The 11 reasons loyalty programs usually fail — and how you can avoid them

Loyalty programs are instrumental to revenue growth at many ecommerce brands.

But success isn’t guaranteed.  A few common pitfalls mean some brands fail to unlock the true potential of loyalty:

• Inadequate rewards
• Overly generous rewards that concede too much profit margin
• Not choosing the right type of loyalty program
• No personalization
• Complicated redemption process
• Lack of segmentation and behavioral analysis
• Poor promotion and communication
• Rewarding only transactions
• Not tapping into your customers’ values
• Not encouraging referrals
• Not building for scale

Good news, however. They’re easily avoided with a quality loyalty platform that’s designed to motivate customers and protect your margins. Read on to discover how.

Over 50% of loyalty programs reportedly fail, and most of them make the same common mistakes

Google ‘what percentage of loyalty programs fail’, and the answers could make you regret you ever asked. Supposedly, it’s anything from 20% to 97%. Helpful, right?

What you really need to know is that, yes, it’s possible for a loyalty program to fail. 

But if you’re here to learn why, you’re already on track to avoiding that. So, what makes a program succeed vs one that fails? The answer is simple.

• It’s not the amount of time your team puts into maintaining it…
• It’s not even the amount of investment you make in the program….

Answer: Finding the right balance between giving away too much and not motivating customers enough.

A successful loyalty program must be motivating for customers to make repeat purchases. However, it must do this without compromising your product margins or making things difficult for your team. 

The good news is that true loyalty always pays dividends when you unlock it. And the great news? Quality loyalty platforms based on industry-leading expertise can take loyalty programs from non-existent or mediocre to revenue-driving machines, making avoiding those mistakes easy.

The best loyalty programs find and maintain the balance between compelling rewards and secure margins, and then shout about the program to customers! This results in revenue growth you can rely on, your customers love, and that your board is thrilled by.

So, what loyalty program mistakes are possible, and how can you avoid them? Read on to find out.

Inadequate rewards

A loyalty program won’t engage customers unless it has truly valuable rewards.

The key is finding the balance between rewards that excite and motivate your customers, and those that keep your own margins healthy. One of the best ways to do this is offer rewards that align with values you and your customers share. 

Consider sustainability. If your brand prides itself on being green, it’s likely that sustainability-based rewards will be a hit. Why not try:

• Points for recycling unwanted products
• A free re-usable item added in one click to the basket at checkout
• Rewards that donate to sustainability-based charities
• Points for shopping your brand’s pre-loved sale

For example, Astrid & Miyu offer 1000 points for recycling old jewelry, even if it’s from other brands. Those points are enough to secure customers a £10 off reward for their next order. As a result, they are motivated to return for a repeat purchase.

Or how about offering discount rewards specifically for reusable product lines, like Origin Coffee does through their loyalty program, The Circle? 

For more reward ideas that will feel valuable to customers, check out our best practices for setting rewards.

Overly generous rewards that concede too much profit margin

It can be tempting to use your loyalty program to lower prices for your loyal followers.

However, brands quickly learn that this doesn’t pay off. The resulting increase in order values and purchase frequency from those customers won’t make up for the hit to your bottom line.

The great news is that brands don’t need to suffer. Instead, add experiential rewards into your loyalty program. 

Creative and personable, experiential rewards unlock generosity that doesn’t hurt your bottom line. Consider the knowledge, advice, and experiences that your team can uniquely offer. How about:

• A personal styling session, like Never Fully Dressed offers their top-tier members
• The opportunity to participate in a product development workshop
• Early access to new collections – why not emulate Au Vodka’s program?
• Exclusive event invitations – like Sisters and Seekers’ Seekersville program

It’s simple. You’re not giving products away, so your usual margins remain intact. Instead, you’re leveraging the inherent value of your brand’s people and processes. 

Peeling back the curtain and showing customers how your brand really works increases trust. In turn, it makes loyal fans even stickier and more likely to repeatedly purchase in the future.

There are so many more experiential rewards ideas to explore – check out our top 10 custom reward examples.

Not choosing the right type of loyalty program

Not every type of loyalty program will work for your brand. Choosing the right one depends on your business model and how your customers shop with you.

Here’s what you need to know to choose the right type of loyalty program:

Points-based loyalty programs  

These reward customers with points for every purchase or positive interaction. Points can then be redeemed for rewards, like free products, shipping or exclusive experiences. 

