Even as loyalty programs are launched left and right, many are being scuttled. How can that be? These days, everyone knows that an old customer retained is worth more than a new customer won. What is so hard about making a simple loyalty program work?

The biggest challenges include clarifying business goals, engineering the reward structure, and creating incentives powerful enough to change buying behaviour but not so generous that they erode margins. Additionally, companies have to sort out the puzzles of consumer psychology, which can result,

It’s important to know exactly what a loyalty program can do. It can keep customers from defecting, induce them to consolidate certain purchases with one seller (in other words, win a greater share of wallet), prompt customers to make additional purchases, yield insight into their behavior and preferences, and turn a profit. A program can meet these objectives in several ways—for instance, by offering rewards (points, say, or frequent-flier miles) divisible enough to provide many redemption opportunities but not so divisible that they fail to lock in customers.

Companies striving to generate customer loyalty should avoid five common mistakes: Don’t create a new commodity, which can result in price wars and other tit-for-tat competitive moves; don’t cater to the disloyal by making rewards easy for just anyone to reap; don’t reward purchasing volume over profitability; don’t give away the store; and, finally, don’t promise what can’t be delivered.

In other words, your loyalty program and its system should in-sync with the business goal.  The tactics created should be in-sync with the business goal as well.  Unfortunately, we saw lots of fail program due to lack of strategic design in mind when it first build out.

Finally, in the modern aspiration economy, people develop true brand affinity only when it gives them a sense of community. Membership strategies are an effective way to achieve that goal. To do this effectively, remember to focus on the micro, niche groups of passionate consumers. Create myths around the clubs you’re creating, helping people buy into your brand story. Encourage customers to meet up with one another, virtually or in person. And maintain the connection, offering routine touchpoints that keep members connected to your brand.