It seems like these days, everything has a loyalty program: your local coffee shop and bookstore, and, of course, nearly all hotels, car rental companies, and airlines. Enrollment must be high, since there are an average of over 18 loyalty accounts per U.S. household. Loyalty programs are pervasive and expensive, and they aren't working for businesses.
Businesses are spending tens of billions of dollars on developing and maintaining these programs, but data from McKinsey shows that they aren't producing the desired business results. Given the increasingly saturated marketplace today, it isn’t all that surprising that many of these programs aren’t working.
More importantly, loyalty programs are not working particularly well for customers either. There is a clear opportunity for user experience changes that will improve both consumer engagement and results for businesses.
The Business Perspective on Loyalty Programs
First, there is the pure business side of it. Data show that most users are not redeeming the rewards they earn from loyalty programs. Often customers forget about their enrollment in loyalty programs, or are frustrated with restrictions for redeeming rewards. Customers aren’t likely to find that redeeming rewards is worth the effort unless the process is seamless. Companies spend immense resources coming up with sophisticated models, segmentation analysis, and metrics to design the perfect program only to have their efforts drowned out by actual customer attitudes and behavior.
From a customer standpoint, the perceived value of rewards programs has declined in recent years, with only 17% saying that loyalty programs are “very influential” in their decision making. Operators are making it more difficult and expensive for customers to redeem their points, and customers feel like they have low awareness or understanding of the programs’ rewards structures, especially for redemption.
Meanwhile, third-party “daily deal” services like Groupon and Expedia are popping up, drawing users away from their loyalty brands with promises of a seamless booking process and guaranteed deals. Companies have to make a lot of progress to gain back truly loyal customers who, for the moment, are in “loyalty program limbo,” collecting points among myriad brands without pledging any brand exclusivity.
The Human Perspective on Loyalty Programs
Despite all of the difficulties, companies do stand to gain a lot from having a successful loyalty program. According to McKinsey research, about 20% of the company’s profits can come from loyalty programs. However, many companies are falling short of what makes customers feel rewarded and in turn promise loyalty. A 2011 survey shows that 85% of customers haven’t heard from their loyalty program since they signed up, 40% have had a negative experience, and 22% have received rewards that were too insignificant to be classified as a "reward." In short, the current loyalty program experience feels nothing like what we feel when we experience loyalty as people.
The perception today among many consumers is that companies create loyalty programs as a one-time bribe to deceive you into making more purchases. This is not a great place to begin a loyal relationship. Furthermore, consider how a “loyal” customer feels when she sees the same product she just purchased at full price discounted on Groupon. Loyalty, like trust, takes many years to build and only one poor interaction to lose.
What all this points to is that we must reframe the loyalty program concept and make improvements to the holistic experience, including customer service, product definition and strategy, marketing, and user experience. With consistent increases in online shopping, improving the digital user experience of loyalty programs is a great place to start.
UX to the Rescue
Here are some actionable ways brands can improve the user experience of their loyalty programs:
Tell me what I can get
Plain and simple: provide visibility throughout your company’s website (and mobile/tablet app) of the user’s reward status. This doesn’t just mean the points balance: take the guesswork out of finding out what you can get for your points. Users are swimming in conversion rates between points and items for purchase. Display your points translated in to actionable dollar amounts or tangible items. For example, with a hotel, your 40,000 points could equal 2 nights in a Tier 1 hotel or 1 night in a Tier 3 hotel.
Additionally, rather than making users search to find out if their purchase qualifies for point redemption, tell them during the checkout process if their purchase is eligible for payment using their points balance. Not only are you creating an redemption process, you’re reminding users that their loyalty can take them places.
Use visuals to convey reward progress
Use visuals to guide user understanding of where they are in the redemption process. This will further enhance their sense of what they can get with their points. For example, consider a sliding scale on the rewards account home screen where users can see that they qualify for a free flight in the continental U.S., and are 30,000 miles away from a free international flight.
Create a customized experience
Customization is no longer a luxury, but an expectation from users. Create tools to learn about the user and their goals for their loyalty program. Some users may want to get the most free rental days on an economy car, while others may want that one splurge convertible rental for a special event. Use this information to track and show users’ progress toward achieving their goal. Applications like Mint.com are already doing this by enabling users to set customized goals, telling them how they’re doing, and what they can do to achieve their goal.
Predict the next move
This involves thinking “outside the box.” Many companies now have partnerships whereby users can transfer loyalty points from one company to another for rewards redemption. Make these partnerships apparent and communicate a seamless interaction between brands.
Flying to Miami? Use your airline miles to help pay for your car rental! Offering this informative feedback will not only communicate to the user that you’re considering their entire purchase (e.g., that trip to Hawaii), but may encourage users to stick with the brands that stick together. That is, if my preferred airline, hotel chain, and car rental company points can be combined, I may be more likely to book with those three brands in the future.
Master the cross-channel experience
Understand that loyalty doesn’t just exist though website login credentials and point balances. Users desire (and expect) their loyalty programs to be present in all aspects of the user experience, whether it’s at the check-in kiosk for your flight or the brick and mortar retail store register. Explore the areas where your users’ channels cross and ensure that the experience is seamless for earning, viewing, and redeeming reward opportunities.
Many companies send emails with reward status updates and offers for loyalty program members. Consider the weight and frequency of these touchpoints and the communication channel used to ensure that what you’re sending to loyalty customers is relevant for their experience and goals.
What we have proposed here is only a starting point. The main themes to consider are that customers increasingly expect their loyalty programs to be transparent, customized, and flexible, and that they will help them to achieve their goals. Ensuring these characteristics are present in your company’s user experiences is a great way to start building loyalty with customers the right way.
Image of young black lab courtesy Shutterstock.