Points-based loyalty programs are best for:

• Brands with frequent, smaller transactions, like fashion and beauty
• Brands struggling with low average order values (AOV). A bigger purchase earns more points, so customers are encouraged to spend more per order, driving up AOV

Want inspo? Check out Represent Clothing’s program, driving a huge 20% of the brand’s total revenue.

Value-based loyalty programs 

These programs reward members for actions that align with the brand’s values, such as social responsibility, sustainability, or community involvement. They help forge deeper connections with your customers.

Value-based loyalty programs are best for:

• Brands struggling with high acquisition costs. Loyal customers keen to advocate for your values attract like-minded shoppers through referrals 
• Brands looking to reduce churn. Highlighting brand values builds emotional bonds that are harder to break

A great example is Ethique Rewards, which secures 3.5x more value from loyal customers vs non-members.

Tiered loyalty programs

The higher your climb, the sweeter the rewards. VIP tiers categorise customers based on spending habits or engagement, and offer increasingly valuable rewards as you progress.

Tiered loyalty programs are best for:

• Brands struggling with low purchase frequency – members are motivated to purchase faster to rise through tiers and unlock better rewards
• Brands looking for better program engagement. A tiered system has a natural gamification effect that customers can’t get enough of

Want proof? Astrid and Miyu’s fresh and compelling VIP tiers are textbook, now driving 3.4x more spend from top-tier Diamond members. Check them out!

Subscription loyalty programs

As the subscription economy grows, it’s prime time to integrate loyalty into your new models. Members receive premium rewards if they subscribe to regular deliveries.

Subscription loyalty programs are best for:

• Brands with a high purchase frequency. Think pet food, deodorant, coffee – your customers can’t afford to run out!
• Brands seeking recurring revenue. Incentivize subscriptions through loyalty, and you can rely on a reliable source of income that generates long-term profits

A shining example is Waterdrop, who sell flavoured cubes for hydration. With a subscription tier, supported by our fantastic integration with ReCharge, repeat purchases jumped up by 70%.

Program types don’t stop there. Other types include:

• Hybrid loyalty programs – combining elements of different types
• Coalition loyalty programs – where two or more brands pool their resources together for one powerful loyalty program
• Paid loyalty programs – customers pay a fee in exchange for benefits. Beware: if customers already receive benefits like free shipping through other loyalty programs, convincing them to pay for yours can be tricky

No personalization

Ever received a ‘Dear Customer’ email from a loyalty program? It’s irritating – not least because it shows that the brand you’re committed to doesn’t appreciate your loyalty.

Loyalty program data is plentiful. Use it! 70% of customers say they would be loyal to a brand if they got personalized offers, and 82% would share some type of personal data for a better customer experience. 

So, chances are you’ll lock in loyalty faster with personalization.

The opportunities are endless:

• Personalized email and text messages, including their points balance and available rewards
• Rewards on the member’s birthday
• Product recommendations from quiz answers they exchanged for loyalty points
• Free product rewards in the cart, based on their most-bought items

Whatever way you leverage loyalty data, personalization helps your loyal customers feel closer to your brand and more likely to return for a repeat purchase.

Quizzes are a great example. Incentivize customers to complete them with insights into their lifestyle and preferences — Esmi Skin does a great job of this with their skin quiz. Members get points for completion, and Esmi Skin can then use the data to personalize product recommendations for individual customers.

Complicated redemption process

Increasing the redemption rate of your loyalty program – the proportion of earned rewards which are actually redeemed – isn’t just down to how valuable your rewards are.

If your redemption process is too complicated, customers won’t make it over the line – and might even abandon their cart. Issues include:

• Lack of visibility on points balance or available rewards
• Unclear messaging about how to redeem rewards
• Being slow to tell customers about rewards they’ve earned

Global data shows that the redemption rate of all loyalty program rewards (including points, cashback, and other rewards) totaled 49.8% in 2023. Making it over this benchmark requires clear communication. Use a simple process:

1. Mention across email and text channels what rewards a member has earned
2. Link them to the website or app, where their points balance and available rewards are clearly visible
3. Create an integrated loyalty page, personalized to each customer, which tells them exactly how to redeem rewards
4. Include clear redemption instructions in the checkout too
5. Mention points spent, rewards redeemed, and new points earned in post-purchase pages and emails

Lack of segmentation and behavioral analysis

Treating every member of your loyalty program the same? You could be jeopardizing its chances of success. 

