What are the common challenges and pitfalls of running referral and loyalty programs?

Lack of clear goals is one of the problems frequently reported by managers and program owners when it comes to referral and loyalty programs. It becomes very challenging to monitor achievement when there aren’t specific objectives set. To avoid this, determine what you want – increased sales, customers loyalty, or brand awareness – and establish goals. For instance, if your goal is repeat purchases, offer points that customers will be happy to earn so as to enjoy rebates next time they come for a purchase. This keeps them engaged. In practice, endeavouring to set a solitary purpose allows for better efficacy and expanded straightforwardness in terms of effectiveness.

I’m my experience you want to avoid any ‘British Airways Hoover’ type schemes and ensure that your Marketing Agency are clearly briefed on the acquisition costs associated with any Loyalty programme

Any Loyalty programme must assess existing customer vs new customer offers as keeping existing spending is the prime aim and you don’t want to give discounts to already loyal customers and balance the need to acquire new loyalty.

Choosing the right metrics involves aligning them closely with your goals, ensuring relevance, measurability, and actionable insights. Focus on metrics that matter for your business context, avoiding vanity metrics that might look good but don't contribute meaningfully. Regularly review and adapt your chosen metrics to stay aligned with evolving goals and make informed decisions based on the data obtained. Contextual understanding and tracking actionable insights from these metrics are key for effective decision-making and achieving desired outcomes.

The timescales for running any Loyalty must be an important factor to consider before embarking upon any scheme. Also the scale of the loyalty discount being offered needs to be in tiers to encourage uptake and retain interest.

Through effective Data Segmentation can greatly assist in the evaluation and monitoring trends of use and activity will help to tailor the overall programme

Use Behavioural Biases to optimize your program. Reciprocity Bias: Use the tendency to reciprocate favors. Implementation: Create a program where successful referrals benefit both parties, tapping into reciprocity and encouraging more referrals. Social Proof Bias: Exploit social proof by showcasing the popularity and success of your referral program through leaderboards, notifications, or testimonials. Implementation: Highlight positive experiences of referrers to motivate others to participate. Loss Aversion Bias: Capitalize on the fear of loss by framing the referral program as a missed opportunity for savings or exclusive benefits. Emphasize potential savings or exclusive benefits, leveraging loss aversion.

The hardest thing about referral programs is manufacturing the actual referral. In my experience, both as a referrer and a benefactor, the referrals that happen are driven by the love of the product vs. an incentivized marketing program. That is to say that marketers, or other teams, have little to no control over if, when, and how people refer others.

Loyalty redemption made simple will help ensure that the program is a valuable USP that ensures that all segments are growing in their overall spend.