The notion of the ‘loyal customer’ has been described as a ‘threatened species’. Commitment to a brand is considered anachronistic, and programs to support loyalty are regarded by some critics as doomed ventures. But I would argue that customer loyalty has been getting a bad rap. And part of the reason for this is that marketers have approached customer loyalty the wrong way, and have focused on locking customers in, rather than attracting new markets.
Look at the recent history of change in consumer behavior. The rise of a hyper-competitive global marketplace has meant that customers can more easily do research on brands, find better offers, and jump ship from the brand to which they had previously been loyal. While corporates are dismayed that their customers have departed en masse, it really should not have been a surprise. It was a change in market access that paved the way tofor a shift in market behavior.
Loyalty programs have generally been poorly framed, poorly executed and poorly supported
And this is all because customer loyalty was not so much relationship-driven as it was convenience-driven. While membership-based loyalty programs were designed to address this, and to reinforce the relationship status, they have not been regarded as quite so valuable to consumers. And they have again been criticised by commentators for reducing profit margins on existing customers. Meanwhile, membership-oriented data on purchasing is being accrued in great volumes, and there is little - if any - discernible benefit to brands, because nobody is quite sure how to interpret the data. Again, this should not have been a surprise.
Loyalty programs have generally been poorly framed, poorly executed and poorly supported from a technical and data standpoint. Let me unpack all these assertions.
The marketing around loyalty programs is really weird. Mostly loyalty is marketed as an emotional investment in a brand. The theory is that if customers love brands they’ll be faithful to them, no matter what other offers are on the table.
Customers don’t love brands - they love their families, friends and experiences
The problem with this idea is that it’s based on a false premise. Customers don’t love brands. They love their families, friends and experiences. They like it when brands can support the experiences they enjoy, but they are, if anything, more likely to hate a brand that that inhibits access to the experiences they want.
Instead of framing the brand as the focus of customer attention, loyalty programs should be designed and marketed to improve customer access to exciting and engaging experiences. Because the emotional attachment that brands commonly seek is far more likely to be expressed when customers feel supported, than when they feel exploited.
Most loyalty programs are membership oriented, and customers accrue points from their purchases, for discounts or free kit. There’s no problem with this mechanic at all. The problem lies in the execution. At issue is the amount of effort required to reach any specific reward. Where a customer has to accrue a very large number of points to get a prize or discount, then he or she is less likely to value the loyalty program, or aspire to the reward.
When it comes to execution, a good loyalty program will be one that boosts sales, and does not slash profits on existing customers
It’s just too much effort to keep track of points and then to work out how to convert them into goods and services. However, where only a small amount of effort is required - topping up a single purchase to reach a spending hurdle, or purchasing multiples of specific items in order to collect credits towards an easily accessible discount - then the reward is worth aiming for. The low-effort loyalty program is facilitating access to a well-defined goal, not merely accruing random points.
When it comes to execution, a good loyalty program will be one that boosts sales, and does not slash profits on existing customers. For that reason, the best executed loyalty programs allow customers to accrue a relatively small number of credits to access a substantial (50%+) discount on another item.
In addition to poor framing and execution, technical deficits can hammer the value of any loyalty program. Data collection may be simple, but interpretation of that data is difficult. Knowing how to take advantage of spending trends, or knowing how to shift an offer on the basis of customer purchasing habits is really the holy grail of data management. And very few companies are doing this well.
Then there’s the issue of how you protect any data you collect about a customer, and how you resist hacking attempts without overcomplicating the loyalty mechanic. Again, it comes back to making life easier for the customer, and making rewards accessible. If a customer has to clamber over too many technical hurdles to even participate, then they won’t choose to play.
Of course, the opportunities for great data collection are substantial. Knowing the buying habits of a customer is not just useful for suggestive selling campaigns, but also for stock management, supply chain optimization, and new customer acquisition.
So what makes a loyal customer?
Customers are loyal when they get the best deal. And the best deal is a product of price and convenience. Loyalty programs offer firms the opportunity to deliver accessible rewards in a manner that encourages sales, as well as improving understanding of customer needs. Loyalty programs have to be easy to use, and customer data needs to be easy to store and protect.
But most of all, loyalty programs need to improve customer experiences. When you excite or engage a customer with a loyalty offer, you are connecting them to the things they value most. And when a brand can facilitate access to the things we genuinely love in our lives, there is no reason to seek out a competitor.