Loyalty programs naturally have a wealth of data hidden in purchase statistics and customer accounts. However, if you fail to translate this data into different experiences, your program is likely to fall flat.

Segmentation is the key. It allows you to personalize the brand experience for each customer. Use this data to tailor your loyalty messages and offers to perfectly motivate each separate group to repeat purchase and climb the VIP tiers.

For instance, segment by:

• Purchase history data, including Average Order Value (AOV) and purchase frequency
• Loyalty program participation data, such as how often a customer uses rewards and what kind of rewards they prefer
• Engagement with your brand, like whether they follow you on social media or often open emails from you
• Zero-party data, like information customers share on their needs via quizzes 

Consider recency, frequency, and value of purchases, product preferences, and customer demographics when segmenting your loyalty program members. 

Create segment personas based on what particular types of customers want, then choose how to reward each group optimally. For instance:

• Create VIP loyalty tiers for your high-value customers
• Offer bonus loyalty points to less frequent buyers for purchasing within a specific timeframe
• Create bundled product offers to appeal to customers who love bargains
• Build habitual purchases with less frequent buyers by introducing subscription services for the products they buy

Use a high-quality loyalty dashboard to see the difference in behavior between different demographics.

A great example is Astrid & Miyu, who reserve their ‘early access to sales and promotions’ perks for customers in the Silver and Gold tiers. To reach those tiers, customers need to spend a minimum of £200. This means that only the most loyal, high-value customer segment is rewarded with this VIP perk.

Poor promotion and communication 

Even the best-designed loyalty programs are nothing without effective promotion.

Don’t forget: promotion isn’t just about enrolling new shoppers into your program. Revenue growth comes from increasing customer lifetime value (CLV), through boosting returning customer rates and the AOV of those customers. 

So, your promotions need to lay the foundations for long-term growth. They must:

• Grab the attention of existing and new customers during program launches
  • How? Why not try a punchy video and landing page with sign-up form?

• Keep member engagement up
  • How? Offer regular members-only promotions and special offers to keep membership feeling elite and special

• Increase the CLV of redeeming members
  • How? Use VIP tiers to compel members to spend more so they can access increasingly exclusive perks and coveted experiential rewards

• Continually create FOMO for non-members or non-redeeming members
  •  How? Showcasing program experiences via social media and comms channels, such as video testimonials or reviews from other members

• Boost new customer acquisition
  • How? Promote customer referrals by making the generous points bonus endlessly clear on- and off-site

Take clothing brand P&Co. Their LoyaltyLion-based program has a cool visual identity that encourages interaction wherever it’s featured; in on-site promotions, personalized loyalty emails, social posts, BAU marketing comms, and many more.

Rewarding only transactions

It’s understandable why some brands want loyalty programs that only reward purchases. Loyalty programs must always come back to revenue growth, after all.

However, this is a slow road to success. It doesn’t build the foundation of a truly loyal community that will ultimately support your business growth through thick and thin.

Instead, you need a value-based loyalty program. These programs build strong, resilient programs by rewarding a wide variety of customer interactions:

• Purchases
• Loyalty program enrollment
• Social follows – Instagram, X, TikTok, Facebook
• Referring family and friends
• App downloads
• Leaving a review
• Sharing birthday information
• Custom activities – whatever your brand wants customers to do. We’ve seen: in-store recycling, shopping your archive, completing a quiz, and loads more!

By rewarding different types of brand engagement in addition to purchasing, your loyalty program helps you level-up all your business strategies. That could be anything from boosting email open-rates in marketing, to shifting last season’s stock in product, to helping a newly-opened store thrive in omnichannel. 

Sure, you don’t necessarily generate direct revenue each time you give out loyalty points, so proving the impact of a values-based program is different from focusing on purchases alone. 

But the cumulative effect of a loyal community, which comes from a combination of all these activities, is soon visible through CLV statistics and revenue growth. These are clearly visible on loyalty program dashboards which, for a successful program, show:

• Loyalty’s contribution to total revenue climbs each year the program is live
• Members have higher purchase frequencies than non-members
• Order values from redeeming members dwarf those of non-redeeming members

For a shining example of how a values-based loyalty program has increased its impact over eight years, check out Bombshell Sportswear’s amazing story. Loyalty now contributes an incredible 40% of total revenue, fuelled by VIP tiers, custom rewards, and members-only sales.

Not tapping into your customers’ values

Your loyalty program is a chance to stand out from the busy ecommerce crowd.

