Tomasz Makaruk

7 costly mistakes, that 8 of 10 organizers of loyalty programs make

Analysis of experiences from 2009-2018

Loyalty programs are currently very popular. According to the analysis carried out by i360, there are over 120 projects on the market which in the long term reward final buyers for repeatability of purchases. Some additionally also give praise for the participant’s fulfillment of other tasks, not directly related to the process of spending money at points of sale, where the products of the loyalty program organizer are available. The benefits for buyers take the form of material, financial, experience of privilege awards. The yearly conducted study by the Research Institute ARC Rynek i Opinia, devoted to the analysis of attitudes and behaviors of adult Polish people under the influence of the techniques used as part of loyalty programs, show however that out of more than hundred programs in operation, only 4 programs enjoy a participant level of more than 10 percent of loyalty program participants.

An analogous indicator set at 3 percent of participants increases the number of programs to 9 (*1). So what about the other over 94 programs ? We can assume that their goal is niche and attachment to narrow, but for a faithful group of buyers, argue that quality is more important than quantity or look at reality objectively and admit that the organizers of the other programs have made a number of mistakes, invoked that there were relatively few people willing to participate. Worse, often those who have signed up for the program do not remember that they participate in it (after all the quoted studies are of a declarative nature, so a scenario is possible that the respondent , not remembering his participation in a given program, claims that he does not participate in it). I am writing about it, as if the lack of participants is lost benefits, the inactive participants are real financial losses incurred on the processing of their recruitment, issuing proof of participation in the program, communication, etc.

Unfortunately, as it often happens, the willingness to implement a loyalty program at any price, in a short time, guided by the premise of competitive actions or tight corporate deadlines, leads to deplorable consequences. This e-book was created because I personally deal with loyalty programs (B2C) or motivational programs (B2B) for 20 years professionally and i360, co-created by me, for several years in a row took the first place in the ranking of the integrated marketing agency in the category “Has the skills to organize effective loyalty programs” (*2). As the only company in the industry, we have successfully passed three certification audits for the International Standard: ” ISO/ IEC 27001:2013 Information technology – Security techniques – Information security management systems – Requirements”, which confirm that the services offered by i360 are compliant with the highest security standards. The following list of course does not contain all the mistakes made by the organizers of loyalty programs, with whom I have met during 20 years of professional practice. However, they are the most typical examples of improper operation.

As I mentioned above, the following data was collected based on the analysis of over 120 consumer programs from the Polish market.

Mistake 1. No distinction of own market offer

It seems that the old maxim of Jacek Trout about the need for distinction, which, if not applied in practice, threatens failure and market exclusion, should be known to all who professionally deal with marketing. However, a cursory analysis of loyalty programs contradicts this intuition. The simplest possible comparison tests consisting in exchanging in the program’s awards catalog the logotype of the organizer and the program names for competitive or even taken from a different market category, show that the final buyers do not object, accepting it fully as an offer of a competitor or organizer of another program. The above also applies to the rules of participation in the action. The results are as frightening as they are simply sad. On the market of loyalty programs we observe a kind of commodity of the loyalty offer. With a few exceptions, final buyers do not distinguish between program offers, because their organizers failed to propose and maintain a truly unique offer, which would be permanently remembered by final buyers. For this reason, over 95% of functioning programs can be qualified for either a group of point programs (buy, collect points, exchange them for awards from the catalog [where you will find 90% the same offer as your competitor]), or a discount group (create a loyalty card and enjoy the discount [with the reservation that in the press you will find discount coupons, which allow Customers outside the club to achieve the same, if not greater benefits]). It can be said that since over 19 years ago the creator of the first programs on the Polish market, ie the organizers of the Shell SMART program and Orlen VITAY, laid the foundations of this market, the other players in most cases copy the rules they propose. Let’s look for example at the identification in the program. There are some rules that I do not understand, the organizers of most programs put a plastic card in my wallet, which does not really serve anything. And due to my professional passion I am enrolled in every loyalty program, which I am aware of, I have gathered a large pile of them. Do I use them – of course not, because I would have to wear a suitcase, not a wallet. And within the framework of programs, in which I am a so-called hard user, I can identify myself by name or mobile application. I became convinced of the fact that things are happening which can not be understood on the market of loyalty programs, when the mustard producer invited me to participate in a program, offering … points, that I can later exchange for awards.

