5 Dangerous Myths About Customer Retention Programs That Could Be Harming Your Business

August 31, 2017
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I’m going to start this article with a bold statement: running a customer retention program is a good idea for your business.  

Now before you rush to correct me or disagree, let’s consider the retail and ecommerce landscapes.  When you look at the National Retail Federation’s list of top 100 brands, over 50% of them are running some sort of rewards program.

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This isn’t surprising.  With so much competition in virtually every industry, brands need to start exploring customer retention tactics if they want to survive, and since rewards programs are one of the oldest forms of retention marketing they’re an obvious place to start.

However, simply having a customer retention program isn’t enough.  Even the top performing online retailers are guilty of employing reward programs without a fundamental understanding of their customers and why they keep coming back.  Without this knowledge, you run the risk of pushing your customers away instead of reeling them in.

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In order to keep your rewards program out of the danger zone, let’s take a look at some common myths that could be hurting your online business - and what you can do about them.

 

Myth #1: Once a Customer is Satisfied, They're Yours Forever

I don’t know about you, but I don’t think I’ve ever met a single person who has never changed their mind.  Whether it’s regarding the food they like to eat or the type of music they listen to, customers are bound to change their minds, and this “evolution of taste” can have a profound impact on your business.  

customer retention programs myth changes behavior

As your customers’ behaviors and purchase motivations change, they’ll begin to reassess whether your brand is actually the best-suited to meet their needs.  This means it’s unlikely that none of them will start looking at your competitors.  The prevalence of social media advertising only makes this more probable, as crowded newsfeeds make it almost impossible for customers to ignore competitive advertising.

With this daunting reality in front of you, it’s very easy to convince yourself that your rewards program is a strong enough switching cost to keep your customers engaged.  After all, history has shown that customers want rewards programs, right?  Unfortunately, with so many of your competitors offering similar reward solutions, your customers aren’t as locked in as you might think and could be ready to abandon ship at any moment.  

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Preserving Customer Satisfaction with Your Rewards Program

Although your program had enough appeal to entice shoppers to try your brand, assuming it will continue to keep them satisfied on its own is foolish.  The best way to keep them happy is to monitor, reassess, and update your program to improve your overall customer experience.

customer retention programs myth preserver satisfaction

This can take any number of forms, such as revamping your email marketing strategy, reorganizing your program’s structure, or improving your explainer page.  No matter how you choose to do it, actively investing in your rewards program will improve your customer experience and keep shoppers interested, keeping their eyes on your brand.

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Myth #2: Customers Only Value Discounts

Saving money is a priority for many customers.  This is particularly true for savvy opportunists, who are constantly on the hunt for the lowest price, the best deal, and the biggest payout.  Rewards programs are super appealing to this class of customer, which is why it’s not hard to see why so many customer retention programs simply offer transactional discounts.  This type of reward (such as dollars off, percentage off, and free shipping) can have a significant impact on whether a customer chooses to complete a purchase at your store or not.  

customer retention program myth opportunists

As the possibility of a missed sale looms in the background, more and more brands stack their retention strategies with discounts in an effort to keep these customers invested.  This leaves shoppers faced with an array of similarly-structured programs that appear interchangeable, making yours vulnerable to competitive offers once again.

Extending Value with Diversified Rewards

With the threat of lost business riding on the monetary value of rewards, there seems to be a tendency to assume every single customer appreciates the same thing.  This, however, is not the full story.  

For every customer hoping to save a few dollars on their next transaction there is an equal number looking for new and exciting ways to engage with your brand!  These customers want to build a genuine relationship with your store, the foundation of which is true customer loyalty.  After all, loyalty is an emotion - not something that can be bought - and is influenced by your complete customer experience!  

customer retention program myth birthday rewards pizza hut

Incorporating elements like birthday rewards, thank-you emails, and fantastic customer support into your retention program is a fantastic way to lay the foundation for long-lasting customer relationships.  Similarly, branded swag, special events, and advance access to sales are all suitable rewards that you can use to diversify your rewards menu and flesh out a truly personalized customer experience customers won’t want to miss.   

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Myth #3: You Should Constantly Be Rewarding Your Customers

Do you remember when Oprah was still the queen of daytime television?  Almost every episode, audiences would be surprised with a myriad of gifts ranging from free vacations to cash prizes.  Now can you imagine what it would feel like if the chair you happened to be sitting on didn’t have a prize under it?  Needless to say, you’d be pretty disappointed, and might actually tell others not to watch the show as a result of your horrible experience. 

 

With the possibility of this bad press on the horizon, you might be tempted to run a customer retention program that makes it extremely easy for shoppers to earn rewards.  After all, more is more, and what customer has ever complained about receiving more?

The problem with this line of thinking, however, is that it grooms unprofitable customer behavior.  The more your audience receives from your program, the more they will expect, making your program more expensive to run.  As a result, how do you think your customers will feel when they visit your site and the rewards stop coming? Just like discounting, this method of rewarding is highly unsustainable and can end up costing you more than a few customers.