But did you know that 88% of Shopify brands cite loyalty programs as a key revenue driver, according to our research?  It means that if your brand doesn’t have a distinctive, attractive program, you can bet your competitors will.

As a result, generic programs won’t cut it for long – leading your customers to shop around and connect with other brands. 

The best way to make your program stand out? Tap into customer values.

Your customers likely share the same values you do and want to connect emotionally. Run a sustainable coffee brand? Your loyalty program members probably care about the environment. Work for a supplements brand? Your members value wellness. 

There are so many ways to use your loyalty program to reinforce these shared values and help customers truly feel part of your brand. How about:

• Offering points for recycling in-store, like Astrid & Miyu
• Allow members to submit ideas for new designs and products, like LEGO does
• Incentivizing quiz participation to offer personalized skincare routines, like the INKEY List

Not encouraging referrals

Not using your loyalty program to boost new customer acquisition? You’re missing a trick – and harming your bottom line by continuing to pump money into costly advertising.

Referrals from existing customers are among the best ways to bring in new customers. 

Customers acquired via referrals have a 37% higher retention rate and a 16% higher customer lifetime value.

Plus, loyalty programs are one of the best ways to encourage referrals. It’s simple. Offer loyal members a large number of points in exchange for a successful referral. The new customer then receives an equivalent discount off their first order – a win-win for both parties.

Naturally, customers secured through member referrals also have a higher chance of becoming loyal customers themselves. So, with a loyalty program, you’re not just acquiring customers – you’re acquiring the highest value customers possible, for a fraction of the usual cost.

Check out Ogee’s story. The skincare brand ensured that a referral was the only way a new customer could receive a discount. The new customer receives $15 off their first purchase over $100, and the friend who referred them secures the equivalent of 1,500 loyalty points to redeem against future rewards. It’s driven over 45,000 site visits and 1k new members so far!

Not building for scale

If you’re hoping for lifelong customer loyalty, you can’t get there without a loyalty platform that will scale with you.

Brands that don’t build for scale are setting their loyalty programs up to fail because they will start to under-deliver as more loyal members enroll.

Instead, choose a platform that maximizes engagement, personalization, and repeat purchases at every stage as you grow and scale. Your platform should:

• Give new programs the best start, based on years of launch experience
• Constantly innovate the highest quality features to optimize loyalty returns and keep your program at the frontier of retention best practices
• Allow your team to tweak and optimize seamlessly as you scale
• Connect loyalty to platforms you use daily, like Klaviyo, Attentive, Gorgias, and so many more
• Provide the latest, freshest expert advice on what loyalty practices are working across ecommerce, and what would work for your program
• Offer the highest quality analytics to help you continually evaluate and optimize your program

With 12+ years of experience in ecommerce loyalty for revenue growth, LoyaltyLion’s platform has been built and refined by the no.1 loyalty experts. Let’s chat about how you can build a loyalty program that grows and scales with your Shopify business today!

How some of the best loyalty programs avoid common pitfalls

Avoiding these pitfalls is simple with a quality loyalty platform and a focus on how your customers shop with you. Check out some of the best ways top brands have grown revenue by avoiding these mistakes below:

Avoiding inadequate rewards

• Represent Clothing uses its scarcity tactic to offer valuable perks and rewards to customers, without damaging its margins. Early access to coveted product drops gives members an exclusive window to purchase before the items are made available to the public. The result? 20% of total revenue is driven by loyalty, and members have 4x the CLV of non-members.

Balanced rewards that don’t concede too much profit margin

• The INKEY List finds that perfect balance by offering members-only discounts alongside compelling VIP tiers with exclusive perks. The result is that loyal customers buy more than ever! It produces a 3.4x higher CLV from program members, and 25% of revenue comes from loyalty activities.

Choosing the right type of loyalty program

• Barnes & Noble Membership is one of the best subscription rewards programs —and given books are a frequent purchase for much of  its target audience, the subscription model fits well. It involves an annual fee for exclusive discounts, free shipping and special offers. It’s also one of the most successful.

Using personalization

• Annmarie Skin Care’s Wild and Beautiful Collective brings members together, but offers each that personalized loyalty experience through an integrated loyalty page. As a result, the brand enjoys high levels of engagement with members, with 40% of points being redeemed within three months of being awarded.

