3 Reasons Why Loyalty Programs Fail (and How Programs Can Be Successful)

By: Diane Le


Companies invest a lot of time, energy and resources into loyalty programs, but not all loyalty programs are successful. When done correctly, a loyalty program is a great way to engage with your repeat customers and drive brand profitability. But when done incorrectly, loyalty programs can fizzle out from a lack of engagement, or even worse, decrease your bottom line by overdiscounting.

There are three primary reasons why a loyalty program can fail: poor loyalty program design, lack of customer engagement, and poor customer experience. But if you design your loyalty program in a data-driven way, engage your customer through the entire customer lifecycle and have strong technology to facilitate a seamless experience, your loyalty program will thrive. 

Let’s dive into the top three common mistakes to avoid with your customer loyalty program.

Mistake #1 – Poor Loyalty Program Design

Coming from Punchh’s Loyalty Strategy Consulting division, I see a lot of customers who come to Punchh with previous loyalty programs that failed – and it often comes down to how the loyalty program is designed. 

For example, one sandwich chain brand came in with a previous program that gave a $25 reward once a user hit $250 in spend. But when we looked at their average frequency, it turns out it would have taken their average customer over two years just to get one single reward. The only people who engaged in their program were very few, very high frequency power users. We ended up redesigning their program to target more low-to-mid frequency members who had a lot more upside in increasing visit frequency and driving overall revenue.

In another example, we had a known pizza brand who previously only had a surprise and delight program as their core loyalty program and did not track points or visits toward a reward. Now with Surprise and Delight programs (or S&D as we call them), they are prone to very low loyalty engagement unless there’s a thoughtful customer journey built out to encourage loyalty check-ins. Once we explained that the S&D model was likely the cause of the low loyalty engagement, we designed a data-driven points-based program for them, and their loyalty engagement increased over 200%. 

Loyalty program design is both an art and a science. Punchh has a proprietary process for designing out programs, backed by the data of 250+ loyalty programs, to ensure we create best-in-class programs for your brand. 

Mistake #2 – Lack of Customer Engagement

The second reason why loyalty programs fail is because of poor customer engagement. This can be because a brand didn’t promote their loyalty program to begin with and therefore doesn’t have enough loyalty members to engage with, or it can be because a brand didn’t utilize personalized communications to create a good loyalty experience. 

An Asian food brand we worked with had a low conversion rate from signup to first loyalty visit and an even lower one from 1st to 2nd visit. We recommended a Journey to 3rd Visit campaign that reduced the average number of days to 1st visit from 18 days down to four days and increased the conversion rate by 15%. 

The fix for this is to build out your loyalty customer’s journey, from acquisition to engagement to retention, to ensure that the customer has a personalized, engaging experience from start to finish. 

Mistake #3 – Poor Customer Experience

The third reason why loyalty programs fail is because of poor customer experience. If your technology isn’t secure and seamless, it can result in clunky or broken experiences and create distrust between the brand and their guests.

For example, we had a customer come in whose previous loyalty provider’s system would sometimes serve the wrong company name and logo in their email communications, resulting in guests who became concerned about data security issues. That type of poor experience can cause a loyalty program to fail. It also highlights the importance of going with a trusted platform provider with extensive experience in enterprise loyalty programs. 

In another example, one customer came to us who could only offer their customers the ability to earn and redeem points for in-store orders, not online purchases. As COVID accelerated the adoption of online ordering, that customer found their loyalty program sales started dropping. Their guests were also getting frustrated that they couldn’t earn rewards on their purchases like they were previously able to when they shifted online. We were able to easily integrate both their POS and online orders into Punchh, allowing all of their channels to earn rewards. This is why it’s important to go with a technology provider with a robust portfolio of integrations, so your POS and online ordering experience can be seamless and effortless to your customer. 

By following the three tips we’ve outlined – designing your loyalty program in a data-driven way, engaging customers throughout their lifecycle and having strong technology to facilitate a seamless experience – you can create a successful, profitable loyalty program that will keep your customers coming back for more. Want to learn more about how Punchh can help you achieve these goals? Contact us today for a personalized demo.

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