3 common missteps that undermine loyalty strategies


Re-evaluate customer loyalty strategies to deliver increased marketing ROI


Companies in every consumer industry are investing in loyalty programs to improve the performance of their brands and achieve a better ROI on marketing. According to estimates, more than 60% of retail and hospitality brands have loyalty programs, collectively spending more than $300 billion annually. That’s a massive investment, and brands often emphasize the strategic role of their loyalty strategies in investor relations statements. Yet, most organizations struggle to achieve the loyalty success they envision. 


The challenges of loyalty marketing start with misplaced assumptions about how loyalty programs really work.


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This table compares two sets of bullet points describing “expectations vs. reality” for loyalty programs. The left column set is under the header “What brands expect from loyalty programs” while the right column set is under the header “What brands actually experience with loyalty programs.”



If these patterns resemble your brand’s loyalty program, you are not alone. And, if you’re not sure of your program’s metrics, you will be surprised by what you find.


Another indicator that loyalty success may be elusive is the consistent rate of change in loyalty designs and structures across industries — from adjusting reward structures, to shifting from dollars to points, to adding tiers and many other changes. The numerous changes suggest that few brands have found the key to unlock customer frequency. So, if a brand is emulating the design of another company’s program, there’s a good chance that it is following a program that is struggling to find success.


Most loyalty program performance challenges can be traced to a few key missteps that are shared by many companies.




Misstep No. 1: Brand-centric vs. customer-centric focus


Many loyalty program strategies start with the objective of influencing customers to buy more often, buy a greater range of products, and increase basket size. These are all sound business goals, but they start from a brand-centric point of view. They describe the behaviors a brand would prefer to see from its customers.

Kevin O’Connell

“Customers buy products based on their needs and desires, which in most categories results in variable frequency, and is completely normal.”

Kevin O’Connell

Grant Thornton Managing Director, Growth Advisory


The reality is that, while companies aspire to have consistent and growing frequency within their customer base, consumers live their lives around activities, not products and services. "Customers buy products based on their needs and desires, which in most categories results in variable frequency, and is completely normal,” according to Grant Thornton Growth Advisory Managing Director Kevin O’Connell, who works with clients related to customer frequency and marketing. “The reason customer behavior in most industries looks erratic is that individuals’ needs aren’t consistent.” When brands develop their programs based on brand-centric strategies and goals, they are often trying to create demand, asking customers to fulfill needs that they don’t have.


The key to success is to develop a customer-centric loyalty strategy, based on understanding customer needs and offering products when and where people want to buy them. This approach accepts the premise that customer demand will be naturally inconsistent, but it sets a primary goal of having the brand be top of mind every time a relevant customer need arises. This strategy is built on the principle that it is easier to capture demand than it is to create demand. However, to achieve a customer-centric approach, brands need robust customer analytics to understand customer segments and to ensure that the brand’s products and services meet the target customers’ needs better than competitive options.




Misstep No. 2: The loyalty design process … ready, fire, aim

Kevin O’Connell

“If you’re modeling the features of another program, there is a good chance that you’re emulating a program that’s not working well.”

Kevin O’Connell

Grant Thornton Managing Director, Growth Advisory


Because loyalty programs are so prevalent, many brands implement a basic program by borrowing loyalty design ideas from other loyalty programs. The speed of bringing a program to market is often perceived as more critical than aligning a brand’s program with customer insights. 


As we’ve learned, most programs face the same challenges. “If you’re modeling the features of another program, there is a good chance that you’re emulating a program that’s not working well,” O’Connell said. It’s important to have a clear understanding of your brand’s customer experience and how loyalty strategies will not only enhance that customer experience, but also make the brand more compelling.




Misstep No. 3: The ‘loyalty incentive trap’


Because many loyalty programs are measured by the consistency of customer return, brands often fall into the “loyalty incentive trap.” Brands initially attract customers by promoting brand differentiators and then sign them up for loyalty programs. Once brands can track customer data, they see the erratic customer purchase behavior that is typical in most consumer categories and misinterpret it as underperformance. As a result, they often begin aggressive discounting and offer incentives to try to “regain” the customer frequency they expect.


A key driver of the loyalty incentive trap is that brands often prioritize the importance of marketing performance metrics—join rate, frequency trends, redemption rates, lapsed customers—over data that reveals customer insights: demand triggers, customer values, behavioral/product segmentations, and brand differentiators. These customer insight elements reveal where and when the best market opportunities exist to grow sales and traffic within your loyalty program.


Ultimately, underperforming loyalty program designs result in wasted resources and costs. Marketing budgets and personnel are precious resources. Ineffective strategies can distract the organization from the real drivers of customer success and, ultimately, result in missed business objectives.




Getting loyalty strategy right


To start from a customer-centric perspective, some key inputs are required to feed the strategy.

