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Analysis

Why Do Customers Leave Loyalty Programs?

Research suggests nearly 50% of customers abandoned at least one loyalty program in the last year. Understanding why is key to making sure it isn’t yours

Evan F.P.
October 17 2018

Thanks to their effectiveness in promoting regular and profitable customer engagement, loyalty programs have become par for the course in brands of all verticals.

But while registration numbers benefit from no-brainer value offerings that pitch customers on low/no cost perks and rewards, keeping loyalty program members engaged is much more challenging. Scott Robinson, senior director of loyalty consulting for Maritz Loyalty Marketing, explains how its first annual Maritz Loyalty Report found that “47 percent of members have stopped participating in one or more programs in the past year… Seven percent of these defecting customers actively defect – meaning, they actually formally request to leave a loyalty program.” Robinson goes on, explaining that “Given the high percentage of passive defection, it is paramount that loyalty marketers proactively identify the early warning signs of disengaged members.” Better still, loyalty marketers should seek to understand the factors that lead loyalty program members to disengage in the first place.

With nearly half of all customers either passively or actively abandoning programs, it’s critical that loyalty marketers not rely on vanity metrics like lifetime sign-ups when evaluating their own effectiveness. Research suggests they should instead turn their attention towards understanding how and why customers come to stop engaging with their loyalty programs altogether. Doing so can help them plug leaks in their loyalty-based conversion funnels and ultimately benefit their company’s bottom line. Here are some of the top reasons customers abandon loyalty programs.

Disincentivizing Designs

While the temptation may be to keep loyalty programs fresh, any design changes should be carefully modelled from a customer perspective to ensure they don’t cut off access to value. A recent case study by Travel Data Daily analyzed the Marco Polo loyalty program by Cathay Pacific, an international airline. The update, intended to foster greater program engagement from customers on either end of the LTV spectrum, offered customers a wider variety of ways to earn loyalty points while increasing the points balance required to claim elite member status. The change had some unpredicted repercussions. Mark Ross-Smith, the study’s author, notes that “The Impact on 2015 Marco Polo Program Enhancements showing high-value economy class passengers earning up to 61.3% less towards status on each flight than under the previous program design.” Frustrated customers took to social media to express their dissatisfaction with the change, dealing a blow to the brand’s public image and potentially damaging future sales. If increasing program ROI is high on your list of priorities, considering investing in greater marketing and onboarding materials before making any major changes to program design that could damage your customer relationships.

Excessive Communications

Whether it’s through social media, text, or email, delivering too many promotional communications without providing value to your program participants is a surefire way to drive them away. A recent survey by Campaign Monitor found that 53 percent of consumers said they received too many emails from retailers. Campaign Monitor’s community manager Ros Hodgekis explains how to combat this problem: “Have your subscribers submit their email frequency preferences, either (when they) subscribe, or later, via an email preference center or similar. This approach puts the power into your subscribers’ hands.” While every industry’s customers are unique, experts suggest sending promotional emails every two weeks in order to maximize engagement and minimize churn.

Lack of Education

Ensuring customers are properly educated as to your program’s fundamental mechanics is critical, but unfortunately uncommon. A recent research study by the Edgell Knowledge Network entitled State of the Industry Research Series: Customer Loyalty in Retail found that 81% of loyalty members don’t know the benefits of their programs, or how and when they will receive rewards. As a program’s creators, it’s easy to get caught in an echo chamber wherein it becomes difficult to objectively analyze what is or isn’t create about program functionality. Tap into your product team’s resources and invest time in usability studies to ensure that customers are being adequately educated during the onboarding process. If you find customers are experiencing friction, consider offering them rewards in exchange for achieving educational milestones, like online walkthroughs or tutorials that train them to derive value from the program.

Mechanics Turnover

Part of any program onboarding experience is educating participants on the fundamental mechanics of earning and redeeming points. Making changes to those mechanics necessitates reeducation, which introduces an opportunity for customers who aren’t getting value out of the program to make a clean break. Avoid situations like these by limiting seasonal loyalty promotions and keeping program mechanics consistent. If changes are necessary, maintain consistent points of contact, give customers plenty of notice, and incentivize adoption of new program mechanics with free points. Doing so not only benefits customer relationships, but goes a long way in minimizing churn during program turnover.

It’s cheaper to keep existing customers than to convert new ones. It’s a universal truth of business that’s no less applicable to loyalty programs than it is to marketing and business development. Avoid the temptation to focus on top-of-funnel loyalty traffic and allocate a material portion of your team’s time and resources towards fostering engagement with the customers who have already entrusted you with their time and attention. Loyalty churn can be a silent killer, so make sure to insulate your brand and your bottom line will benefit.

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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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