Why customer loyalty programs can backfire, and three ways to mitigate the boomerang effect
Customer loyalty programs are ubiquitous, accounting for more than 3.3 billion memberships in the United States alone. And they can confer tremendous advantage: members are more likely than others to buy from a retailer whose program they belong to, they visit the website or store more frequently, and they are more likely to download the retailer’s app, follow or otherwise engage with the retailer on social media, and recommend it to family and friends.
But new research, conducted by professors at the Wharton School along with the customer experience consultancy the Verde Group, reveals an important downside of loyalty programs. When loyal members encounter service failures — shipping issues, problems with returns, stockouts, and the like — they get more upset than customers who are not members of the program. Because they shop the brand more frequently than non-members do, they experience such problems more often; and the pandemic-fueled increase in online shopping, where service failures are more prevalent, has compounded the problem to the point where loyalty programs are causing significant damage.
The researchers call this the boomerang effect, because the very loyalty a brand engenders comes back to hurt it.
“This is a real problem for retailers,” says Thomas Robertson, the academic director of the Baker Retailing Center at Wharton and one of the study’s authors.