Loyalty Management: How not to create a profitable customer loyalty program

More than half a billion dollars have been lost by companies trying to create coalition loyalty programs in North America over the last 10 years.Many of these programs failed despite the support of large companies such as Citicorp, Rogers, and Le...

More than half a billion dollars have been lost by companies trying to create coalition loyalty programs in North America over the last 10 years.

Many of these programs failed despite the support of large companies such as Citicorp, Rogers, and Le Groupe Videotron, which offered desirable rewards including free travel and cash discounts.

Why did these programs fail even to make it to the critical two-year mark?

In recent articles, I have discussed the Ten Keys to Success for a profitable coalition loyalty program.

The creators, managers, and participants of customer loyalty programs are discovering the consumer of the ’90s is a tough grader – she expects today’s program to deliver an A+ performance on each element of the customer loyalty report card.

In this month’s article, we will test the model by analyzing the reasons behind the failure of four North American companies.

Air Miles U.S.

The Air Miles Program was launched in the u.s. nine days after the Canadian program, sharing the same name and logo.

However, the programs had some critical differences.

While the Canadian followed the ‘one card’ philosophy, the u.s. program required collectors to mail in coupons from some participants, and to clip and mail upc codes from packaged goods companies in order to receive their travel reward.

The program also launched prematurely, with no sponsors in the key retail categories of gas, department store, and automobile repair.

The program was discontinued at the end of its first year.

Club multi-points

Launched in the fall of 1991, this Quebec program offered consumers the chance to earn discounts off merchandise by collecting points from Steinberg supermarkets, Bank National, La Presse, and by watching specific tv shows.

At the time, the program was considered technically leading-edge, as consumers accumulated points on a Smart Card the size of a credit card, but three-quarters of an inch thick.

Collectors could then redeem points for discounts from a merchandise catalogue.

Customer interest and the program’s profitability declined about a year after an impressive launch due to two fatal flaws.

The first was that the card was fun, but cumbersome. It would not fit a standard wallet, and after the original curiosity wore off, consumers stopped carrying it.

More importantly, the value proposition was weak.

Collectors were dismayed to learn they could buy the merchandise featured in the catalogue at discounters for the same price without having to collect and redeem Multi-Points.

The program closed in February1993.

Entertainment Plus

This program was launched as a test in southern Ontario in the spring of 1991 and was led by Rogers Cablesystems.

Consumers collected points from retailers, including National Sports, Multi-Tech, Astral Photo, and by using selected cable services such as First Choice.

Similar to other unsuccessful programs, Entertainment Plus collectors could redeem points for free merchandise.

As Stephen Taylor, director of marketing for Air Miles UK recently wrote, many programs fail because ‘the program is boring, [and] the incentive offered does not continue to capture the imagination [of the consumer.]‘

The Entertainment Plus test was shut down after program managers began to see significant collector defections, and the participating sponsors were not willing to continue investing beyond the first year of operation.

Reward America

If free merchandise isn’t aspirational enough, how about free food?

Reward America was launched in early 1990 by Citicorp’s Point of Sale Group. Nineteen food retailing chains and 30 packaged goods brands participated.

Consumers received a quarterly newsletter listing 150 to 200 products eligible for a cash rebate when bought at participating retailers.

Citicorp mailed collectors a cheque good for grocery purchases every quarter based on the number of items they had bought.

This program failed for several reasons, two of the most important being: the quarterly rebates of $30 to $50 were not motivating enough to keep collectors active, and retailers failed to maintain awareness and excitement by aggressively marketing the program through point-of-sale advertising.

As the chart below this column shows, all of the above programs did many things right, but none fully satisfied all the Ten Keys to Success.

The rewards to participating sponsors of coalition loyalty programs can be substantial if properly designed, managed, and supported.

However, the costs can be even greater if the program is not managed by professionals who understand the keys to success, and supported by dedicated companies which have invested to get long-term benefits from the increase in their base of loyal customers.