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Is your wallet stuffed with loyalty cards?

If so, you're not alone. Americans now hold 1.3 billion loyalty program memberships, up from 973 million in 2000. And with 109.9 million households in the United States, that equates to around a dozen each.

What's more, membership growth between 2000 and 2006 was double that of the U.S. Consumer Price Index, and 85% higher than that of the gross domestic product.

So all is well in the loyalty arena, right?

Wrong. Regardless of how many they belong to, each household is active in fewer than five programs, according to a census by retention services firm Colloquy. And that marks a drop from 2000.

“This is a wake-up call to the industry,” says Kelly Hlavinka, Colloquy's senior director. “Companies may be doing things to sign up millions of customers, but they're not focusing on program engagement.”

Case in point: Hotels. Some are signing people up without considering whether they're worth the effort.

A hotel that isn't particularly choosy “may end up with someone who's coming through town and staying one time,” Hlavinka says.

She adds: “My parents are of retirement age. They might stay at a hotel while traveling. I know my dad would sign up, but he travels once a year.”

So what indicates whether a loyalty program is healthy or whether it's carrying deadwood?

“One key measure of program health and success is whether members are contacting the marketer and inquiring about benefits,” Hlavinka notes.

Any falloff in that activity could spell trouble for the company, she continues.

What's fueling the growth in enrollment? It may be the sheer number of programs and the fact that they are no longer strictly the province of large corporations. Small- and midsize players are jumping in, either with stand-alone efforts or as part of a multicompany network.

Take airlines, which collectively have more members than any other industry (see chart at left). Low-cost carriers are adding their own programs — with good reason. Travelers from Generations X and Y have joined baby boomers as participants, and they have low attrition rates.

Growth also has been seen on the B-tob-B side. Credit card issuers and other financial services companies have targeted small office/home office and small business customers for programs, and Colloquy predicts this trend will continue.

Meanwhile, Internet-based loyalty programs are making a comeback, following a drop after the dot-com crash. Particularly popular are those jointly conducted by a variety of Web-based merchants.

There are two reasons for this, according to Colloquy. First, multifirm programs make more economic sense than solo efforts. Second, marketers are capturing information via consumer-driven Web sites like MySpace and YouTube. This makes it easier to track and reward behavior.

Where's the growth potential?

One hot market is gaming.

“Just as frequent-flier programs were the incubators of loyalty best practices in the 1980s, so too will the healthy profit margins of the big gaming companies allow them to incubate many of the best practices of the coming years,” Colloquy enthuses in its report.

Another is restaurants. As with the airlines, this is due to small and midsize chains entering the loyalty field. The sheer number of restaurants means there's room for growth.

But not every industry is on a growth curve. Specialty and grocery retailers enjoyed a surge a few years ago thanks to new point-of-sale technology. But now they're facing competition, not only from each other but from loyalty programs in other industries.

And cents-off offers aren't pulling in new members, although those already enrolled are deriving value from them. Likewise, airlines may suffer a membership decline. But it may be their own fault.

“There's been an increase in consumer frustration,” says Hlavinka. “And consumer frustration may lead to a scaling back in the growth of consumers signing up, or in consumers actively participating.”

How does Hlavinka herself measure up? “I belong to 32 loyalty programs,” she says. “Of those, I only have nine [cards] that are in my wallet. There's a group of six or so that I don't put in my wallet but still interact with. But the other 17 are rubber-banded together and stuck where I pay my bills.”

Here's a worst-case scenario.

You sign millions of customers to your loyalty program, but many never participate. Your cards pile up in their wallets, along with those of many other companies. Want to avoid that?

Colloquy's Kelly Hlavinka offers the following suggestions:

• Are you differentiating your loyalty program from the others your customers are signing up for, including those of your competitors? Are you leveraging your core asset, your brand?

• Are you managing communications to drive engagement?

• Are you concentrating the scarce resources you have on members who are most likely to leave?

• Are you using data to strategically drive behavior? Are you overly reliant on broad-based bonus campaigns, or are you using data to drive behavior and make offers to people who should get them?

• Are you using the data you've collected throughout the enterprise? Managers of ongoing programs are sitting on a treasure trove of information. It can help change the customer experience.
  — RHL

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