Mistake 2. Failure to understand the concept of loyalty and the lack of clearly defined program objectives

On the fingers of one hand one can count the loyalty programs functioning in Poland, which were really understood by the organizers, what the true loyalty of the ultimate buyer is. The rest treat the participants without proper knowledge of hidden needs and determinants of loyalty. Points (with the average incentivization rate on the market not exceeding 2 percent of the product price) need to be accumulated over many months, to receive an an award that is far from perfect (do you really believe that a drill is the right way to thank for a year of regular purchases at a given retailer ?) or discounts, which only spoil the brand image and are only a substitute for what the final buyer really wants. What is more, the incentivization carried out in this way assumed, that as in the case of satisfying the needs, for which the buyer has made the transaction (he refueled the car, because he set out on a journey, bought yogurt and bread rolls, because he was going to eat breakfast), that points or discounts will satisfy the need to recognize and appreciate your attachment to the branch. In the meantime, the buyer forgets the next day about receiving a rebate in the case of low involvement purchases, and the fact that the balance of the virtual account has increased by new points, he forgets even before leaving the point of sale (do not believe – think about it, do you know what your points balance is in the loyalty program in which you participate. Not exactly, roughly +/- 20%. If you don’t belong to 0,1% of participants, for whom the loyalty program is a passion or a professional job, you simply do not know). This is the quintessence of confusing loyalty with repeatability of purchases without any specific requirements or criteria. These considerations lead directly to the question about the goals that organizers set to their loyalty programs and their role in the architecture of brand communication, which is managed by the company. If the answer is to determine the purpose of the program as an increase in sales, then this is a bad choice. There are more effective tools that will achieve better results, in a shorter period. Analizing the loyalty offer available on the Polish market, I often ask myself the question “what is the role of this undertaking ?” or more directly “what is this program for, for them ?” and although I have read the regulations of all loyalty programs operating in Poland and I got acquainted with their communication, I cannot find an answer.

Mistake 3. Failure to use new media and innovative communication tools

Most loyalty programs stopped at the stage of the cash system integration with the loyalty system (although some still rely on cardboard carriers with pasted holograms and stamps. The use of social media, mobile applications, individualized direct communication is the domain of only a few organizers. Most offer a website, secured with the next login and password to be remembered, and after entering I can check the balance of points (which usually are not enough for an award in such a fragmented market is). What’s more, most programs do not have an idea on topics for regular dialogue with final buyers, especially with those whose purchasing is occasional. During the Krakow CEE Loyalty Summit conference, which I have had the privilege to lead for years, one of the statements made was the low effectiveness of loyalty programs in increasing the frequency of purchases. The reason for this is, in my opinion, mainly the fact that the offer of functioning programs is structured in such a way that it rewards local buyers who are already loyal anyway. The target group on which the highest increases can be achieved, people with high purchasing potential, however preferring the competition offer or regularly changing the shopping place, is not used properly, and its potential for generating increases is missed. Even because the occasional transaction does not result in thanking for returning to the retailer’s network in most programs or an incentive bonus to re-purchase. And that means the lack of strategy to manage the segments of final buyers, that is de facto such a foundation, one can say a kind of ABC of relational marketing.

Mistake 4. Reluctance to coalition and multipartnership

From a purely practical point of view, it is impossible in the long run, that more than 100 programs aimed at final buyers operate on the market. In times when the pace of life and the multitude of duties do not allow maintaining close relationships with more than 5-10 people from outside your immediate family, it is impossible to believe that there is a place (and sense) for the functioning of such a number of programs. Lots of multipartner programs, such as Premium Club or PayBack, show that the incorrectly understood and implemented concept of coalition or multipartnership has missed the opportunity of market integration. Personal experience (also negative) from the attempt to transfer to the Polish market the concept offered on the American market by Points.com, show that the main barriers are purely human and result from fears of losing the integrity of the own offer, the need to share the influence and control over the market reality or even the fear for your own workplace. Meanwhile, the attempt to keep more than 120 programs alive, ends with this, that most of them operate below 1 percent of the declared level of participation. Personal professional experience from the implementation of reengineering projects or even closing unprofitable programs, for which  I was several times invited for their realization, allow the organizers, who are not afraid to take bold decisions, to be included in the group of courageous market visionaries. The others are unfortunately doomed to stay at status quo.

Mistake 5. Lifetime membership and the opportunity of multiple joining

One of the parameters for assessing the effectiveness of program, used every day in the comfort of conference rooms, is the number of databases of participants. There is a widespread belief that the “bigger the base” the “better the program” because hundreds of thousands of participants who joined can not be wrong. As a consequence of this fact, I know only one loyalty program on the market, which regularly clears its bases, removing inactive participants (after a kind of warning, which is also an invitation to visit the point of sale again). At the same time, in a significant number of programs, the very way of joining the program is so designed that it allows you to collect points without registering (in a word – membership cards are without actual control, which means that the same participant has several). The apogee of this phenomenon took place while one of the multipartner programs allowed that each of the main partners could issue program cards with its logo. Quite imperceptible in the wallets of Polish people were … several cards of the same program, with logos of individual partners. In addition to the cost dimensions, it also caused a large misunderstanding of the rules (do I have to collect points for one card or for all of the individual partners?). In addition program organizers do not try to activate in any way inactive participants in the majority of cases. Being a participant in all programs addressed to final buyers, of which I am aware, I am not able, for understandable reasons, to be active in all of them. Interestingly, communication with the message “come back to us”, “we invite you for shopping”, let alone try to understand the reasons for my inactivity as a loyalty program participant or directed to this group a special promotional offer of an activation nature, belongs to the absolute rarity. As a rule – I am a believer in removing recruitment barriers for new participants, supporting the idea of shifting the moment of data collection necessary to the organizer until just before the award is issued (then the motivation of the participant to share his / her personal data is different, because he does not do this to collect points, but to get an award for which he already earned points “anonymously”). However, such a recruitment strategy requires active work with the database: monitoring the structure of  participants in terms of activity, directing targeted communication to individual segments of participants, removing “dead souls” from the base, etc.

