By Sandra Gudat, President/CEO
Sometimes you can’t quite put your finger on it, you just know something isn’t right with your loyalty program. But often there are signs — your loyalty membership penetration is dropping or fewer customers are redeeming their rewards, for instance. What follows are six signs that your loyalty program momentum is slowing down, plus possible causes. Most important, I’ll share strategies you can take as part of your loyalty program improvement plan.
- Related reading: How to Create a Best-in-Class Retail Loyalty Rewards Program
Signs That Your Loyalty Program Is Losing Momentum
This is the percentage of member transactions divided by all transactions. It’s a common benchmark metric of most loyalty programs and typically grows steeply over the first few years after program launch before leveling off as the program matures. If this metric has been around, say, 60 percent for several years, and then suddenly drops to 50 percent, the loyalty program is clearly in trouble.
Redemption of Rewards
If your redemption percentage begins to dip for a sustained period of time, this could mean you’re failing to engage your customers with your program benefits.
Share of Wallet
This metric requires that you conduct ongoing research to track how much of a consumer’s category budget is spent with you, compared to other retailers. (As an aside, PETCO measures “share of stomach,” since pet food is one of its key product categories.)
A primary loyalty program objective is to motivate customers to consolidate their category spend with you. Great loyalty programs disproportionately capture more than their “fair share” of customer spend over time. A decreasing share-of-wallet trend could mean that customers are disengaging, competition is increasing or both.
When you measure both member and non-member share of wallet over time and can show that member share is growing while non-member has remained static, this becomes a great metric to show the organization that your loyalty program is working.
- Related reading: Is your loyalty program working?
Member Recency, Frequency, Monetary (RFM)
Nothing like a little good ol’ RFM analysis of members to see if they’re shopping as frequently, as often and at the same spending levels as they have historically.
Active Participation Quotient (APQ)
This is a score derived by a given customer segment’s level of program awareness, understanding and participation in the program. Declining APQ = bad.
We’ve been calculating APQ for our clients for many years; the metric allows them to see how active their members are compared to those of other retailers. That said, you could develop a homegrown version and watch the trend over time.
Enrollment Quotient (EQ)
Similar to APQ, EQ is a score derived by a given customer segment’s level of program awareness, understanding and belief that the program will benefit them prior to joining the program. A declining EQ over time signifies that your program is failing to be as attractive to new members as it should be.
- Related reading: “Starbucks Rewards” and the Failure of Today’s Loyalty Programs, Entrepreneur
- Related reading: Six Myths About Customer Loyalty Programs, Forbes
Common Reasons and Solutions for Declining Loyalty Programs
There are a multitude of reasons why a loyalty program could be losing momentum. Here are the most common — plus some loyalty marketing program improvement strategies.
Failure to Communicate
Strangely enough, our customers do not think about our loyalty programs all the time. I know, it’s shocking, right?! To get your program more top of mind, you need to be intentional about communicating it at every opportunity, even if that means simply incorporating a short blurb about the program’s basic value proposition.
- Research conducted by the Edgell Knowledge Network (EKN) found 81 percent of loyalty members do not know the benefits of the program in which they are participating. Further, they also were not aware of how or when they would receive rewards.
One executive from a 600-store chain I spoke with could not understand why overall program penetration was so low — it hovered around 20 percent. When we visited their stores, there was absolutely no signage or collateral about the program visible anywhere in the stores. That’s a classic mistake of attempting to “market by osmosis.”
Another common mistake is not proactively communicating rewards status or expecting customers to seek out that information on your website. Again, customers are busy, and it’s our job to keep the program top of mind. Keeping customers informed of their status keeps them more engaged and often is the key to promoting that incremental purchase when they know they’ll earn a new reward with that shopping trip.
Lastly, you could be over-communicating to the point that customers are tuning out or, worse, hitting the spam button. Often, loyalty members are the biggest group by far within the general email promotions list. If someone is not carefully coordinating all communications the member receives, you could be pushing them into overload and putting their finger on the spam or unsubscribe button.
- Perform an audit of all customer-facing communications to gauge whether and when customers are getting reminded of the loyalty program. Where possible, fill in the gaps.
- Find opportunities to actively provide customers with their membership status in your 1:1 channels.
- Map out all the communications that loyalty members receive from you from all sources. Is the organization overdoing it?
