Beware of Loyalty Backlash!

by Steve Bocska
Steve is the CEO and Co-founder of Pug Pharm Productions Inc., a company specializing in gamification and engagement solutions. With over 20 years of experience in the gaming industry, Steve focuses on using game design principles to enhance user experiences in non-game contexts.

We often hear about the importance of customer loyalty and how it can positively impact a business’s bottom line. Customer loyalty programs have become widespread, with over 3.3 billion memberships in the United States alone. These programs offer tremendous advantages, as members are more likely to make purchases from retailers with loyalty programs, visit their websites or physical stores more frequently, and engage with them on social media platforms. Additionally, loyal customers are more inclined to recommend the brand to their family and friends. But while fostering customer loyalty is indeed crucial, there is a hidden danger that many businesses overlook: customer loyalty backlash.

Customer loyalty backlash occurs when customers become dissatisfied, frustrated, or even resentful towards a brand due to their loyalty program or practices. An article in Harvard Business Review recently looked at the backlash risks inherent with loyalty programs. It reported on how recent research conducted by professors at the Wharton School and the customer experience consultancy the Verde Group has shed light on a significant downside of loyalty programs. When loyal members encounter service failures such as shipping issues, return problems, or stockouts, they experience higher levels of frustration compared to non-members. Since loyalty members engaged with the brand more frequently, they also encountered these service issues more often. Furthermore, the increase in online shopping during the pandemic, where service failures are more prevalent, only compounded the problem, leading loyalty programs to cause significant damage. They referred to this phenomenon as the “boomerang effect” because the loyalty a brand fosters ends up backfiring and hurting the brand itself.

Another study from Wharton involved surveying over 7,500 U.S. retail consumers and found that loyalty program members not only experienced more friction in their interactions with the retailer compared to non-members but also faced more challenges in having their issues resolved. For example, loyalty members surveyed in May required an average of four contacts with the company before reaching a solution, and the entire process took 5.1 days. In contrast, non-members needed only 2.8 contacts and 3.3 days to resolve their issues. This situation is particularly damaging considering that members have high expectations for the level of service they should receive. 

So, how can you prevent customer loyalty backlash? While loyalty programs often come with certain terms and conditions, imposing excessive restrictions can leave customers feeling trapped and restricted. If the program’s requirements are too complex or difficult to navigate, customers may become frustrated and lose interest in participating. Customers also expect a personalized experience in today’s hyperconnected world. If your loyalty program fails to recognize and reward customers based on their unique preferences, purchase history, or behavior, they may feel undervalued and seek alternative options.

Retailers should also avoid solely focusing on the most frequently occurring service failures. Instead, they should audit the customer journey and identify the issues that have the biggest impact on loyalty. Loyalty program perks that alleviate dissatisfaction in the face of service failures include money-can’t-buy access to exclusive offers, events, perks, bonuses, sneak-peaks, and other prestigious rewards. These benefits make loyalty members feel valued and can mitigate frustrations, similar to how frequent-flyer perks can ease travel-related inconveniences. On the other hand, benefits such as special member pricing and gifts have minimal impact on loyalty when problems arise.

Brands should also view consistency to be a key to building trust and loyalty. If your loyalty program promises certain benefits or rewards but fails to consistently deliver on those promises, customers may feel deceived or misled. This inconsistency can erode trust and lead to customer disengagement. And while communication is essential, bombarding customers with constant promotional messages, emails, and notifications can have the opposite effect. It can be overwhelming and lead to customer fatigue, causing them to disengage from your brand altogether. 

It’s also a good idea to avoid isolating loyalty programs within marketing departments and instead integrate them into operations, technology, and finance. This integration facilitates efficient and streamlined service recoveries. For instance, seamless returns require loyalty programs to utilize point-of-sale technology that recognizes repeat customers. Addressing other damaging service failures, such as rudeness from customer service representatives, becomes possible when the loyalty department has the authority to drive operational changes, such as reassessing staffing and training priorities.

Ensure your loyalty program is easy to understand, participate in, and redeem rewards. Simplify the process and remove unnecessary complexities that can frustrate customers. Personalize the experience and leverage data and insights to tailor rewards and offers to align with customers’ preferences, purchase history, and behaviors, making them feel valued and appreciated. Also, be transparent about the benefits and rewards customers can expect. Clearly communicate any limitations or restrictions upfront to manage their expectations effectively.

Remember, loyalty is a delicate balance. Strive to create a loyalty program that not only rewards customers but also respects their needs and preferences. Together, we can build sustainable loyalty and a strong foundation for your brand’s success.