Use Engagement Loops to Teach Members How to Play Your Loyalty Program Game

By Robert L. McClarin, Senior Director, Strategy + Innovation at Material

Gamify High-Value Actions to Produce High-Value Members.

Declines in member engagement show that it’s time for a new approach to loyalty programs.

While redemption rates for loyalty program points and discounts crept up 120 basis points year over year worldwide, there are increasing signs of member disengagement and apathy. For example, Forrester reported a 1500 basis point rise in members forgetting to use their loyalty program during the period 2019 to 2021. And other sources report that 77% of loyalty programs “fail within their first two years, due to loss of engagement after the initial acquisition.”

Gen Z says they’re interested in loyalty programs but have the highest level (41%) of dissatisfaction – finding the technology confusing, the redemption process irritating or the details unclear.

Loyalty program leaders have found it difficult to address this engagement decline for numerous reasons, including the following big three.

1. Conflating member transactions with engagement

Most businesses are fighting for foot traffic and visits that lead to purchases. The immediate need to drive traffic and sales in highly competitive industries defaults to issuing discounts to bribe members to make purchases. Loyalty program leadership has equated engagement with transactions, disregarding the needs of members in favor of the immediate needs of the business. For example, if members struggle to log in to your loyalty app or if points accumulate while redemptions decline, emailing them coupons for BOGO burgers teaches members that the app and the program are secondary to waiting on an email discount before making that next purchase.

2. Prioritizing acquisition over retention

The bulk of recent insights work has been focused on market segmentation studies aimed at identifying new strategic segments and understanding brands’ likelihood to acquire those segments. Insights dollars are spent understanding what these segments value, as well as how and when these strategic segments make purchase decisions. While greater action to fill the top of the funnel helps grow loyalty membership, new “players” are increasingly confused and dissatisfied in the program’s “game.”

3. Neglecting loyalty program member experiences

Brands are investing and experimenting with the latest in real-time interaction management, Conversational AI, journey orchestration platforms and next best experience engines to improve their overall customer journeys. The top six pain points CX leaders are working to address fall into two categories: improving personalization and removing customer service process bottlenecks. Much less effort is invested in resolving members’ pain points, confusion and frustration with loyalty program experiences.

Your Mission: Deploy Game Loop Principles to Improve Program Engagement

Your loyalty program is a game you want your members to play.

Game designers have mastered the use of game loops to make their games easy to learn and to keep players engaged. They’ve created a global industry worth nearly $200 billion.

By creating your own engagement loops, you can drive engagement in your loyalty program. The elements you need to make these loops effective include the following (see Figure 1):

1. The nudge towards a reward

2. The completion of a high-value action or next best experience

3. The identification of the action status (successfully completed or struggling)

4. The issuance of feedback in the form of a reward, recognition or reinforcement

How to Emulate Game Design + Drive Engagement

The following steps can help you emulate game design principles to drive engagement and stop your members from just farming your discounts.

Establish your core engagement loop

Every game has a core gameplay loop. For Super Mario Bros., that core loop is spot, leap, survive, repeat. For most loyalty programs the core engagement loop is purchase, earn, redeem, repeat.

Engagement loops work because the anticipation of a desired reward triggers a motivation mechanic. In a recent anticipatory experiences study, of the 27% of US online adults that reported regularly receiving notifications to nudge them to achieve goals or complete tasks, 82% indicated that receiving notifications was convenient and beneficial. So, onboard new members with a simple tutorial or self-directed learning experience to nudge them to take action, build habits and achieve early rewards. And be sure to quarantine these new members from other discount-focused communications so they can focus, learn and get hooked on your game.

Add new loops that lead to High-Value Actions

In video games, high-value actions (HVA) make players more powerful or make progression easier. Completing high-value actions extends gameplay. Loyalty programs also have high-value actions that are predictive of higher member engagement and increased lifetime value. While there are common high-value actions across all programs – completing a profile, downloading the app, redeeming for a first reward – there may be high-value actions unique to your program. Use customer analytics, engagement maps or value chain analysis to identify which HVAs are predictive of long-term customer value. Then add one or two new engagement loops that will lead your players to complete a few critical high-value actions.

