As technology becomes commonplace, loyalty programs are now entering the digital realm. Giving customers personalized rewards can improve customer retention and encourage repeat purchases. They can also provide insights that help businesses offer more value to their customers. Even so, these systems do not come without their challenges.

Data from the University of Pennsylvania found that while loyalty schemes can be beneficial, they can increase friction with customers if things go wrong. The survey reported that 47% of customers say they are part of a loyalty program, but they were also experiencing more problems due to the higher frequency of engagement with a brand than regular consumers. The lesson is clear. Unless digital loyalty programs run smoothly they can damage relationships with your customers.

 Common problems

Digital loyalty programs can run into all sorts of problems with the most common being:

• Lack of customer engagement: With customers being bombarded with offers, the novelty of such programs quickly wears off. An over-reliance on incentives such as discounts or points can work well in the short term, but their value erodes. Customers can come to expect discounts and may react badly if they are not available.
• Poor communication: Customers often feel overwhelmed by the messages they receive. They tune out which means it can be difficult for retailers to reach them with genuinely relevant information.
• Poor data visibility without key integrations: Digital programs can gather data about every point of customer interaction. However, unless that data is managed effectively, it can become difficult to track behavior across all relevant sales channels. Digital commerce needs an omnichannel experience, but tracking activity across all of these channels and bringing it into a central repository is difficult. Failure to integrate loyalty program data with other data sources leaves retailers with an incomplete picture of customer activity.
• Measuring ROI: Loyalty programs require investment, which means retailers want to know that money will be well spent. Without clear data about the effectiveness, it can be difficult to assess the impact of programs and make an informed decision. Retailers may struggle to justify the investment or adopt the most effective strategy.
• Excessively complicated metrics: Clear metrics can tell the story of loyalty programs but that story can become buried beneath mountains of data. The more data is, the more difficult it will be to gain clear and actionable insights.

Each of these must be addressed and resolved if loyalty programs are to be successful.

Overcoming challenges

To overcome pain points, businesses need to have a clear idea of what they want their digital loyalty programs to achieve and put the systems in place to make sure they do this effectively.

To improve customer engagement, retailers can use personalization, gamification and social media integration to provide a richer and more fulfilling experience.

Users actively want greater personalization in their retail experience. According to Forbes, 66% of customers expect businesses to understand their personal needs and 52% expect all offers to be personalized. People have come to expect businesses to know what they want before they want it. Retailers who offer generic one-size fits all approaches will feel out of touch.

The good news is that digital technology provides much more information about each of your customers. If that information is captured and used, you can build up a unique profile about each customer and their buying history. That information can be used to provide personalized incentives and offers based on products they want and need.

Gamification, meanwhile, can make loyalty programs fun. Straightforward points programs feel stale and forgettable. Alternatively, you can encourage customers to take part in exciting games or competitions. Using coupons, leader boards or progressive prizes can provide a new layer of engagement. It drives competitive elements and shows customers what they could get with just a few more loyalty points. Points could be won by making searches, playing quizzes or other games.

Gamification and other elements of loyalty programs can also be linked to social media engagement. This allows you to reach customers where they are. For example, a food retailer could invite customers to share pictures of their meals or recipes made for the product. They can run prize draws in return for shares. These efforts not only raise the profile of a business online, but they can also keep customers engaged and entertained with the brand message.

Improving data visibility

Data insights are perhaps one of the biggest advantages of digital loyalty programs. All interactions can be captured, stored, processed and transformed into valuable insights. These can help you tailor digital loyalty programs more effectively and improve the overall customer experience.

For that, retailers should focus on data analytics, cross-functionality and integrations with other sources.

• Data analytics tools: By using a data analytics tool you can shed light on customer behavior and what impact, if any, loyalty programs are having. You can see if individuals are spending more and get an idea of what promotions would work best for each individual.
• Cross-functional collaboration: Integrating loyalty programs across the entire organization and collaborating with multiple teams including marketing and sales can give retailers a much fuller picture of consumer behavior.
• Integration: Data from digital loyalty schemes should not sit in isolation. By integrating with other data sources such as sales data, retailers can gain a much more complete picture of each customer’s desires and behavior.

 ROI

The secret to good metrics is simplicity. Retailers should start with a clear goal for what they hope the program will achieve. For example, are you looking to achieve increased overall sales, boost revenue per customer or increase sales in a particular vertical?

Once you have this, you can build out a set of relevant metrics. These might include data such as the number of new program members, revenue per person, the size of each transaction, repeat purchase frequency, and average basket size. By focusing only on a small number of metrics relevant to your main objectives, you can obtain a clear, simple narrative about the success or failure of your loyalty scheme.

This allows you to deliver clear, data-driven decisions that allow you to refine your strategy to get the most out of your strategy.

As essential as digital loyalty programs are for retailers, they come with many challenges. By focusing on customer engagement, data analytics and simplified ROI, you can take control of your programs and ensure they do what they are intended to do— namely drive growth, customer retention and transform the customer experience.