalty program seems pretty simple to most, there’s no shortage of businesses large and small that have failed to get it right. At Stamp Me, we’ve identified these 10 key loyalty program mistakes that businesses often make when trying to implement an effective and engaging loyalty program.

Whether you’re in the process of rolling out a brand new loyalty program that you hope will engage customers, or you’re in the midst of making adjustments to your existing program, take the following loyalty program mistakes on board.

1. Creating Lame Rewards That Don’t Reflect the Customer’s Commitment to the Brand

This is perhaps the most obvious loyalty mistake a brand can make, and yet it still happens all the time. The most common cause of this is when a business has clearly designed its loyalty program with profits in mind.

Let’s take US department store chain Dillard’s as an example.

Loyalty program cardholders receive two points per every dollar spent. The rewards however don’t kick in until you’ve accumulated 1500 points. In other words, customers must spend $750 before seeing any kind of reward for their loyalty.

What kind of rewards are we talking? A $10 rewards certificate, or a one-day “10% off shopping” pass. If you want to enjoy perks like free shipping, you’ll need to spend a minimum of $2000 a year with the brand.

I don’t know about you, but this seems much more “take” than “give”…

dillards loyalty program mistake
Dillard’s – Image Source: Money Inc

2. Poorly Calculated Rewards That Cripple Profit Margins

Now, on the other hand, it’s just as important not to swing too far the other way. Offering overly generous rewards could put yourself out of business! And believe us, this happens more often than you might think.

In all the excitement of launching a fantastic new loyalty program to boost revenue, increase customer retention and put your brand on the map, businesses have a tendency to promise the world. They actually fail to balance the rewards with the program’s expenses beforehand.

Even the big-name brands are vulnerable to this:

Tesla had to pull the plug on a rewards program that offered six months of free supercharging upon purchase of a new Tesla. According to Elon Musk, it was severely affecting the company’s profit margins and adding too much cost to the cars as a result.

Eventually, Tesla rolled out a revamped and more sustainable referral program. Instead, the existing Tesla owner and the new buyer both enjoy 1000 miles of free supercharging.

tesla electric cars
Tesla's supercharging stations

3. Very Specific or Limited Rewards That Don’t Appeal to All Customers

The best loyalty programs offer something for everyone, rather than specific rewards that won’t necessarily appeal to all customers.

For example, it’s common for airlines to reward loyal customers with free miles towards their next flight. This structure rewards the customer for their loyalty, incentivises them to book another (discounted) flight, thus benefitting the airline with continued business.

However, what’s the first thing people usually do after booking a return flight? It’s very rare that they go ahead and book another set of return flights for their next holiday down the line…

Generally, the first thing people do after booking a flight is book a hotel, arrange a rental car, or book themselves into some organised tours and other holiday activities.

By partnering up with large hotel chains to share each other’s loyalty program members and collaborate on rewards offers, airlines and hotels are seeing huge results among satisfied customers.

airline loyalty benefits with hotels
Airline Hotel – Image Source: Hotelling Tremblant

Upon booking flights and accumulating rewards, customers can use their points for any number of things.

It could be upgrading to a nicer hotel room, enjoying a heavily discounted Hop-On-Hop-Off bus tour, or even vouchers for large restaurant chains to enjoy a meal during their holiday or business trip.This takes us to our next point…

4. Stale or Un-enticing Discounts, Rather Than Memorable Customer Experiences

Back in the days when loyalty programs were limited to paper punchcards, the “Buy 5, Get Your 6th Free” model was pretty much exclusively how rewards programs worked.

However, it’s no longer enough to simply offer customers discounts on your existing products.

Todays consumers expect a customer experience. These could be tours, hotel upgrades and restaurant offers as mentioned above.

The more imagination you incorporate into your brand’s loyalty program rewards, the higher your chances of success.

For example, a business whose customers are primarily females under the age of 40 might consider using Sephora gift vouchers as an effective incentive for customers to regularly return and spend more money.

While the classic “25% off your next purchase”-style deals are good incremental offers, the “$20 Sephora voucher with every fifth purchase over $10” lures them back that fourth and fifth time. When they’ve already made three transactions with your business, they'll realise they'e already halfway there.

It also creates a more well-rounded and engaging customer experience.

If your business has a wider, more general customer base with no specific demographic, then broader gift vouchers might work better. A wider net is cast over the products and services that can be redeemed with that voucher.

kinjo scratch and win
Kinjo – Image Source:

Canadian restaurant chain Kinjo Sushi Bar & Grill used Stamp Me’s Scratch & Win campaign to offer customers the chance to win a trip to Tokyo – now that’s an enticing reward!

Stamp Me offers a Scratch & Win campaign as part of our digital loyalty app, which allows businesses to offer additional rewards and create a bit of fun around their marketing.

As the merchant, you have control over how many of these Scratch & Win deals are winners, and what the prizes are.

Broader gift vouchers that cover entire shopping malls are the perfect giveaway to include in a Scratch & Win campaign. They generate a 'buzz' around your loyalty program and encourage customers to sign up with a game-like experience.

Read more about what gamification is and how it is effective in incentivising customers.

