Loyalty programmes – is your business ready?

Deven Govender, Principle Commercial Optimisation Specialist for Merchants South Africa, shares his thoughts on the business case for loyalty programmes in 2020, and how best to implement them effectively.

The popularity of loyalty programmes among global consumers has grown steadily over the last decade, with 2020 statistics showing that 72% of economically active South Africans are making use of loyalty programmes. While this presents an opportunity for businesses to increase their customer engagement and create new revenue streams, loyalty programmes are however also being exploited by fraud, bringing into question the business case for these programmes in 2020.

According to research carried out by Forter in the USA, loyalty programme fraud rose 89% year on year in 2019, and businesses are struggling to limit the damage from these attacks as they shift from the point of transaction to different elements of the consumer’s journey – including new account sign up, log in, and promotion and coupon use. When loyalty programmes are not integrated into larger operational systems, for example, this could create loopholes in the system for fraudsters to exploit. A simple example is a book purchased online with loyalty points, which, due to lack of integration, could then be returned and exchanged for cash at a physical store.

In my experience, loyalty programs are often implemented as a reactive strategy in order for businesses to keep up with their competitors, with little due diligence being exercised, not only in terms of generating new revenue and an enhanced customer experience, but also in ensuring secure systems. Where businesses are investing in cybersecurity, it is typically focussed on their main ecommerce platforms or factors like the protection of personal information for their customers; and doesn’t always incorporate the loyalty programme as part of the scope.

Fraudsters are now seeing loyalty programmes as the new opportunity where they can take advantage by stealing personal information or money. Businesses need to rather stop investing in basic mitigation efforts, which is why security for loyalty programmes is neglected, and rather focus on maximum mitigation efforts. Businesses can then better protect themselves, and their customers, from reputational damage, lost revenue and legislative fines for contravening personal protection law such as POPIA and GDPR.

When implemented correctly, these programmes can certainly fulfil their role of driving increased loyalty from customers. Not only will loyal customers be less likely to switch between providers, but they will act as advocates for the business by recommending it to others, and ultimately spend more.

According to our data and insights, customers making use of loyalty programmes are likely to spend three times more per annum than those customers who don’t. Loyalty programmes are therefore critical and relatively cost-effective tools for driving revenue, gaining important customer insights across all touchpoints of the customer journey, driving the adoption of new products and services, and creating a significant competitive advantage for businesses.

So, how does a business implement a loyalty programme effectively in 2020?

Invest effectively

Businesses should be investing in their loyalty programmes, not only from a security point of view but in terms of the design, implementation and maintenance, too. These programmes should form part of the operational systems processes and technologies to ensure they run optimally for best results for the business and its clients. Additionally, these programs should form part of the business’ internal audit, compliance and regulation procedures and run as a line item in the strategy from inception, rather than being introduced as a reactive measure.

Encourage customer education

Loyalty programmes should be used to encourage customer education around the business, its value proposition, and its products and services.

When it comes to avoiding loyalty programme fraud, the active customer base should be encouraged to take steps such as resetting their passwords regularly and keeping track of their earning and spending through the programme on a regular basis. For non-active members, accounts should be closed or suspended.

Implement updates regularly

Businesses should look to refresh their loyalty programmes annually when it comes to earning and redemption. Not only will this encourage increased participation from active members in terms of their earning and spending, but could also assist with alleviating fraudulent activity.

Make use of gamification

Gamification is defined as the application of typical elements of game playing (such as point scoring, rules of play and competition to other areas of activity; typically to encourage engagement with a product or service. In terms of customer loyalty programmes, well-crafted elements of gamification will work to increase participation, thus increasing the member base and spend.

A potential gamified solution could offer rewards for account maintenance, such as changing your password regularly, for example. A local example of successful gamification in a loyalty programme is that of Discovery Health, which integrates the loyalty programme into the primary company website or app, giving a higher level of authentication and security while offering a positive experience for customers.

Consider a customer experience partner

Partnering with a customer experience partner can offer businesses a cost-effective, inclusive solution to ensuring their loyalty programme is implemented and run effectively.

The failure of most loyalty programmes, either due to fraud or poor participation, lies primarily in the initial design of the programme. A customer experience partner can identify what the customer experience will look like, across all touchpoints, and advise on how and where to improve this to ensure maximum customer satisfaction, as well as assist in identifying risk areas in terms of fraud.