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How to End a Loyalty Program Without Losing Customers

Not every loyalty program will be successful in the long run. But knowing how to end them smartly and handle the closure with care is crucial

Evan F.P.
November 14 2018

Sometimes loyalty programs just don’t pan out. There are all kinds of reasons why – perhaps the rewards weren’t appealing to customers. Maybe it wasn’t optimized for mobile devices. It could even be the benefit of running the program wasn’t worth the overall cost. Whatever the reason, once you’ve recognized a problem and acknowledged it can’t be fixed, the best opportunity might be to shut down and start over.

And yet, such a decision shouldn’t be made quickly or lightly. As we’ve written before, the most important benefit of any loyalty program is customer retention. Ending a loyalty program effectively means cutting those members loose – and if you handle the closure poorly, they may not want to come back.

In the current marketplace, these are not abstract considerations. Many companies that once rushed to embrace loyalty programs are now being forced to close them or reassess their benefits. The impressive Plenti loyalty program from American Express recently ended after retailers withdrew from the service. The co-founder of David’s Tea called the company’s own rewards program a mistake. Even successful loyalty programs can be dropped following an acquisition, such as when Whole Foods switched to Amazon Prime integration.

This doesn’t mean a loyalty program should exist indefinitely, especially if it’s creating losses for a business. It simply means you need an exit strategy – one that progresses slowly, allows for customer engagement, and opens the door for future loyalty opportunities.

Ideally, any exit strategy for your loyalty program should be developed before the service launches. It’s far easier to prepare contingencies in advance than to respond to problems after they’ve already developed. This is especially true if your organization is new to loyalty programs, or if you are piloting a rewards program that will be revised after an initial trial period.

Once the time has come to end a loyalty program, that doesn’t mean it needs to be shut down right away. A research study published in the Journal of Business Market Management found that the most common exit strategy was to phase out slowly, as opposed to shutting down immediately. This emphasizes that a company wants to keep its members as customers, but is no longer interested in a particular marketing tool.

A slow phase out entails a steady reduction of services, with a fixed date in the future when all membership features are suspended. For most examples mentioned in the JBMM study, members could not collect reward points once the termination was announced, but still redeem them until the timeline was complete. The exact length of this process will vary – especially if the loyalty program was a long-term project – but giving members a reasonable amount of time to spend rewards is key.

Of course, the best-designed exit timeline in the world doesn’t matter if you haven’t communicated it to your members. Those who signed up for your loyalty program are likely to be your best customers and will be disappointed if features they liked vanish without warning. This is true even in extenuating circumstances, such as when HMV Canada went into receivership. Customers who otherwise accepted that stores were closing still expressed frustration when their rewards points expired without any warning.

Assuming your business isn’t closing alongside a loyalty program, the best practice is to give customers lots of warning, letting them know to take advantage of rewards before they disappear. Use every avenue at your disposal to communicate the timeline, while making clear standard business operations will continue. These communications don’t need to be apologetic – a neutral, fact-based tone is quite effective.

Beyond keeping customers in the loop, there’s another reason to follow these best practices: you might want to launch another loyalty program. The knowledge of why one rewards service failed can better prepare you for future programs. If you’re engaged with members, they might even have suggestions for how it can be improved. The exact direction your new program takes will depend on why the previous one didn’t work. If the cost of managing in-house rewards was too high, you could turn to a third-party option. Some larger programs could be merged, like when PC Plus and Shoppers Optimum became PC Optimum.

Whatever you decide, Chief Marketer made one important suggestion – don’t reverse the decision to end a loyalty program once you’ve announced it. Sometimes closing a service on a slow timeline leads to renewed activity from lapsed members, giving the false impression that things weren’t so bad after all. But if the program sticks around, or deadlines are extended indefinitely, that’s just going to confuse customers. A new program with revised benefits is more likely to attract and retain members in the long-term.

Finally, some good news: in general, ending a loyalty program doesn’t necessarily affect your customer retention bottom line. Both the JBMM study and a research paper from the European Journal of Marketing suggest that the benefits of loyalty can be maintained post-termination, although the exact reason for this isn’t clear. While JBMM speculates that ending a poorly-designed program wouldn’t be noticed by most customers to begin with, the EJM proposes that efforts to generate loyalty can last beyond the program itself.

More research is required on this front, but it does suggest customers are willing to stay with a business that’s making an effort to earn their loyalty – even if that means cutting a program that’s not helping them anymore.

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Evan F.P.

Evan is a writer, educator and tech marketer. As content director at Fluid PR Group, he helps businesses tell their stories to the world. He lives in Toronto with his wife, their son and an occasionally well-behaved Australian Shepherd named Islay. Follow Evan on Twitter

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