Mistake 6. The lack of analysis and drawing conclusions

As a rule, a loyalty program as the name suggests, should loyalize customers with the brand, … but with today’s technology it is also a great source of knowledge about customers, which is a side effect of running the program and is available at your fingertips. For this to happen however, it is necessary to properly design the processes of information flow in the loyalty program, providing adequate technology to collect multi-source data and knowledge and tools that allow the analysis and, as a result, the use of these data to stimulate desired customer purchase behavior. At the moment, the notion of “Big Data” is popular recently, which causes many marketers at least a headache. In fact “Big Data” is not at all about the word “Big” in the sense of a server farm and super-efficient technologies (although this of course does not exclude it), only for the ability to learn, draw conclusions and take action on the basis of multi-source data. In the everyday reality of most loyalty programs on the Polish market it’s worthwhile to consider observing simple correlations between frequency of purchase, the value of the shopping basket, the mix of purchased products, the calendar and even the wheather and to profile communication to Participants on this basis, adhering to the principle “the more a message matches to the needs of the recipient (even those unaware), the more effective”.

Mistake 7. Usability. Only for whom?

Currently the market standard is that the loyalty program must have a least a website, prepared in a responsive version, and in the perfect world also a mobile application. I omit the fact whether it is necessary to have a mobile application for each target group today – with technological progress it is difficult to discuss, the more so as it seems that mobile applications will not share the fate of “bluetooth marketing“, which in principle was an ingenious communication … just it did not succeed to gain the acceptance from the marketers and customers, before other technologies overtook it.  As a rule, the direction of “multichannel” in communication and contact points with clients is the most correct, but we can not forget that quality is more important than quantity in this area. All communication tools, especially electronic ones, must be created not only from the perspective of the marketer’s needs and their goals, but above all from the perspective of the client, who ultimately has to use the tool. If it will be non-intuitive to use, and informations that the customer is interested in, will be hidden on the website in the “enty” level, the customer will immediately get off the tool and simply stop using it. What’s worse, in 99% of cases he will not tell us why. And this means not only the loss of resources for development of such a tool, but also for the unused potential benefits as a result of the client’s loss and thus the devastation of even the most interesting mechanics of the loyalty program. When creating websites and mobile applications, we have to take into account the habits and convenience of users, as well as to maintain a common-sense balance between this what really interests the customer (I assure you that this is not a story or a mission of your company) and that what interests us. Usability (so-called UX) in the design of interactive communication tools is nowadays, in which we fight for the attention and time of the customer, a very important challenge and may determine their competitive advantage on the market of loyalty programs.

The effects of committing the above errors

The seven groups of errors described above do not exhaust the topic. However, in my subjective opinion, it are the most common problems faced by the organizers. The most tangible result of them from the perspective of the profits of an individual organizer, is the economic dimension of lost benefits resulting from improperly spent money and the loss of potential benefits, which these budget could bring, if you invested them properly. From the perspective of the market, such activities lead to the commodification of the market mentioned in the above considerations, in which the offers of loyalty programs resemble each other, without making any difference. The use of the term commodification is an attempt to determine the program wisely, in which the offer of programs addressed to final buyers becomes like minced turkey meat, which after being removed from the packaging with the manufacturer’s logo is indistinguishable for the producers themselves. Final buyers suffer from this because they overwhelm their market offer, of which most examples are similar to each other, not creating a real competitive advantage for the company, on the other hand the organizers, who themselves undermine the effectiveness of the used marketing tools by their misuse, lose as well. Finally, a participant who is asked by the interviewers of research institutes about the willingness to use the program offers is unfavorable speaking about the market offer. 

If you have questions

Personally, along with the i360 loyalty market experts, we will answer your questions and advise you on the most efficient solutions in this area, how to avoid mistakes or how to remove the effects of those that have already been committed. In business, we follow the principle The Giver – Receives, so let me give you more creative and very cost-effective business solutions. We promise that we will exceed your expectations.

If you are planning to change your loyalty program now or in the future or to implement a new solution and you want to do it in accordance with the law, on the basis of comprehensive market knowledge, please contact i360 at Dawid.Luciuk@i360.com.pl or 600.534.631.

 

Sincerely,

dr Tomasz Makaruk

President of the Management Board i360 Sp. z.o.o.

© 2018 i360 Sp. z.o.o.  All rights reserved.

 

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About the author

Hello, My name is Tomasz Makaruk, I am an economist from graduation. On the blog I describe the most interesting and the most difficult issues, which I encounter daily when creating and leading loyalty programs and promotional and audiotex lotteries. I share only specific, deep analysis, that I trust will be useful for you in your professional work.

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