Less is More When it Comes to Your Customer Retention Program

Since the average person is enrolled in more than 14 reward programs, it’s important to remember that your customers understand how these systems work.  In fact, most of your customers likely expect to have to earn their rewards, so don’t override that expectation!

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At the end of the day, you started a rewards program to thank your best customers for consistently choosing you over your competitors.  By making purchases with your store and sharing their experiences with their friends, they are completing profitable actions that benefit your store in both the long- and short-run.  These are the actions that allow you to define them as “best”.  

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Your program’s rewards, then, are intended to complement and encourage these types of behaviors.  When you limit how often customers can cash in rewards, you increase each reward’s impact and open up opportunities for you to surprise shoppers with bonus points.  These unexpected bonuses will go a long way to keep customers excited because they truly feel like something special.  In these ways, your rewards go up in value and your customers feel a greater sense of accomplishment when they earn them, proving that sometimes in life less is more.

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Myth #4: If It Ain't Broke, Don't Fix It

Launching a rewards program can be a lot of work.  However, while taking a step back after starting yours isn’t necessarily an issue, getting complacent is.  With fierce competition raging all around you, you can bet that your competitors are always going to be looking for ways to enhance their user experience.  Based on their customers’ behaviors, they will try to adapt their rewards strategy to make sure their brand is on the leading edge of your industry.

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This means that letting your program stay stagnant simply isn’t going to cut it, and for good reason!  Just because something worked in the past doesn’t mean it’s the best solution, and choosing to ignore the changes around you isn’t going to solve it. 

Feedback Informs Successful Retention programs

Like we mentioned earlier, your rewards program should be designed to show appreciation for those who make a positive impact on your business.  As a result, you need to make sure that you’re delivering an experience that makes your customers smile.

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This is something we’re extremely passionate about at Smile.io.  We believe that the key to creating beautiful experiences is making your customers happy, and that doesn’t come without a healthy feedback loop.  After all, who better to tell you what your customers want than your customers?  

At every stage in your customer journey, you should be making an effort to reach out and invite your customers to share their experiences with you.  Whether it’s through live chat, email messaging, social media, or phone support, your customers should know that you care and want to hear from them about both your program and brand at large.

customer retention program myth feedback mori

You can make this point even stronger by offering them rewards for their feedback, like Mori did in this marketing email.  This makes it clear that you value their opinions and feel they’re worth paying for.  From there, measure your results and make improvements based on the notes you receive.  

While some of the changes you make might seem small, they will undoubtedly make a huge impact on your overall customer experience that customers will notice.  This continuous feedback loop will reassure customers that you have their best interests at heart, incentivizing them to re-engage with your rewards program and shop with your store as often as possible.

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Myth #5: Program Breakage is Saving Money

As a business owner, it’s always nice to save money.  Between advertising, manufacturing, and shipping costs, it can feel like you’re constantly spending more than you’d like, making a high rewards program breakage rate so appealing.  

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In simple terms, program breakage is the percentage of awarded points that are not being spent.  At a glance, a high breakage rate looks like great news - if customers aren’t redeeming their points, it means less financial liability for you!  However, what’s good for your accountant is extremely bad for the health of your program.

customer retention program myth breakage

When it comes to customer engagement, a high breakage rate means that customers aren’t motivated to spend the rewards they’ve earned as a member of your program.  This in turn means they’re unmotivated to earn more points in the future, which is very bad for your store’s bottom line.  With customers disinterested in both earning and spending reward points, your store is left open to competitive ad attacks, putting your retention program on the ropes.

Repairing Your Rewards Program's Breakage with Customer Education

Customers are only going to redeem rewards if they believe their points are valuable.  Having a large number of points means nothing unless the customer understands what they have to gain, and proper program education and promotion is a huge part of that.  Make sure your customers understand the mechanics of how to earn and spend rewards with a fleshed out explainer page, and make that page clearly visible in your site’s navigation menu.

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You can complement this with a points redemption marketing campaign.  These campaigns are great for getting customers excited about your program and give you another chance to fully describe the benefits of participating.  Similarly, you can send your customers regular account updates, letting them know how many points they have and how close they are to the next reward.  For many shoppers, seeing is believing, and these small nudges could be the difference between them actively engaging or passively ignoring your program.

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By providing these types of information both on-site and via email, you give customers every opportunity to learn about the benefits of participating in your program.  All of these factors make your retention program one value proposition that’s hard to refuse.

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Gain True Loyalty with an Effective Customer Retention Program

When it comes to your rewards program, it’s always important to make sure you have your facts straight.  Myths like the five we discussed here can be extremely detrimental to the success of your business, and put a damper on the awesome customer experience you’re trying to provide.  

Thankfully, we now have five great takeaways that will help keep you - and your program - on track:

customer retention program myth summary

  1. Keep your customers satisfied with a program that evolves to suit their needs
  2. Extend the value of your program by diversifying your rewards
  3. Make your rewards truly valuable by rewarding for profitable actions
  4. Incorporate customer feedback into your program’s development
  5. Educate your customers on the benefits of your rewards program

 

With this advice in mind, you’re now equipped to deliver a world class rewards experience to every single one of your customers - and that’s the truth.

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