For tiered programs, build your progression loop

More complex games have a structure where players complete objectives, collect bonuses, defeat a mini-boss and move to the next level (see Figure 2). This progression loop is often more important to the stickiness of the game than the core gameplay loop. The same is true of more complex loyalty programs; they have a progression loop involving completing challenges, collecting bonus points, reaching a spend threshold (a loyalty mini-boss) and moving up a tier. Document your program’s progression loop and engineer connected engagement loops to guide players to higher levels of the program.

Increase intrinsic and extrinsic complexity

Game developers know there are four basic types of gamers – Achievers, Explorers, Socializers and Competitors. To extend game play, developers introduce missions, badges and challenges to appeal to one or more of these gamer types. For loyalty programs these gamer types represent the way in which people like to learn, develop habits and store memories. Add engagement loops that lead to challenges, streaks, badges or other game elements targeting the learning style of your member base. For example, Achievers are motivated by badging systems. Achiever-oriented apps like Duolingo award badges for a wide range of high-value actions like completing lessons, maintaining streaks and reaching new levels.

Start Grinding Now and Level Up Your Game

Consumers need help to stay engaged in loyalty programs.

If loyalty programs are going to evolve into engagement platforms brands can count on for profitable growth, the engagement loop model must be implemented. Success will require new skills. Engagement loop innovators will need to be familiar with technology like real-time interaction management tools, conversational AI, journey orchestration platforms and next best experience engines – as well as the psychology used to motivate behavior. But it’s still early – the loyalty experts responsible for the design and optimization of loyalty programs have time to test and learn with engagement loops in small ways before exploring the need for more robust tools.

Here are four immediate actions you can take to level up your loyalty game.

1. Go deep on engagement reporting

Spend time taking a holistic look at engagement trends across your entire loyalty program ecosystem. Are your email, push and SMS KPIs increasing year-over-year? How is your new member activation rate trending? Are you seeing an increase in one-and-done accounts? What’s the trendline for redemptions? What percentage of members have enough points but aren’t redeeming? From onboarding to activation, and high-value segment migration to top member-reported issues, measure and highlight where you’re experiencing a decline in engagement. Recognizing you have a problem is half the battle.

2. Identify your high-value actions

Point your smartest customer analytics resources at identifying the high-value actions that best predict future high-value customers. You’ll likely see some commonality with other programs, like downloading the app, making a first member purchase or redeeming for a first reward. Determine if there is an optimal sequence of your high-value actions. Once you know your high-value actions and their order, you’re ready to nudge your members in a few small tests.

3. Get a few early wins

Leverage your engagement reports and high-value action analysis to set up a few engagement loop tests as proof points. Start with an onboarding high-value action or a member journey pain point and create a scrappy, perhaps somewhat manual engagement loop to nudge members in the right direction to look for the desired action. Then close the feedback loop with a reward or an inaction-driven nudge. Use the successes from these tests to inform the engagement lift projections of your business case.

4. Gather your army

Eventually you’ll want to curate buy-in from several key stakeholders to begin exploring a commitment to automated, always-on engagement loops. The first three areas to seek support from should be:

1. Loyalty services and technology solutions partners. They may have experience, integrations or use cases that to inform and support your gamification evolution.

2. CX and Insights colleagues. They’ll know if your brand has implemented any interaction or journey orchestration tools that you could use.

3. Finance or business analysts. They’ll be able to create a financial projection for your phased (crawl, walk, run) rollout.

Change the Game With Material

If you’re looking to gamify or improve your loyalty program, Material’s loyalty services can help.  We’ve applied our insights-backed approach to level up loyalty programs for brands like Target, Whataburger and Dr. Pepper – and we can do the same for you.