Companies typically invest up to 4% of their revenue in loyalty programs, and a disproportionately high portion of that investment is earmarked toward acquiring new members. So what is the return on investment once those customers are enrolled? Reward programs are especially vulnerable to losing members at these five touchpoints.
What’s the Shelf Life of Your Average Loyalty Member?
So your reward program memberships rose in the last quarter. Congratulations! But how great is that net gain when factoring in the memberships that became inactive in the same period?
Considering the cost of attracting new customers– one estimate is seven times more than keeping existing ones – many companies would do better to focus on retaining their engaged enrollees. Yet 44% of companies say they’re more keenly focused on customer acquisition and just 16% on retention.
Now get this: loyal customers – meaning those who think they are valued – spend 67% more than new customers. When even a fraction of these members disengage, it can translate to millions of dollars in unrealized sales.
Wait, So I’m Investing in Losing Customers?
Budgeting a boatload of money toward enrolling new loyalty members, but not spending the same to keep them, is essentially the same as investing in goods from which you have no intention of gaining value. Like planting tomatoes and never watering them or adopting a dog and never petting it. Eventually, the results will reflect the care.
Members, too, will abandon you if they feel neglected, challenged or even misunderstood, and this could occur at many places in the reward program journey. However, in my experience, there are five areas where customers are at higher risk of leaving.
After getting the door prize. I’d wager that all reward program operators are vexed by enrollment-only members – those who sign up for the upfront bonus and then ditch the program. An estimated 60% of customers say they sign up for loyalty initiatives just for that discount or perk. (I just did this with major mall-based retailer: signed up for the credit card for the “25%-off initial purchase” bonus because I was about to spend $1,000, then cancelled the card after I got the first bill.) Of them, 28% intend to unsubscribe. But there are ways to keep them. A company can rank the types of rewards its members most often use, such as faster shipping, and offer these benefits immediately to new enrollees. Or how about a new-member “welcome kit” in the form of a digital coupon booklet or an invitation to an event?
When you get the name or address wrong. It’s not uncommon for a new member’s information to be entered into the system with an error, and that could prevent you from reaching them. As many as 30% of emails registered on a list are invalid, research concludes. Data-input reports will reveal potential inconsistencies. If the number of names entered at, say, the store do not match the volume of contacts collected by the company or its technology provider, there’s a problem. Email validation programs such as Fresh Address can vet new email addresses and comb out errors.
Wherever your data pipeline is leaky. Nearly 40% of consumers do not join loyalty programs due to a perceived lack of value. Often, this comes down to a failure to use the data well, or at all. I once personally witnessed how one retailer lost 1 million customers to data leaks, in part simply due to a shortage of people monitoring data flow. If such leaks are suspected, a company’s data team (or third-party data manager) will likely have to map out the entire, end-to-end system, track through it and detect where the gaps or vulnerabilities are most likely to exist. At that point, the data team can re-enter the information into the pipeline.
At the point of (confusing) redemption. Attaining a loyalty reward should be as much fun as using it, yet 34% of members find the redemption process difficult to understand. This is frustrating, and we all know what frustrated people do: walkaway. Members who successfully redeem, meanwhile, report a satisfaction rate that is 1.6 times higher than that of non-redeemers, research by Bond shows. Techniques that focus on the actual redemption experience include the issuance of “use now” digital reward certificates (upon demand), immediate rewards for offering customer feedback (“Thanks! Here’s $2 off your next visit”) and offering bumped-up value on points or miles for a limited time. Or emulate the Amazon Buy Now feature as a reward option. There’s nothing more frictionless these days than that.
On the (lack of) follow-through. Customer-retention messaging, such as those “rate your experience” emails, not only keep a brand at the top of a customer’s mind, the strategy also provides a real-time figure of database entrees to compare with transactions. Yet nearly 80% of companies spend less than 30% of their budget on customer-retention messaging. Research shows that a company can improve profits by 25% or more if it increases customer retention by just 5%. Lose that loyalty member, and they get the opposite.
Your Reward Members are Keepers. Be Sure You’re Keeping Them
Reward program operators aren’t alone in their preoccupation with acquisition. Consumers do it too – American wallets and phones hold about 15 reward memberships, research shows. Yet most members are active in just three of them, or fewer.
Often, this is because the program hasn’t paid close enough attention to members after they enrolled. It may be due to a failure to communicate relevantly, and it can be the result of weak data management. Reward program operators that get more intimate with their data will spot the correlation between engagement frequency and member longevity, and can adjust their budgets accordingly.
Don’t lose new members. In fact, make member retention a key performance measure of your organization. Invest in the technologies that will help ensure every data-capture opportunity is optimized to maintain engagement, collect more insights and tighten the earn-redeem cycle.
Only then will those quarterly membership numbers make honest sense.
Jenn McMillen, nationally renowned as the architect of GameStop’s PowerUp Rewards, is Founder and Chief Accelerant of Incendio, a firm that builds and fixes marketing, consumer engagement, loyalty and CRM programs. Incendio provides a nimble, flexible and technology-agnostic approach without the big-agency cost structure and is a trusted partner of some of the biggest brands in the U.S.