March 25, 2019 | InBrief

The four opposing forces of customer loyalty programs

The four opposing forces of customer loyalty programs

Many of today’s customer loyalty programs were built for a different, pre-digital marketplace. Once-straightforward tactics such as providing coupons, discounts, or basic points systems to drive card usage are no longer enough to move the needle on inspiring true customer loyalty. In an increasingly complex and digital marketplace where “smart” consumers demand real-time, seamless experiences, companies must find new ways to earn customer loyalty.

The increasing complexity around loyalty programs has unintentionally created a host of inefficient loyalty programs that are costly to operate and largely miss the mark in inspiring true customer loyalty. To address the complexity of the new consumer marketplace, companies are adding more loyalty-based tactics to their portfolio in an effort to match the competition and customer expectations. But in this case, complexity only breeds complexity, and once simple strategies are being pulled apart by a set of four opposing forces that put at risk the desired intent— creating a loyal customer base.

The Four Opposing Forces of Program Efficiency

1. Customer Expectations

Points and rewards have become baseline expectations for customers. They increasingly want more points for their purchases, lower costs for rewards, and more differentiated experiences.

2. Loyalty Program Operations

Organizational pressure on loyalty programs is building, working to stretch value per point and cost per point at the same time. Companies must understand how best to structure and support their loyalty efforts internally, working to harmonize loyalty mechanics with standard business processes.

3. Program Cost and Liability

Program liability is growing due to increasing numbers of customers who join programs and hold their rewards for extended periods of time. Additionally, as programs compete with each other, a rewards “arms race” has pushed the economic value of rewards higher and higher. As rewards become more difficult to redeem, redemption cycles get slower, and economic value increases, program costs are increasing to unsustainable levels.

4. Card Program Market Dynamics

The issuer/merchant cobrand relationship can be lucrative for both parties, but it requires careful balance of partnership and financial terms, integration with other aspects of a company’s loyalty program, and a complimentary rewards structure to maximize impact.

While each force is a necessary consideration to drive loyalty, we find they can operate at odds with one another if not properly balanced. When this happens, a loyalty program becomes inefficient and struggles to meet the needs of the merchant or financial institution, its partners, and—most of all—customers.

In the battle for customer loyalty, rewards program design must be modernized to overcome these opposing forces and meet the demands of the new marketplace. But where do you start? Before continuing to tweak your current program, companies should first understand how efficient your efforts are today and the impact—positive or negative—that each opposing force of loyalty has on your business. Start by identifying and evaluating drivers of inefficiency in these four key areas to begin mapping your path to a more impactful loyalty strategy.

For more information on the four opposing forces and essentials of a modern, efficient loyalty program, download our full report,Rethinking Loyalty: How to Run a More Cost-Effective Customer Loyalty Program.

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