Here's the top reason loyalty programs fail for brands - and 3 ways to fix it

By Roger Williams, head of Loyalty Center of Excellence at Marigold

The world of loyalty programs is complex. That’s true for both brand and consumer perspectives.

On the brand side, loyalty programs are booming. According to our report State of Brand Loyalty in the US in 2023, 52% of consumers are engaging in loyalty programs. Yet, 77% of loyalty programs fail within their first two years, due to loss of engagement after the initial acquisition.

On the consumer side, according to our same report, 72% of consumers admit they spend more to purchase from their favorite brand. Yet, 70% of consumers don't feel particularly loyal to the brands they purchase from.

What gives?

The answer usually comes down to one simple mistake: most loyalty programs are overly focused on transactions.

On the surface, loyalty programs are pretty straightforward. A customer joins a loyalty program and the company provides points, discounts, and other rewards for their business. But too many brands invest 100% of their incentives to occur after the transaction.

What’s more, those follow-up incentives are all transactional, rather than focusing on developing a relationship. Some businesses even spam their own loyalty members with product-related “buy this” type of messaging based on very little knowledge about what those members actually want.

The result? Customers leave. Our loyalty report found a full third of customers leave because brands are not delivering on their needs.

Listening to customers and learning their habits and preferences is critical to any success in marketing, loyalty programs included. And as we all know, consumer preferences are changing. Expectations are higher, and loyalty is more fleeting.

So brands that want to succeed need to deliver more value. We’ve learned that about 72% of consumers are prepared to pay more to purchase from their favorite brand, as long as those brands deliver a relevant and personalized experience.

So focus on nurturing the relationship, and the transactions will follow. Here are a few simple solutions:

1. Reward customers at all stages of their journey

Consider feathering in loyalty program acceptance at all stages of the customer journey, not just the transaction.

Customer clicks on an email? Reward them with points. Fills out a survey? More points. Once they actually make a purchase, give them even more points. But don’t stop there. You can reward points after the transaction as well for such actions as leaving a review, sharing with friends, etc.

This doesn’t mean you have to give away more points-based incentives, which when applied to price discounts can negatively affect the bottom line. It just means spreading those points around in smaller, incremental amounts distributed over the course of the entire customer lifecycle.

2. Focus rewards on customer retention as well as customer acquisition

The debate between focusing on gaining new loyalty program members and retaining existing members is an ongoing struggle. But remember, signing up for a loyalty program is just the first step of a loyalty member’s journey. Maintaining that relationship and providing lifetime value for the customer is key to long-term success.

Focusing too closely on the initial acquisition inevitably leads to fewer interactions after the fact. Instead, realign your priorities to look for opportunities to activate again and again post-sale to drive engagement

3. Customize your rewards based on personalized needs

Making a loyalty program more personalized and useful for customers is key to keeping them interested and remaining loyal to your brand. Providing customers with additional information on how to use brand products or services can also help build a greater bond between users and the brand.

Marigold recently worked with American Airlines to make booking a flight easier for loyalty members. We developed an algorithm that would generate five personalized travel recommendations based on the airline’s route map, and let the customer choose which they liked best. It proved enormously successful, because it allowed the airline to offer personalized communication and information about what each customer wanted, and did so at scale, all tied back to the loyalty program.

Relationship marketing is a long-term strategy that creates opportunities to nurture customer relationships. Loyalty marketing is a powerful way to retain customers and drive more revenue for brands. Which makes loyalty a vital part of the relationship marketing strategy.

Just remember that loyalty means more than a sale. It’s part of a broader relationship marketing strategy that needs nurturing, strategic diligence, and investment at all stages of the customer journey.

For more information about how you can protect your loyalty program from failing, download Marigold’s The State of Brand Loyalty in the U.S. in 2023 e-book.