Loyalty Marketing: The Good, The Bad, and The Ugly

Loyalty marketing rewards customers for their repeat purchases or interactions with a brand. It’s big business and increasing in importance for these key reasons:

• For brands, it’s more critical than ever to have one-to-one relationships with customers. That provides the ability to collect customer data and insights and market directly to customers - and often loyalty members are a brand’s best customers.
• Consumers are increasingly signing up for loyalty programs to find value and fight inflation.

While there is clear “good” in loyalty programs, there are also “bad” and “ugly” characteristics.

• The Good: Loyalty programs offer multiple benefits, including increased customer lifetime value, the ability to collect data and insights for improving products, services, and the overall customer experience, and serving as a gateway to personalization.
• The Bad: Despite the benefits, challenges persist in loyalty marketing. Differentiating a loyalty program from competitors and determining the appropriate frequency of communication with members remain significant obstacles for marketers.
• The Ugly: Fraud poses a major threat to loyalty programs. The report identifies common forms of loyalty fraud, such as exploitation by professional hackers and customers taking advantage of loopholes or errors in program rules. It also found that 33% of respondents are with organizations where the loyalty program has been subject to fraud, but almost half of respondents (46% of respondents) don’t know if their organization’s loyalty program has been subject to fraud.

It should be important to organizations with loyalty campaigns that all potential forms of loyalty fraud be prevented. Preventing fraud means finding the gaps in the system, which can be far easier said than done. Key steps to take toward protecting loyalty programs:

• Review past campaigns. Look for outliers in the performance metrics and follow the full journey from impressions to clicks to downloads to signups to point accumulation and redemption.
• Consider your benefits. Loyalty member benefits and program capabilities can often be tailored to prevent the practicality of program compromise. For example, if points can’t be transferred or converted to real currency, the incentive for fraudsters decreases.
• Conduct a top-to-tail audit for vulnerabilities. Loyalty fraud isn’t one attack. It’s several, each of which has different impacts and different entry points. A comprehensive indepen­dent audit of loyalty program design, promotion, and execution can uncover where fraudsters may target, preventing financial and reputational damage from an attack.
• Partner with a specialist in loyalty fraud. Loyalty marketers should have the freedom to focus on loyalty marketing, designing new promotions and benefits that distinguish their program from the competition. Partnering with an organization specializing in protecting and monitoring loyalty programs and campaigns for fraud can free marketers to spend their time on creative solutions to the various other challenges and opportunities of loyalty marketing.
• Break down internal silos. Loyalty programs include advertising, apps, and accounts, and the teams that protect each of those are often different. Ensuring those teams talk to one another about the whole customer journey is crucial to keeping fraudsters out of the program.
• Design for the possibility of fraud. Organizations should consider how to address fraud from the start, i.e., when they are designing their loyalty program and/or initiating new rewards or promotional offers.

We conducted a number of qualitative interviews to help inform the report. This comment stood out:

• “They’re not really hackers; they’re fraudsters. And they are a major concern. These guys are definitely finding ways to get access to customer credentials to go in as the customer and redeem their points and they know it’s an easy target. Talking to my colleagues in the industry, we are now seeing way more of that across the board because they feel like it’s a soft underbelly or we haven’t protected it enough and it’s easier for them to go after. But in the general industry, I would imagine most people don’t have fraud controls around loyalty because they’re not expecting a lot of fraud. And that’s a major opportunity for fraudsters.”

Loyalty programs are everywhere – airlines, hotels, quick-service restaurants, and more. Marketers – pay attention to the potential for fraud. Access the report at www.ana.net/loyalty.

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The opinions expressed here are the author's views and do not necessarily represent the views of MediaVillage.org/MyersBizNet.