Customer Loyalty Program Mistakes That Kill the Idea at the Root

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The complexities associated with the incentive model are laid down at the design stage. The company's management may think that implementing a loyalty program is easy and simple. Accrued in one place, written off in another. The main thing is to buy the right software, and everyone will be happy. Alas, the picture looks somewhat different.

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Behind the apparent simplicity hides a great deal of analytical work. The right type of customer loyalty program and its competent design include mathematical models, consumer psychology, and trade marketing.

You can't give out discounts without understanding where the money comes from. Otherwise, such uncontrolled charity will hit the company's financial indicators. There will be no sharp increase in the number of buyers from the first months of the program's launch. But the business's profitability will decrease during this interior designers service email list time, because part of the budget will have to be spent on paying bonuses and salaries of specialists servicing the system.

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It is well known that loyal consumers are the most active participants in the system. They purchase the company's product regularly, the required number of times, and are unlikely to do so even more often. Their share of wallet (the share of purchases from the total need in the category) is close to 100%. Customers who purchase goods occasionally receive almost no bonuses, and therefore do not participate in the loyalty program. As a result, the level of support for the interest of active buyers in the company's product practically stands still and even decreases if they have to pay too many bonuses. And the second group of customers, who could influence the growth of consumption, is left without any incentive.

This speaks of an ill-conceived, poorly designed scheme. To avoid such mistakes, a loyalty program project must combine the use of mathematical, economic models and knowledge of consumer psychology.

A set of levels and the organization of targeted promotions aimed at forming and increasing the number of regular customers will help to increase the economic return of the system and make it more attractive to all consumer groups.