Loyalty programs found to be lacking

Retailers are surely getting tired of hearing about how their digital capabilities fall short of customer expectations but that familiar drumbeat is contained in a new report from Capgemini Consulting called, “Fixing the Cracks: Reinventing Loyalty Programs for the Digital Age.”

U.S. companies spend $2 billion on loyalty programs, according to CapGeminig, but the investment isn’t yielding the type of increased engagement which drove implementation of the programs. For example, the firm found that the average U.S. household is a member of 21 loyalty programs, but only actively uses 44% of them.

A more troubling finding relates to loyalty program participants dissatisfaction which tends to be voiced and amplified via social media. Looking only at the retail industry, 93% of the sentiment expressed on social media was negative, according to CapGemini. To arrive at those findings the firm researched the loyalty programs of 160 global companies across seven sectors including retail, banking, consumer products, telecom, airlines, hotel chains and consumer electronics. In addition, Capgemini also conducted a scan of 40,000 consumer conversations on social media to gauge customer sentiment towards loyalty programs.

The research revealed that most loyalty programs follow a basic transactional philosophy where rewards are based on purchase. Only a small minority of programs recognize and reward consumers for engaging and interacting with the brand in other meaningful ways. Furthermore, most loyalty programs lack personalization and fail to offer cross-channel redemption services. As for the overwhelmingly negative social media sentiment, it stemmed mainly from the lack of reward relevance, rigid reward structures, user experience issues with online channels and poor customer service quality levels.

“Brands need to revisit their approach to loyalty. For us, the key is to integrate the loyalty program into the overarching customer experience and to reward engagement as well as the simple transaction,” said Mark Taylor, Capgemini’s global lead for customer experience transformation. “Additionally, since relevance is the highest form of customer intimacy, offering advanced levels of customization and tailored experiences will enrich loyalty programs and further encourage customer engagement.”

Some of the shortcomings that detract from engagement would appear to be quick fixes. For example, only 16% of loyalty programs reward customers for activities, such as taking online surveys, rating and reviewing establishments or referring friends to the program. Only 14% employ gamification mechanisms to reward customers.

The broad recommendation from the report is that loyalty programs be seen within the larger context of a marketing strategy that is focused on driving customer engagement. Organizations need to look at each step of the loyalty program, from design to evolution, through the prism of engagement.