  • Mine customer data for behavioral insights – Analyze customer purchase patterns to reveal customer segmentation schemes and insights around brand usage to feed the marketing strategy.
    • If a loyalty program already exists, customer insights can be found in the transactional data. However, most loyalty platforms aren’t designed to offer the analysis needed to mine for customer behavioral patterns. Customer data often needs to be exported to an alternative tool for analysis.
    • If a brand doesn’t have loyalty data, it’s critical to understand what other data is available to build customer and behavioral hypotheses. Often, tokenized credit card data or other customer identifying data can be an invaluable tool to look at behaviors of the overall customer base.
    • Finally, qualitative data is often needed to add contextual insights. Quantitative data can identify the “what” of behavioral patterns and customer segments, while qualitative feedback from customers adds context to the “why” and identifies the “jobs to be done” that your brand serves best. Through customer interviews, surveys and other qualitative research methods, you can learn more about the customer journey, including the situations that trigger demand, key competitors considered and the decision criteria that drive brand choices.
  • Build a cohesive customer storyline – Leverage behavioral insights and analytics to build a story about customer segments, values and behavioral triggers that can be shared within the organization. Establishing a unified understanding of customer insights across the organization, and especially among the executive team, is critical to build buy-in with key stakeholders for new strategies.
  • Understand competitive positioning – Gather data to build clarity for where the brand wins and loses, and why. Identify the brand elements that are compelling to customers in the market and can drive market share. Prioritize the differentiators that best position the brand to win within each target customer segment.
  • Identify strategic opportunities – Identify the markets and customer segments and the strategies that offer the best opportunities for the brand to capture market share and define the metrics for success.

Once the insights and opportunities for a brand are clear, the loyalty strategy can be designed to maximize the brand experience and build brand affinity:

  • Establish clear loyalty program objectives using customer-centric insights.
  • Integrate the loyalty program into the customer experience.
  • Set up a reward structure that is attractive enough to encourage membership but is also financially viable for your organization.
  • Build a roadmap for execution and establish clear metrics for success.
  • Adapt and learn as new customer insights are captured.

Customer behavioral insights and recommendations improve loyalty program ROI



  • Challenge: A B2C fast-casual restaurant brand’s loyalty program was not performing as the brand was trying to grow quickly. Loyalty-related costs were increasing, but not realizing incremental results.
  • Solution: Grant Thornton’s customer strategy team was engaged to analyze customer purchase patterns, create a clearer understanding of behaviors in the loyalty program, and make recommendations to improve program performance to grow the brand faster.
  • Results: Grant Thornton’s customer analytics insights transformed the brand’s understanding of the purchase patterns within the program and the drivers of behavior. Grant Thornton's recommendations identified key strategy changes, including a new customer segmentation approach and personalization strategies. The new strategies resulted in increased customer engagement and sales while reducing reward costs, delivering a clear win for both brand growth and the marketing budget. 

Scenario: Loyalty program adding costs, not customers

An emerging B2C fast-casual restaurant brand had implemented a loyalty program to capture new customers and increase frequency and brand affinity as the brand grew. However, the loyalty program was not performing, and loyalty transactions were flat and starting to decline. Loyalty-related costs were also increasing, but not realizing incremental results. The brand needed to understand what was driving the underperformance and how they could improve the results as they opened new locations.


The result: Increased customer engagement and sales and lower loyalty reward costs

Grant Thornton’s customer analytics team provided the client brand team with unexpected and invaluable insights into customer behaviors and buying propensities, which spotlighted new opportunities for growth.


Acting on Grant Thornton’s customer insights and recommendations, the client marketing team made dramatic changes to the loyalty marketing strategies and approach. Email marketing using new customer segmentation and personalization strategies resulted in a 15% higher open rate than the prior general campaigns and even performed better than promotional offer emails.


More importantly, the solution increased both customer engagement and sales while reducing the number of rewards redeemed, delivering a clear win for both brand growth and the marketing budget. In the year following the implementation of the recommendations, the client achieved a 14% increase in loyalty transactions while, at the same time, reducing the share of transactions with a reward by 34%. 


The approach: Finding solutions in better customer insights and focused recommendations

First, Grant Thornton’s customer strategy team conducted a deep dive into two years of the brand’s loyalty transaction data to identify customer purchase patterns within the loyalty program. The analysis revealed some key challenges:

  • The vast majority of loyalty members (72%) had low frequency patterns.
  • Nearly 75% of rewards were not being redeemed.
  • The top customers had a high variability of frequency, and the customers in the top 20% were regularly turning over.
  • Customer segmentations based on current frequency were not predictive of future purchase behavior.

Next, the Grant Thornton team built a clear narrative to highlight customer insights and enable a transparent and shared understanding within the executive team of customer behavioral patterns and the key strategic opportunities to improve loyalty performance. This was key to building confidence and buy-in for new strategies.


Finally, Grant Thornton provided a series of recommendations to help the client move to a more customer-centric approach to loyalty strategy, including a new customer segmentation approach and personalization strategies.


Ultimately, if you have a deeper understanding of your market and customers and take a customer-centric approach, you can implement more effective strategies, grow customer traffic, and achieve a better ROI on loyalty marketing investments. 



Kevin O’Connell

Kevin is a Managing Director in the Strategy %26 Transactions advisory practice. He has extensive experience analyzing customer markets and developing strategies for growth.

Pittsburgh, Pennsylvania

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