Over the past few years, interest in white label loyalty programs in the complex marketing efforts of brands in retail, Pharma, automotive, and other industries has increased significantly. 65% of professionals have already implemented loyalty marketing and more than half want to increase investment in its development this year and next. Of course, the significance of the trend varies depending on the sector, but the General trend of businesses to take into account and encourage customer expectations is increasing.
However, often the effect of developing and creating such platforms is not comparable to the cost, and brand loyalty programs fail, without bringing financial benefits and regular customers. What are the key reasons for failure?
Why satisfaction doesn’t equal loyalty
With the development of markets and the emergence of new players, it becomes more and more difficult to survive in the competition. Consumers are fed up and spoiled by a wide and diverse product offer, and it is becoming increasingly difficult to surprise them, so the development and implementation of a loyalty program becomes an important task for many brands. Despite more than a century of history of the term, it is still devoid of crystal clarity and certainty, and over the years only continues to acquire new interpretations. Typically, there are two types of loyalty: transactional and perceptual.
Transactional loyalty does not depend so much on internal factors related to emotional attitude to the brand, as on external factors. A consumer may be interested in buying a particular brand based on financial considerations (they can’t afford anything else) or territorial proximity (only this brand is sold in a store near their home). When external factors change, the consumer, as a rule, easily switches to the products of competitors.
Emotional loyalty, on the contrary, is directly related to interest and emotional commitment to the brand’s products, but many companies idealize it too much, assuming that the customer can remain loyal for a long time. In reality, even with a high level of satisfaction with the brand’s products, the consumer may be tempted by a competitor’s product offer, wanting to make their life even better. Today, no one is surprised by the situation when a person pays with credit cards from three different banks, and on the shelf in the bathroom there are jars of various brands. According to Thanx, only 1 in 20 customers are ” super loyal”, meaning they return to the brand within a month and are a regular customer. Now the phenomenon of “multi-loyalty” is generally characteristic — the vast majority of consumers believe that it is no longer fashionable to be monogamous, and constantly try something new, trying to get more favorable terms, a lower price, and a larger set of options.
Thus, just satisfaction is not enough to retain customers. “While the results of consumer satisfaction surveys can be a useful indicator of the “health” of a business, relying on them alone can lead to failure,” says Peter Gilbert, chief Executive of HR Chally.
“While the results of consumer satisfaction surveys can be a useful indicator of the “health” of a business, relying on them alone can lead to failure,” says Peter Gilbert, chief Executive of HR Chally.
Why you need to implement a loyalty program
According to HubSpot, brands spend an average of 5-10 times more (depending on the industry) on attracting new customers than on retaining those who are already in their base, while the latter generate 67% more revenue for the company than the former. In this regard, the cost-effectiveness of loyalty programs becomes obvious. At a lower cost by developing creating your own program and analyzing data businesses can increase their revenue in several ways at once:
More repeat purchases. The loyalty program provides incentives for the brand’s best customers to visit the store and buy more often. According to the marketing service provider Collect, such customers make up only 20% of the total mass, but generate 70% of sales because they spend more over a long period of time.
More referral clients. Loyalty marketing is an effective tool for encouraging customers who have brought in new customers. Statistics confirm that customers who came on the advice of a friend have a retention rate (CTR) higher by 37%, and generate twice as many sales as those who saw the ad banner.
More real reviews. With a well-designed program, the brand can motivate customers to leave feedback about the positive experience of purchasing and using the product in exchange for a”bun”. This can subsequently fuel the interest of new customers, as according to BrightLocal, more than 92% read responses on the Internet before buying.
In General, with proper planning and implementation, the loyalty program can reduce the outflow of customers and increase the value of the bulk of them. And everything would be quite good if not for the crushing percentage of those whose marketing efforts to retain customers do not improve the company’s financial performance, but lead to loss.
So why don’t loyalty programs work?
The first year or two after the introduction of the loyalty program may seem particularly disastrous for the brand: the return on investment indicator remains negative due to the large financial costs of launching and not enough active base. As a rule, the real economic effect may not occur even in the third year of operation, if the program has shortcomings in implementation, and they are usually seen not so much by the analysis of ROI, but by the lack of positive dynamics in the established KPIs from participation and activity coefficients to the level of outflow.
According to Capgemini Consulting, on average, out of twenty loyalty programs that consumers have joined, only 44% are actually used by them. With two billion dollars invested in loyalty marketing, which brands make on average, this figure is more than depressing. Why do so many loyalty programs prove to be unprofitable for both customers and brands? Let’s figure it out.
Conditionally, the reasons for failure of loyalty programs can be divided into two types: communication and economic.
Communication of the reasons for the failure of the loyalty program
The main reasons for communication failures are usually a lack of creativity and, in General, a lack of strategic vision. Built without taking into account customer preferences, such loyalty programs offer almost nothing worthwhile and interesting for the consumer, which leads to a low level of engagement among participants. Let’s take a closer look.
