The Hidden Reasons Your Loyalty Program Isn’t Working

At Ellipsis, we’ve supported over 200 successful customer loyalty programs over the years. However, not all programs succeed, and here are some insights into why.

1. Complexity: If customers can’t easily understand the program’s benefits and how to access those benefits, they won’t engage.

• Complicated program rules. Confusing status tiers, fragmented rewards earn and redemption mechanics, can make a program fail.
  
  
• Customer experience must be seamless, but not too seamless. Healthy friction is important to ensure customers are aware of the program and its value, to drive desired outcomes.
  
  
• Points or tier status, or both? Points and status tiers are unique loyalty currencies, playing different roles in a program. Using both points and status to incentivise the same customer outcome (usually spend), is wasted opportunity and cost (more below).
  
  
• Transactional or experiential rewards, or both? Transactional rewards typically drive incremental spend, but niche and personal experiential rewards can evoke an emotional customer connection. However, trust must first be earned for a customer to invest emotionally in a loyalty program and to earn trust, program operators should first deliver more tangible value via transactional rewards. From there, an understanding of customer preferences is needed to maintain emotional engagement by consistently delivering relevant personal experiences. This is not easy.

 Tip: If the loyalty program T&Cs are more than two pages, it’s too complicated!

2. Too Generous: Many successful programs award loyalty points based on spend, for customers to redeem against future purchases. There are scenarios where a points-based program becomes commercially unviable.

• Liability: Without a healthy cycle of earn, redemption and expiry, the increasing points liability on the balance sheet will attract unwanted CFO attention.
  
  
• Over-investment: Allowing members to earn rewards and status for the same outcome (e.g., spending) means there is both a points cost and a status benefit cost to be accrued for every $1 the customer spends, yet only one uplift is achieved.
  
  
• Promotional discounts are offered by retailers to boost slow sales but when discounts and rewards redemptions collide, members who double-dip will erode margins.
  
  
• Discounting is tactical and doesn’t evoke the same psychological effect of points pressure - where customers will work harder to accumulate points as they near a redemption threshold (and soon after a redemption to rebuild their points balance). “Discounts are ephemeral, points pressure persists”

Tips: Avoid margin erosion by implementing program rules to restrict redemptions with discounts and/or apply a minimum redemption threshold. Be aware of the cost of allowing savvy members to double-dip – ideally find program partners to fund incremental costs.

3. Not Generous Enough: Programs don’t survive if rewards distance is long and/or value isn’t sufficient.

• Rewards Distance: If it takes too much time or effort for the average customer to obtain a reward, they’ll give up, unless that reward is suitably rich. (Airline programs perform well with long reward distances as a free flight is worth the wait).
  
  
• Rewards Value: On the flip side, rewards value can be low if easily achievable based on purchase frequency (get your 10th coffee free). Yet we have seen programs where the rewards value available to an engaged member is still lower than the reward a non-member gets if they wait for the next promotional discount!

Tip: Be clear on average customer behaviour, time and likelihood of reward achievement, then set a stretch on the average customer engagement to deliver to uplifts.

4. Lack of Awareness: It’s a mistake to assume members are aware of their loyalty program membership, particularly if they were auto-enrolled, and/or have opted out of marketing communications.

• Earning: Program members may still spend and earn rewards without awareness.
  
  
• Redeeming: With their next purchase, this member is given the opportunity to redeem the points they didn’t know they had (without healthy friction).
  
  
• Points pressure: With no prior knowledge of their points balance, the member won’t experience the emotional impact of accruing and maximising points value (points pressure) and redeems their points without incremental spend or engagement.

Tip: With point-based programs, understand and effectively utilise the psychological levers of points pressure (including endowed progress and goal gradient effects).

5. The Paradox of Choice: A loyalty program can’t be “all things to all people,” but many try to appeal to everyone by offering an extensive range of rewards redemption options.

