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When Loyalty Programs Fail: 6 Pitfalls For You To Avoid (With Examples and Lessons)

Nicholas Godwin

Avoid the banana peel of common loyalty program pitfalls

Harvard Business Review says that businesses find it 5 to 25 times harder to get a new customer than to keep an existing one.

Another research from consulting giants, Bain & Company supports the HBR findings. It argues that retaining just 5% of your customer base can increase profits by up to 95%.

And that’s not all.

Existing customers are also found to spend nearly 67% more than new customers.

There’s plenty of reasons why loyalty works, and why you need a loyalty program.

You could be the busy restaurant with loyal customers, or the other one

A 2016 study showed that members of loyalty programs generate 12% to 18% more revenue than non-members.

But customers won’t just stick around at your bar, restaurant, store or studio spending their money because you have a loyalty program. Your business will only benefit from a loyalty program if you do it right.

And when loyalty programs go bad, they could cost you money and customers.

Let’s shine some light on the key customer loyalty pitfalls you should avoid.

When Loyalty Programs Go Bad: Six Common Pitfalls to Avoid 

Generally, poor loyalty programs have two things in common.

  1. They fail to see things from their customers’ points of view.
  2. They can impact negatively on your business.

Many loyalty pitfalls can see your revenue take a nosedive. In this article, we’ll analyze six of the most dangerous pitfalls and how you can avoid them.

Failure almost always follows a predictable pattern. Just like success.

Your business may be small or mid-scale, but you can learn from the failures of bigger brands. I’ll be taking case studies from some of the best-documented loyalty program failures or successes. It doesn’t matter if you run a deli, bakery, café or other local businesses you can learn from these examples.

Pitfall#1: Overcomplicated Loyalty Programs 

Too much going on, too confusing – don’t let your loyalty program get like this

Does your customer loyalty program give the same vibe as the image above? You know, bells and whistles embellished with too many colors and elements—it’s bound to fail. No doubt.

Simplicity reigns supreme even in business.

Customers don’t want to study your loyalty program like a thesis before opting to enroll. And long-winding and confusing loyalty programs are sure to fall flat on its face.

Loyalty Program Mistake: Chipotle’s Chiptopia Rewards Needs Math to Understand


Loyalty program or periodic table of the elements?

Chipotle wrapped up an abysmal loyalty program after they realized it was going nowhere. The program nicked Chiptopia failed on many fronts, but the chief of them was the convoluted and mind-boggling reward scheme.

The problem?

The program featured lots of layers and complicated requirements to qualify for a reward. This caused their ‘simple three-tiered reward system’ to seem like a maze for customers.

Imagine how long it took to figure out that you needed to buy 11 burritos to get three for free. But only if you purchased one per day within 30 days.

As a result, nearly 75% of its customer base found it hard to relate to the scheme. And some did move over to other food chains like McDonald’s.

Tips:

Pitfall #2: Too Difficult to Win Rewards

If it’s too difficult to get any rewards, it’s not rewarding

You’re probably thinking, “Loyalty programs are freebies; I shouldn’t make them easy to win else I could go out of business.”

That’s a wrong line of thought. We can learn from Starbucks.

Loyalty Program Mistake: Starbucks Customers Angry Due to Hard-to-Win Rewards

Starbucks fell victim to this pitfall and got their fingers burnt badly. They moved from a generous rewards system that allowed customers to redeem 12 stars for a drink to a tight-fisted one. In their new system, you needed 125 stars to redeem the same reward!

Customers perceived that Starbucks was giving out much less and demanding much more, and they took to social media loudly.

Once hailed as the best loyalty program in the world, Starbuck’s mistake even opened the door for a competitor to swoop in with their coffee loyalty program:

Time to give our study of the Dunkin Donuts Loyalty Program a try

As expected, their ratings dropped by almost 50%. Although they recovered eventually, Starbucks had to rely heavily on their established brand to make that comeback.

You don’t want to attempt this unnecessary stunt.

Tips:

Pitfall #3: Poor Promotion of Loyalty Program

In this age of the internet, brick and mortar businesses are leveraging online marketing to reap big rewards. And some businesses know how to get it right; an example is Vino Vidi Vici.

Loyalty Pitfall Dodged: Vino Vidi Vici Offers Rewards Worth Winning For No Money

Vino Vidi Vici, an Italian restaurant, decided to create a loyalty program to incentivize current customers. And to gain new ones too.


