How is your loyalty program doing these days?

If it isn't thriving, the four issues discussed in this article could be at fault. They're among the most common problems that afflict customer loyalty programs and torpedo success in customer value marketing.

Issue 1: Breaking Badly

Breakage occurs when customers earn points but never redeem them for rewards. In some instances, breakage is good and can reduce program costs and liability. But if breakage gets out of control, you risk alienating your customers rather than building loyalty.

Good breakage occurs when those members who passively participate in your program do not receive rewards. Passive members don't work the system; they may not even realize they're members. If they get a reward, it's purely by accident. They're not being induced by the program to make incremental changes in their spending. So, it's OK by you if they don't redeem that reward.

Bad breakage happens when customers get so frustrated with your program that they'd rather lose out on a reward than jump through your hoops. It can also occur when your rewards are too small or so irrelevant that they don't motivate the members to visit your store or even your website to redeem.

In short, bad breakage is a sign that your program isn't actually building customer loyalty—and could be destroying it.

Focus groups and other qualitative research among your program members can help you identify the type of most prevalent breakage. If the needle points toward bad, then it's time to step back and re-examine—and probably refresh—your loyalty program before it reaches its own breaking point.

But you need to be careful...

Issue 2: Overreliance on Self-Reported Data

Proceed with caution and a few grains of salt when you review that customer research—or any self-reported data from your customers. When customers complete your survey, questionnaire, or rating scale, their answers may not accurately reflect their opinions, actions, or intentions.

Why isn't self-reported data reliable? Here are three specific reasons to be cautious of the information customers provide themselves:

• Customers simply may not be able to provide the level of detail asked of them. There are limits to customers' self-knowledge, and many important experiences and feelings happen at a subconscious level.
• The survey process itself can impact behavior. For example, someone may never have considered making a particular purchase—until you suggested it.
• People aren't always truthful; they typically over- or under-inflate when answering. It's not necessarily intentional—they may inadvertently match their response to what they perceive the desired answer should be.

So, what's the solution? First, don't ditch the data altogether. It's excellent for big-picture guidance and general direction. But do consider comparing it to industry averages and definitely bolster it with objective, quantitative measurements—especially actual transactional data, which is the most accurate reflection of customer behavior.

Issue 3: Hoarding Customer Insights

One primary purpose of any loyalty program is to gather valuable customer information. Once you have it, make sure to share it across your organization. Why? One reason: a bigger bottom line. The fact is, by spreading that data wealth, particularly with your merchandising team, you can score even higher returns.

Your merchandising team might not immediately see the gold lurking in your raw customer data. Help them out by creating analyses that demonstrate how they can use the data. Here are two examples.

Market Basket Analysis

Shows: Combinations of items that tend to be purchased together