• 80/20 Rule: A broad rewards catalogue works when connected to high-spend and frequency (e.g. travel or credit cards). Even then, the 80/20 rule often applies, where 80% of members redeem only 20% of the available rewards
  
  
• Too much choice can cause customer confusion or inertia, having an adverse impact on redemption rates.
  
  

Tip: Customers buy products they want or need from a brand. The best reward for brand loyalty is more access to more of those products. Avoid over-investing in a breadth of reward redemption options that don’t resonate

6. Personalisation: Just as loyalty programs can’t be all things to all people, one size doesn’t fit all. Well-designed and executed personalisation is key to making program members feel uniquely valued.

• Frequency and Relevance: By sharing personal data to access rewards, customers also expect personalisation. Sending generic communications, promoting irrelevant products, or bombarding customers too frequently (even with special offers) no longer flies, and drives up unsubscribe rates.
  
  
• Get the Basics Right: There are many examples of programs failing to get more basic communications right and this is costly. Sending incorrect point balances or promoting unattainable rewards can cause reputational damage, erode trust and drive member churn.
  
  
• Tactical Segmentation such as varying marketing messages based on spend or shopping habits, status tier or rewards availability, birthdays and anniversaries is now table-stakes and not true personalisation.
  
  
• Hyper Personalisation: Transactional, behavioural, demographic- and psychographic data must be available to develop and deliver truly personalised experiences. With ever-changing customer behaviours and preferences, these communications strategies must quickly adapt and doing this manually and effectively is impossible. Program operators struggle to keep up, offering rewards and mechanics that lose their customer appeal. More help is needed….
  
  
• AI and Machine Learning is necessary to conduct real-time analysis at scale, identify patterns at the customer level, and predict future behaviours.

Tip: Develop the necessary customer journeys and trigger-based communications while exploring hyper-personalisation opportunities and further enhancements using AI.

7. The Holy Grail - Return on Loyalty^® According to Forrester, 67% of organisations struggle to effectively measure loyalty ROI, yet it’s critical to monitor consistent loyalty KPIs – most notably, Return on Loyalty®.

• Data and KPIs: Without establishing solid data sources and KPIs there is no consistent view of program performance.
  
  
• Members versus Non-Members: Comparing behaviours and value of members to non-members is a common misleading measure. The best, most highly engaged customers self-select into a program, whereas non-members will naturally be less engaged so are not an effective control group. A more accurate measure will show the uplift of engaged members to unengaged members.
  
  
• Pre- versus Post-Loyalty: Comparing customer behaviour before and after joining a program is another common mistake. As non-members are often unidentifiable their value can only be assessed in the aggregate. For new members, it’s impossible to know why they joined the program, and it could simply be due to a change in personal circumstances. At this stage, the customer self-selects as the program is now relevant for them. So ‘after’ loyalty naturally shows stronger engagement but still reflects self-selection bias.
  
  
• Adaptability: Loyalty programs don’t always drive the desired outcomes. It’s vital to identify underperforming rewards and mechanics, adjust quickly and keep monitoring.
  
  
• Customer lifetime value (CLV) is not a retrospective metric – it’s more valuable and a predictive measure. Calculations must consider customer acquisition and churn, and should be periodically assessed to see how loyalty initiatives have impacted member behaviour and value.

Tip: Have clarity around core KPIs, get access to the right data, very regularly, and continually monitor to enhance program performance. Know which KPIs to monitor monthly and what deeper analysis is required on a periodical basis. Ellipsis' Return on Loyalty^®  methodology helps determine where your program is making money, and how it can make more.

At Ellipsis, we've supported over 200 loyalty programs and have seen firsthand that success hinges on expert design, robust modelling, and continuous analysis. By avoiding common pitfalls and focusing on data-driven strategies, you can create a loyalty program that delivers meaningful customer engagement and measurable Return on Loyalty®.

Accelerate Loyalty Program Performance with Return on Loyalty®. Talk to the the Loyalty Experts^® .