Not long ago one of the top customer loyalty program vendors in the world hastily walked back a plan to expire millions of reward points at the end of 2016, after threats of consumer boycotts and legislation.
The challenge for the vendor, of course, is that the points constitute a funded liability, which is not so great for the balance sheet. On the flip side, consumers are greedily sitting on piles of points they can’t redeem. The truth is, loyalty programs are a myth, and the biggest victims are the brands who sponsor them.
First, let’s consider the idea of loyalty. Marketers have a flawed view of how this is supposed to work. The idea is that we offer an accumulating incentive to keep coming back and buying more stuff. More transactions equals more loyalty, right? Well not really. Loyalty is not the same as frequency. Frequency is a good thing, of course, but someone who buys three coffees a day may buy one from the café on the corner, one from a drive through by their office, and a third from a spot in the food court near the gym. They will swipe, tap or punch a “loyalty” card or app at each store, and three different marketers will clap their hands in delight and flag the customers as “loyal”.
But here’s the thing: If the line up at the drive through is too long one day, or they take a different route to work or they are with a friend who prefers a different spot, they will suck back their java elsewhere. To be fair, there are people who are rabidly insistent about where they buy coffee or pizza or what have you, but is that a function of the reward or of the experience? We’ll come back to that.
So let’s call these programs what they are, which is reward-for-purchase, also known as buckets of herring. Participating is not necessarily a reflection of loyalty or even preference; it’s a passive way to feel acknowledged for parting with a bit of cash they were going to spend anyway. The loyalty industry has convinced marketers that rewarding customers as if they are trained seals is the same thing as building market share, wallet share and competitive differentiation. In reality, these programs have created an inconvenient bunch of things consumers need to keep track of, and a giant pain in the ass for brands.
Even the simplest rewards programs, if they have any scale at all, require planning, managing and funding. The bigger the program, the more marketing calories it needs to grow and remain relevant. Then we need to acknowledge that different segments approach rewards programs very differently. Older consumers flip to the back of the rewards brochure and imagine the fabulous things they will do when they achieve top tier status. Oh the trips they will take and the baubles they will buy when they get to 100,000 points! Millennials, on the other hand, want to feel special. They want that velvet rope unclipped to give them special deals and discounts. They want apps, gamification and no junk mail (here is a good survey from Colloquy — incidentally, run by the same vendor we met at the top of the post ).
So let’s recap: as a result of believing that transaction frequency is the same as loyalty, marketers are stuck in a calorie-burning cycle of creating high perceived value for reward redemption, managing mobile apps, keeping things fresh so the Millennials don’t get bored, offering new flavours of herring to stay ahead of the competition, creating exclusive experiences and making sure customers are redeeming their rewards so it doesn’t bung up long-term cash flow. This has all the appeal of a leg-hold trap.
Now let’s discuss loyalty, shall we? Loyalty is not the same as spending. Like you, I spend gobs of money at places I don’t really like, and to which I feel zero loyalty. Gas stations, drug stores and grocery chains, to name a few. On the other hand, I am perversely loyal to some brands that give me nothing or very little in the way of rewards, such as Fairmont hotels, Jameson’s whiskey, American Public Media and my favourite local cheese store.
Loyalty, then, is like being a Toronto Maple Leafs Fan. It is measured not in dollars or transactions but in perversity. True loyalty demands no rational explanation and no expectation of monetary reward. Loyalty, like a good friend, is built on how a brand makes you feel when you’re hanging around with it. It’s built on experience, consistency, trust, ethics, shared values, maybe even hope. It’s not built on bribery.
Marketers should be investing their time and resources in creating the conditions that incite real loyalty, not refilling endless buckets of herring. The truest test of loyalty is what happens when the rewards stop coming.
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BizMarketer is written by Elizabeth Williams
I help companies have better conversations
Drop me a line at ewilliams@candlerchase.com
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