To Keep Users Happy, Loyalty Programs Must Walk a Fine Line

Users become wary when privacy is called into question

Loyalty programs, especially those delivered via digital channels, provide benefits to consumers and brands alike. Consumers get access to codes and purchases that can boost rewards, while brands are better able to target participating consumers. And since online shoppers tend to favor discounts and deals over brand affinity, brands have even more reason to use loyalty programs to cultivate repeat customers.

According to Maritz Loyalty Marketing’s December 2012 survey, US internet users on average participated in 7.4 loyalty programs last year. And among respondents who’d enrolled in at least one loyalty program during the previous year, retail programs saw the highest participation levels, with the average consumer using 1.7 retail programs. Credit cards and airlines ranked as the second and third most popular industries for loyalty programs, respectively, with consumers participating in slightly more than one of these programs in each category on average.

Eight in 10 consumers overall said they thought loyalty programs were worth participating in. And in a sign that brand loyalty itself isn’t totally dead, 70% of consumers said these programs were part of their relationship to the company. Another 57% acknowledged that loyalty programs actually affected where and how they made their purchases, modifying shopping to maximize rewards.

But there is still a high incidence of consumers turning away from loyalty programs, whether actively or passively. According to the Maritz study, 53% of those enrolled in loyalty programs stopped participating in at least one program in the past year, but only 7% formally requested to leave the program.

And while loyalty programs today may benefit from the ability to target offers based on behavioral and personal details, this also can backfire on brands. Just less than three in 10 respondents said that loyalty programs required too much personal information, and 24% cited privacy concerns as a reason they did not enroll.

Asked about the leading “creepy” ways brands used personal information in administering loyalty programs, the No. 1 cited action was using programs to see details of friends’ behavior, mentioned by more than half of respondents. Offering rewards based on the sharing of personal details such as income was another tactic that many consumers did not appreciate, cited as creepy by 44% of respondents; and another 43% said the same of being asked to provide a credit card number to receive cash back on spending. Two out of five even found the request of personal information to target the consumer based on demographic to be creepy.

The findings suggest that participation in loyalty programs should not be mistaken for total trust in the brand. These are transactional relationships at the core, and brands must be sensitive to how they can provide mutually beneficial rewards that don’t tread too far on consumers’ private lives.