Their offering was top-notch. Small rewards like extra glasses of wines formed the base reward for repeat visitors. If you visited 100 times, you get to have your name carved on one of their tables – your table. Amp that up to 1 million visits and you get a Ferrari delivered to you.

Of course, the only reason their program took off so well was primarily due to their online campaign. The restaurateur, Makdouli, leveraged mostly free social media promotions like Facebook pages. The impact was nonetheless very outstanding.

As customers discussed Vino Vidi Vici’s rewards program through word-of-mouth, the business gained a healthy reputation, and their message went viral. It was only a matter of time before more people beat their path to the Italian restaurant.

Tip:

Pitfall #4: Program Was Not Data-Driven Enough

Amazon is the biggest e-commerce business today. And they have loyalty programs too.

But they do something differently. They back up theirs with data.

Amazon Prime is that loyalty program. After intensive studies of their customer behavior and preferences, Amazon launched her Prime loyalty program. You get free two-day shipping on almost any product for a $119.99 per year subscription.

Loyalty Pitfall Dodged: Amazon makes more back than the program costs

Some analysts estimate that Amazon spends $1-2 billion yearly on Prime. But with over 100 million prime members who spend over $800 more than non-members, the revenue more than covers that cost many times over.

“Amazon has a secret weapon in Amazon Prime.” – CIRP co-founder Josh Lowitz

On top of all of that, Amazon Prime makes it hard to compete with Amazon.

Tip:

Pitfall #5: Not Carrying Customers Along with the Program 

Loyalty Program Gone Wrong: Air Miles Canada Angered Customers and Still Lost Money

The biggest pitfall in a loyalty program is keeping your customer in the dark about updates you make along the way. Air Miles Canada paid $250 million in losses due to this mistake.

Air Miles Canada made their customers redeem their rewards unduly. The loyalty program owners, LoyaltyOne, announced that rewards earned later than 2012 will expire on January 01, 2017. They’d made this decision without seeking customer consent.

The abrupt change in rewards redemption policy from Air Miles soon attracted customer complaints and attention from the Canadian authorities. Although the company reversed their decision, they’d earned their customers’ anger.

Loyalty Program Gone Bad: Starbuck’s Change Riles Up Customers

Another example of not carrying customers along is Starbucks. The coffee giant learned its lesson the hard way. Starbucks did not communicate their loyalty program changes to their customers well beforehand.

For some of them, their experience involved walking to an outlet only to find out that their points were invalid and that there was a new system in place. We know how that story ended.

Tip:

Pitfall #6: Program Not Coordinated Online 

Your customers use their smartphones often. This is why you need a digitally managed loyalty program. A mobile app, at first glance, may sound like a good idea for engaging with your customers, but customers are already inundated with these mobile apps.

To avoid falling into the mobile app trap, let the emailed receipts you send to customers conspicuously carry their reward balance. That way, the customer sees their reward balance without opening a mobile app or web page. Using web-enabled, automated tracking eliminates any errors and the need for antiquated methods like keychain tags or punch cards.

Here’s How Jones Soda Epitomizes this Advice

Before this point, the business relied heavily on offline methods of marketing and rewards schemes. In some cases, they even showed up at public events just to grab attention. Well, they were nearly acquired by Reeds Inc. in March 2010 due to poor earnings. The business just couldn’t hold out anymore.

They turned it around. And they did it using an internet leveraged reward program!

Jones Soda started their reward program which was centered on getting customers to share the business online to earn points. These points could be redeemed for free beverages.

The soda company maximized the impact of their rewards program by offering points to customers and leads who connected with their brand online.

Jones Soda sends personalized email messages to their members. Their leads earn 100 points if they join the loyalty program. In fact, the soda company would incentivize their customers or leads to

This way, they gained new customers who were only too glad to share his business online for their own points.

The results? More than a decent profit for the beverage business.

They saw a growth of 226% in revenue and 106% growth in e-commerce conversions!

Jones Soda’s customer loyalty program succeeded because they digitized their rewards process.

Tip:

Wrapping This Up

Listed above are six significant pitfalls of loyalty programs and tips to avoid them. If you intend to rake in those mouthwatering profits, then avoid them using these tips. Cheers to your business growth!