5 Reasons Retailers Are Failing in Their Loyalty Programs

By Wilhelm Sporrong, Contributor to SpiceWorks

Over the past 25 years, the way people interact with each other, products and even brands has completely changed. Loyalty programs, however, are the same; they’ve always been little more than bribery. Meanwhile, social networks, online communities and gaming platforms have amassed huge, passionate audiences without having to pay users a dime.

In my previous role as CEO of the Swedish retail chain Webhallen, I took a long hard look at the loyalty program we had in place. Like everyone else, we were trying to incentivize customers to spend with promises of cashback. It wasn’t not working, but it didn’t seem to be working well, either. And after exploring the reasons the platforms mentioned above were performing so much better, I discovered five big ways retailers fail where games, communities and social networks thrive.

1. We Fixate on the Wrong KPIs

One thing every marketer loves about digital platforms is the ability to collect data. Most retailers and ecommerce players dedicate massive resources to leveraging that data, and they pride themselves on their optimized operations. Sounds great, right? Well, not necessarily.

The problem is that they’ve fine-tuned their websites around hard KPIs like conversion rates and cart sizes, and the result is a cold, boring order-taking engine with a terrible user experience. Your “loyal” customers will prefer to shop elsewhere, and they may only come back because you’ve bribed them with a reward. 

2. We Reward Negative Behaviors

In retail, we talk a lot about lifetime customer value. What we don’t consider is how much potential value we’re giving away. With traditional loyalty programs, retailers get themselves into a vicious purchase/reward cycle. We may incentivize one purchase with a percent off, then we reward that purchase with another deal, and in the end, we’ve trained our customers never to pay full price. All in the name of loyalty.

But, if the only time a shopper visits is when they’re getting a special deal, they are clearly not loyal. In fact, most of the share of the wallet is going elsewhere.

3. We Ignore Non-monetary Customer Value

Your very best, most dedicated customer may not be your biggest spender. They may evangelize on your behalf and be a catalyst for growth, and you may totally miss it because you’re not looking beyond their individual purchases. Meanwhile, someone with no connection to your store or brand may be treated like a VIP, but their value begins and ends at checkout.

By failing to recognize the value of their genuine loyalty because you don’t see past their gross contribution to your sales, you may be driving them toward another retailer that does.

4. We Don’t Appeal To Psychological and Emotional Drivers

If you ask customers what they want, it’s more likely they’ll respond with a very rational response like, “I want a good deal,” than saying they want to feel important or be given a sense of belonging. But those less-rational factors might have outsized impacts on their purchase decisions.

When all we look at and reward is transactional, we’re missing out on the opportunity to build stronger, deeper connections with customers that do, in fact, drive value and spend in the long run.

5. We Fail To Recognize That Content Really Is King

It’s been proven that most shoppers want to read product reviews from other customers. It’s also known that content is the number one contributor to SEO. Still, traditional, spend-based loyalty programs don’t even try to incentivize what could be incredibly valuable contributions.

Not only does user-generated content improve your organic SEO, but it also provides other shoppers with the insights they need to make purchase decisions. Additionally, we’ve seen with some of our customers that when their shoppers are invited to share their opinions and experiences, they feel more connected. The more they contribute, the more loyalty they show. Not only do you get the payoff in terms of site performance, but you also get a greater share of the wallet in the end.

To have a truly successful loyalty program, we can adopt the practices of our stickier counterparts in social, gaming, and communities to create a better value exchange for our customers. With more attention to elevating KPIs like engagement and time spent, we can create better experiences that keep customers coming back even without discounts. By appealing to psychology and emotion, adding a sense of community or giving a space where their profile can become part of your brand identity, we can deepen their connection with your store or brand. Make it fun and incentivize participation and contribution. Trust me! With less emphasis on providing transactional rewards and more on offering rewarding experiences, you’ll be rewarded with truly loyal customers who bring bigger value longer term.

Article originally appeared on Spiceworks.

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