1. Your offer differs slightly from the competitor’s offer
Out of the huge number of loyalty programs that companies offer, the customer’s choice falls on those that really have practical benefits. If the brand’s offer is similar to that of a competitor, the customer simply chooses the more cost-effective one. This does not make him an ardent supporter of the brand’s products, he is guided by rational reasons that are important to him at the moment.
Example: the British coffee chain Costa not only has a logo similar to Starbucks, but also accumulative club cards. By refusing to personalize the program, Costa ultimately has no influence on the decision of customers in their favor, except by offering a lower price with coffee shop loyalty programs.
What to do? It’s simple: you need to stand out from the crowd and make an exclusive offer that will encourage participants to perform effective actions.
2. You don’t working on the emotions of consumers
Gerald Klore, a Professor of psychology at the University of Vergina, is convinced that a change in mood is strongly correlated with a change in attitudes to consumer products. By offering boring, formal loyalty programs, brands do not create a base for feelings and emotions, and without this, it is impossible to really engage in communication with the brand.
Example: the most typical example is a bonus loyalty program. The company “Sportmaster” offers to create a special account on the club card, which will be credited with 1 bonus for each ruble. Subsequently, these bonuses can be used to pay for part of the next purchase. Is there an emotional motivation to accumulate these bonuses? No, because the loyalty program is based on transactions, not emotional attachment, so after getting the best offer from a competitor, the customer will leave.
What to do? According to Gallup research, customers with emotional attachment spend 46% more, so you need to optimize a rational offer using data about the consumer experience, and bonus the interactive actions of the consumer. This can be a reward for creating content (UGC), product reviews, reposting branded content in social channels, or any other active interaction with the brand. Stimulating not only consumption, but also interaction with the brand is an important aspect of modern loyalty programs.
3. Your prize catalog does not motivate you to participate.
Many companies still do not seek to understand the behavior and needs of their customers and as a result, as part of their loyalty program, offer bonuses that are devoid of value for them. This leads to a drop in interest in the program or even refusal to participate in it. Recently, it is very fashionable to create a catalog of prizes from electronic certificates. Their obvious plus is the lack of logistics costs, but there are also 3 serious disadvantages. Minus the first: the real value of this certificate begins for the consumer from a certain amount — certificates of 200 rubles to the store “Eldorado” do not motivate, since you can not buy anything with this money. In the case of such small amounts, it is better to use the ”get money on mobile ” mechanic. Minus the second: you spend 200 rubles on this certificate, and the perceived value of this bonus for the consumer is also 200 rubles. At the same time, using a real prize with a cost price, for example, 150 rubles, if it is really thoughtful and creative, you can create a consumer perception of a much higher price. Minus the third-the certificate is not linked to your brand. A physical prize can always be branded and the consumer using your prize remains in contact with the brand.
Example: Keurig, a coffee and coffee machine Company, offers to spend your accumulated points on coffee machines or accessories as part of its limited bonus catalog as part of its loyalty program. Owners of Keurig coffee machines may find participation in this promotion completely pointless, because such a bonus does not meet their needs — they would be more happy to receive an extra package of coffee for free.
What to do? It is important to personalize and segment the loyalty program based on data from customers themselves. Read reviews, conduct surveys, and analyze past shopping experiences — try to learn as much as possible about customer preferences and interests, because this is the only way to build a strong relationship based on attachment and trust in the brand. However, you need to keep in mind the limits of intervention: everyone has heard about the scandal with the Target store, which found out about the pregnancy of its client earlier than her relatives, and sent a catalog of children’s products and kind congratulations.
4. You do not update the strategy.
The monotony and monotony of a loyalty program over a long period of time can cause participants to lose interest in it. Even with a high degree of success, the level of emotional engagement inevitably decreases over time, and changes are required.
Example: American Airlines was one of the first airlines to offer a loyalty program based on miles. They clung to this old system for 35 years, but this year they introduced a new graded reward model: now the higher the participant’s status, the more bonuses they receive for every dollar spent. In addition, they significantly reduced the number of miles you need to accumulate for bonus flights and, unlike competitors Delta and United, did not even set a minimum cost level for the award.
What to do? Many brands complain that it is necessary to reinvent the program, which requires serious investment, but in fact, in order to revive the interest of customers, it is enough to offer new incentives or benefits based on an analysis of their preferences.
It turns out that developing and creating a loyalty program is harder than it seems at first glance. Even well-known companies make mistakes, many of which lead to fatal results. While a well-planned and implemented loyalty program can benefit the company and contribute to the formation of a pool of loyal customers, mistakes in the launch can cause significant harm in the form of losses or even loss of trust in the brand.
An ideal loyalty program does not exist due to its multi-factor nature. All brands need to do is choose the right factors that can influence the achievement of their goals and learn to control them — the main thing is to avoid inefficiency at the planning stage.