Launching a loyalty program isn’t for the faint-hearted – it’s expensive and it’s complex. In the US, companies spend a staggering $2 billion on loyalty programs every year1. But, does this investment translate into increased customer engagement? Research suggests the answer is “probably not”. The average household in the US has over 21 loyalty program memberships but only actively uses 44% of them2. Our own analysis of customer sentiment on social media doesn’t make happy reading either. Almost 90% of social media sentiment on loyalty programs was negative.

Old-school transactional loyalty programs prevail . . . and often fail

Our research shows that 97% of loyalty programs still rely on transactional rewards. In other words, customers make a purchase and take their points in exchange for gifts, merchandise or cash. However, these narrow programs suffer from a number of challenges in the age of the demanding digital customer. They lack:

  • Engagement:  According to our research, only 25% of loyalty programs reward customers for some form of engagement. 
  • Personalization: Only 11% of loyalty programs offer personalized rewards based on a customer’s purchase history or location data.
  • Seamless multi-channel: Only 9% of loyalty programs offer points redemption across all channels.

What room for loyalty innovation?

A number of organizations are confronting these challenges head-on. Our analysis of different responses suggests 5 key priorities for innovating with loyalty:

  1. Integrate with the Overall Customer Experience. Starbucks integrated its “My Starbucks Rewards” program with the Starbucks mobile payments app. The seamless experience has accelerated adoption of the app and driven consumer engagement with the loyalty program. The Starbucks app has 12 million active users and accounts for 7 million transactions a week, while “My Starbucks Rewards” has 8 million active members3 .
  2. Deliver Personalized Customer Experiences. UK-based telecom operator O2 segments customers based on their brand preferences, tenure and spending. It also offers targeted location-based offers as part of its “Priority Moments” mobile loyalty program. “Priority Moments” became the fastest growing loyalty program in the UK and  delivered millions of pounds in savings in reduced customer churn4 .
  3. Reward Members for Social Media Engagement. Multi-partner airline loyalty program BalticMiles launched a highly successful crowdsourcing initiative on Facebook – “BalticMiles Brainstorm”. The initiative encouraged members to contribute ideas on the types of benefits that they wanted from the program. The BalticMiles Brainstorm campaign generated over 420 new ideas and 6,000 comments that served as the basis for various improvements in the program5 . In addition, the campaign resulted in higher member engagement rates as well as a significant increase in transactions via payment cards linked with the loyalty program6.
  4. Use Gamification Techniques to Drive Deeper Participation. With its “Earn Your Wings” campaign, Air Canada awarded badges to flyers when they completed specific ‘challenges’. For instance, members got the “Pacific Badge” every time they took off or landed at specified airports located on the Pacific coast. Air Canada reported an ROI of 560% for the program7  and saw registration levels that were double its initial forecast8.
  5. Provide Value Beyond the Traditional. US-based pharmacy chain Walgreens launched the “Balance® Rewards for healthy choices” initiative as part of its loyalty program, to encourage its members to adopt healthy lifestyle practices. The program allows members to connect their digital health trackers with the Walgreens mobile app. 80 million of the program’s 103 million members are active participants.

Loyalty is not a given – it is earned. But for many companies, their expensive efforts to earn loyalty are not delivering value. Loyalty programs need to turn from a ‘program’ into a digitally enabled customer experience.

1 Gallup, “Making Loyalty Programs Work: Companies must first fully engage customers and activate their participants”, October 2011
2, “The 2013 COLLOQUY Loyalty Census”, 2013
3 Starbucks 2014 Investor Day, Presentation by Adam Brotman, Chief Digital Officer
4, “The mobile revolution is here – are you ready?”, 2014
5, “[SimpliClient] BalticMiles wins Global Innovation in Technology Award at Loyalty 2013”, February 2013
6, “Winners Supplement 2013”, 2013
7, “Air Canada Earn Your Wings Wins COLLOQUY Recognizes Award”, June 2014
8, “Earn Your Wings: Air Canada’s Successful Gamification Venture into Loyalty”, July 2013