5. Failure to Recognise the Brand’s Most Loyal Customers

This one is quite straightforward, but easily overlooked:

It’s crucial that a brand looks after its top 10% of loyal customers, as they are likely spending the same amount as the remaining 90%

So if you reward your premium VIP customers with the same rewards status as the brand new loyalty program member (who has only spent $10 with your brand), you’re going to make your existing loyal customers feel unappreciated.

Customer acquisition is important, but customer retention is essential.

For example, Starbucks upset a lot of its existing customers when it updated its world-famous rewards program. They offered more points for lattes and cappuccinos than for regular black coffee:

starbucks customer tweets screenshot
Starbucks – Image Source: Twitter

Many brands divide their loyalty programs into numerous tiers, from entry level right up to the top level. Some even charge annual membership fees for the highest level, but offer many more perks to make those customers feel valued.

Remember, these extra perks don’t need to hold a monetary value. Things like free shipping and early access to exclusive sales before the general public can be far more effective. And they don't hurt your bottom line.

Sephora beauty club program
Sephora – Image Source: Sephora

6.     Overly Complicated Loyalty Programs

This tends to be an extremely common mistake among brands. The more features and functions you add to your mobile loyalty app, the easier it is for the whole system to spiral out of control. Customers will be left confused as to how the rewards program even works.

It may seem contradictory to our earlier points about offering side promotions and tiered levels of loyalty, but it’s all about presenting everything in a clear, concise, user-friendly manner.

push notification on phone
Clear App – Image Source: GBK Soft

Signing up to the loyalty program should be a quick and easy process. The action required to achieve the rewards should be clear as day. Do X, and you’ll get Y. The more you do X, the more you’ll get Y.

The information in the mobile loyalty app should be as simple and uncluttered as possible, to ensure there’s no ambiguity about how the program works.

7.     An Uneven Focus on “Acquisition, Retention, Win-back & Referral” Customers

Loyalty programs can benefit a business and its customers in numerous ways. Typically, a loyalty program aims to encourage existing customers to continue shopping with the brand – customer retention.However, a great loyalty program will also attract new customers to the business (customer acquisition). Of course the loyalty program needs to be marketed properly first (more on this in a moment!). Implementing a great loyalty program, or updating your existing one, might also help you win some old customers back.

Rewards programs can also be used as highly effective referral tools. You can see this in offers such as Uber’s “Refer a friend and receive a discount on your next ride” promotion.

uber referral scheme
Uber – Image Source: Pinterest

To create a well-designed loyalty program that works for your brand on every front, you need to consider and target these four groups that customers fall into:

  • new customers
  • existing customers
  • former customers
  • friends of existing customers

Don’t put all your eggs into one basket and focus solely on keeping your existing customers happy, or centre all your marketing around the referral side of it, for example.

In short… make sure your loyalty program appeals to customers old and new!

8.     Poor Promotion

So you’ve created an incredible rewards program that effectively engages customers and offers all kinds of delights – now you need to get it out there!

It’s amazing how many businesses forget to invest some resources into signage, email campaigns and training their staff on how to promote the program.

You'd be surprised how many neglect to simply post a few updates on social media to let customers know about it!

Considering that 76% of consumers check websites before deciding which local business to shop with, neglecting to mention your loyalty program on your website is a serious oversight.

When it comes to the social media promoting, don’t be afraid to think outside the box in regards to creative ways for building a bit of hype around your new rewards program.

For more information on how to market your loyalty program properly, check out our article on how to get customers to join your loyalty program here.

social media advertising
Social Media

9.     Lack of Convenience

The whole idea behind a digital loyalty app is that it’s far more convenient than making customers carry around paper punchcards or plastic membership cards everywhere.

The more you can streamline every step of your digital loyalty program, the more likely it is to be successful. Loyalty card apps are unparalleled on this front.

targeted rewards
Digital loyalty programs are a lot more convenient than paper punch cards

Hotel chain Marriott has its own loyalty card app. Members can earn and redeem points, check-in easily, discover nearby attractions and correspond with hotel management. All this is accessible 24/7 from their very own pocket, whenever or wherever they need it.

Stamp Me offers digital loyalty solutions to businesses large and small, so you can implement a remarkably convenient loyalty app for your customers to join in the blink of an eye.

If customers find a loyalty program too difficult or inconvenient to use, they will simply stop using it. Their loyalty is immediately lost. Make it easy for customers to engage with your brand, and they will continue to do so.

10.  Failure to Utilise Customer Data Properly

This is an enormous loyalty program mistake to make – acquiring customer data through digital loyalty programs is invaluable. When people make transactions, accumulate points and redeem rewards through your brand’s loyalty program, you steadily acquire more and more useful data such as:

  • What your customers do/don’t like
  • The time of the day your customers make purchases
  • What day of the week your customers make purchases
  • The average amount of money spent per transaction
  • Numerous other insights into key consumer behaviour

These patterns, pitfalls and other phenomena reveal themselves when you sift through the data. It allows you to tweak and adjust your loyalty program (and other key aspects of the business) to work more efficiently.By ignoring this data, you’re failing to identify what your customers are telling you through their spending habits.Not only could this be the difference between your loyalty program being successful or not, but it could even be the difference between your company staying afloat or not.

For the sake of your business, avoid these tragic loyalty program mistakes!

When you use your imagination and pay attention to your customers’ needs, there is no limit to what you can do with a digital loyalty program… but whatever you do, steer clear of these 10 key loyalty program mistakes!

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