Failure to Train Store Associates
With average associate turnover around 50 percent year-over-year, it’s no wonder that associate training on the loyalty program can fall by the wayside. The problem is, after the hoopla of the initial program launch, by the end of two years only one in four of your original (and trained) associates remains. By the end of seven years, you have nearly all new associates!
You say, “But we train our associates — there’s a whole section in their training manual on the loyalty program!” That may be true, but how much emphasis is the program getting with everything else they have to learn and the new things they have to do virtually every day?
Store associates are often “one-armed paper hangers,” as my 95-year old Aunt Louise would say. If the store managers do not have at least one key performance indicator (KPI) relating to promoting the loyalty program, then your program just isn’t on the radar at the store level. And since store associates are the face of the retailer in general, and the loyalty program specifically, this may be a reason why a loyalty program is failing to perform.
- Build a cross-functional team with representatives from throughout the organization, particularly stores. Meet regularly with the team on your loyalty or rewards program.
- If possible, lobby to have a loyalty program-related KPI included as part of store management evaluation.
- Provide stores with positive feedback on the impact of their efforts to promote the rewards program and, in turn, show them how the program helps the stores.
- Monitor loyalty member penetration at the store level and talk to high performers (to find and share what they’re doing), as well as the low performers (to diagnose what’s going on). Get these statistics on the company’s radar.
- Consider a periodic “soft re-launch” of the program in the stores. This might include a new meeting leader’s guide, break room materials and perhaps a contest rewarding the stores with the best loyalty penetration (throw them a pizza party!) to revive store associate enthusiasm.
Failure to Engage and Motivate Customers with Your Program Value Proposition
This is a biggie. The two previous potential reasons for a program to lose momentum are relatively easy fixes. Failure to engage customers with your loyalty or rewards program hits the very foundation of the program and obviously is a reason why many loyalty programs fail.
The trouble could be something basic — for example, it may take too long to earn rewards — or something complex, like the program is difficult to understand or the benefits are not compelling anymore.
- A Maritz loyalty survey found that 70 percent of loyalty members stop participating in loyalty rewards programs because of the time it took for the points to accumulate to the point they would earn a reward.
Whatever the exact cause, lack of engagement means it’s time for the organization to consider overhauling the program altogether because, at the most extreme end, it may be doing more harm than good by creating frustration among your more loyal customers.
- The best place to start is to go back to your customers. There is no substitute for good qualitative and quantitative research. As part of our own Voice of the Customer process, CCG utilizes multi-variate and total unduplicated reach and frequency (a.k.a., TURF) analysis in its proprietary Statistical Benefits Optimization methodology. This ensures that the right questions are asked in the right way and that we get a true picture of which loyalty program value proposition and package of benefits will truly engage customers. Otherwise all you’ll find out is that all customers want a 100 percent discount.
- Related reading: Benefits Optimization Yields Higher Profits for Loyalty Retailer
Brand Failure and Declining Loyalty Program Momentum
It’s worth mentioning that there is one additional reason a loyalty or rewards program might be failing: Brand failure. A loyalty program gives you a shot at setting the stage to build true loyalty. If it’s well-designed, it will motivate customers to consolidate purchases with you and help to build a pattern of shopping.
However, the brand itself needs to take it from there. If there are other systemic problems with product mix, operations, the website, the stores, etc., then you have a brand failure on your hands, and a loyalty program isn’t going to fix it. A loyalty rewards program that loses momentum in this situation is a symptom of much greater problems.
Keep Evolving Your Loyalty Program
As you can see, when loyalty program momentum slows down, it doesn’t have to spell disaster. With a loyalty program improvement plan, you can steer the ship back on course. I would recommend challenging the precepts of your program on a regular basis to ensure it stays on course. Since our customers and the way we do business are always evolving, make sure your program evolves, too.
Have a sneaking suspicion that your loyalty program might be on a downward trend? We can help you evaluate the situation and develop a loyalty program improvement plan. Our retail CRM and loyalty marketing team includes experts in CRM, strategy, program management, data analytics, research and more. Contact us today for a free consultation.
Sandra Gudat is president & CEO of Customer Communications Group (CCG), a full-service customer relationship marketing (CRM) agency that helps Fortune 2000 retailers and financial institutions improve their bottom line by improving their customer relationships, loyalty and retention.