Common Limitations of Loyalty Programs

While loyalty programs are fun and rewarding, many of them have some pretty serious limitations. The programs are designed to reward, and thereby promote, customer loyalty, but they might not provide customers with everything promised. This article examines the creation and common limitations of loyalty programs.

Advent of the modern loyalty program

Today's loyalty program industry began in 1981, with the American's Advantage program. Today, the average American adult belongs to four different loyalty programs. Ninety percent of adults belong to at least one loyalty program. However, research indicates these programs are not always as advantageous as they seem for the retailer or the consumer.

Limitations for the retailer

It seems that loyalty programs may not produce actual loyalty. They give the appearance of brand loyalty, but customers with loyalty cards are usually just taking advantage of the perks. These people are bargain shopping for the best coupons and jump ship if another retailer offers something better. By focusing on loyalty program customers, companies can easily neglect the truly loyal customers that were there from the beginning. One need look no further than sports teams to see that genuine loyalty is given without financial incentive.

Limitations for the consumer

One of the reasons most companies make customers carry a card in order to receive the loyalty perks is that they want to collect consumer information. When an application for a loyalty card is filled out, it gives the company personal information. Based on what their customers buy, companies may sell information to other companies or perform targeted advertising. Stores that offer "discounts" to loyalty program members still have to make a profit. Research shows stores that offer loyalty programs have prices that are between 28 and 71 percent higher than similar stores without the programs. This means loyalty program "savings" could actually cost consumers more money! Additionally, many point-based loyalty programs have earnings caps. If consumers do not pay attention to the fine print, then they may purchase more than they really need just to earn a reward that for which they are not actually eligible.

Loyalty programs are exceedingly popular with today's companies, but they may offer benefits to companies or consumers. These programs frequently generate false, short-term loyalty for brands and end up costing consumers, both in terms of dollar amount and privacy. Before any consumers signs up for a loyalty program, they should take a minute to think over the decision carefully.