Easy redemption process

• Sephora’s Beauty Insider program has mastered VIP tiers. It segments members into Insider, VIB, and Rouge tiers, offering different experiences for each to encourage members to climb tiers

Strong promotion and communication

• The highly-impressive LEGO Insiders program leverages the natural enthusiasm LEGO fans are known for, to strategically encourage members to purchase high-ticket items more regularly. 
• How? It launches frequent time-limited promotions for members, such as gifts with selected sets, member-exclusives (a great way for the brand to test its ideas), and early access to product launches. The urgency of the offer, which is communicated across the brand’s channels, gets members back and eager to purchase before the exclusive expires. 
• Even when there isn’t a promotion on, there’s always something exciting for LEGO to communicate, nudging members to return for a repeat purchase: take discounts on LEGO gear and LEGOLAND tickets, which can be secured with enough points from purchases or registering a LEGO set you own.

Rewarding more than transactions alone

• The MoxieLash Insider program rewards value-based actions like following on social media. The boost in engagement easily offsets the giving product discounts for non-transactional activities, because loyalty program members spend 1.5x more than non-members.

Tapping into your customers’ values

• Outdoor gear brand REI’s Co-Op Membership program uses ethics and values to generate loyalty. It gives members unique opportunities to access outdoor classes and events, trade used gear with each other, and have their voice heard by voting for the Board of Directors each year.

Encouraging referrals

• Waterdrop’s loyalty program helped the brand generate more than €58,000 from referrals by making it the most lucrative points-earning activity in the program

Building for scale

• Bombshell Sportswear’s program has grown to deliver 40% of total revenue over eight years with LoyaltyLion’s platform, which is built for scale. That’s double the contribution at the start of its loyalty journey.

How to know if your loyalty program is failing

Measuring the impact of your loyalty program is the key to deciphering whether it’s failing or succeeding.

According to a study by Harvard Business Review, increasing customer retention rates by just 5% can boost profits by 25% to 95%. So, loyalty will have an impact, but the extent of that impact is hugely variable.

At LoyaltyLion, we commonly see loyalty activities powering upwards of 15% of total revenue. In fact, some programs hit 40% or more over time. Revenue growth is there for the taking. 

Let’s explore what metrics indicate success, and what loyalty program challenges you’ll need to avoid to achieve great results:

Financial metrics:

• Customer lifetime value (CLV) – a higher CLV indicates loyal customers shop more frequently, and spend more each time.
  • Maximize CLV by avoiding the mistakes of inadequate rewards and poor promotion and communication, to give your program momentum

• Repeat Purchase Rate (RPR) – a customer with a high RPR returns to your brand regularly, making them ripe for loyalty promotions
  • Maximize RPR by avoiding the mistakes of not using personalization or segmentation to encourage customers back for a repeat purchase

• Average Order Value (AOV) – increased basket sizes that show you members are keen to earn points and redeem rewards
  • Maximize AOV by avoiding the mistakes of complex or poorly signposted redemption processes, which could lead customers to abandon carts

Engagement metrics:

Net promoter score (NPS) – overall customer willingness to promote your brand

• Maximize NPS by avoiding the mistake of not encouraging referrals. Incentivizing them with points means customers are more likely to recommend you to a friend.

Social media engagement – brand awareness, sentiment, and community engagement

• Maximize social engagement by avoiding the mistake of rewarding for transactions alone. If you reward for social follows, you’ll increase your brand’s presence on social media, powering new customer acquisitions and community spirit that leads to revenue growth.

Behavioral metrics:

Purchase frequency – a customer’s tendency to repurchase

• Maximize purchase frequency by avoiding the mistake of not tapping into customer values. If customers can engage with your brand in multiple ways, they’ll feel part of your community, and are more likely to return again and again.

Customer Retention Rate (CRR) – how effectively you retain existing customers

• Maximize CRR by avoiding the mistake of not choosing the right type of loyalty program and not building for scale. Set your brand up for success with a program that matches how your customers shop with you, and using a flexible platform that adapts and grows as your brand does the same. This can unlock life-long customer loyalty, which supports long-term revenue growth.

For more metrics, check out our dedicated article covering all the metrics you need to know to avoid loyalty program mistakes. 

Loyalty program mistakes can be easily avoided with the right loyalty platform and expert support

Loyalty program mistakes can hold your brand back from achieving the revenue growth it’s truly capable of.

However, the right loyalty platform that supports highly-effective, balanced programs customers love to engage with, are your keys to avoiding mistakes.

Want to know more? Our loyalty experts are here for you. Chat with them today!