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<\/p>\nBy Doug Stephens<\/p>\n
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Loyalty is an increasingly fleeting thing.\u00a0 In fact, the average Gen Y mother now defines \u201cbrand loyalty\u201d as a window of allegiance lasting 6-12 months before she moves on to explore alternatives.\u00a0 And suffice to say, there are plenty of alternatives out there for her to explore, regardless of category.\u00a0 So, given the increasingly elusive nature of loyalty and the abundance of brand and product choices available, one might be inclined to argue that there\u2019s never been a more important time for you to implement a loyalty program.\u00a0 But it’s simply not true and here’s why…<\/p>\n
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But don\u2019t feel too badly because as it turns out, most loyalty programs don\u2019t work – at least not the way the companies who own them would like to believe.\u00a0 In fact, a recent study<\/a><\/b> from Edgell Knowledge Network found that the level of actual brand loyalty among consumers who are part of a loyalty program versus those who are not, is not materially different. \u00a0Loyalty program members are not, in effect, any more or less loyal. \u00a0What\u2019s worse, according to the same study, is that 81% of loyalty program members don\u2019t even understand what their rewards entitlements consist of or how they\u2019re paid out, which shouldn\u2019t be surprising, given that the survey also found the average consumer belongs to as many as 18 different loyalty programs!<\/p>\n So, why don\u2019t most loyalty schemes work? \u00a0Research points to several reasons.<\/p>\n <\/p>\n The you do this and we\u2019ll give you that, <\/i>transactional nature of most loyalty programs is a shaky foundation for any consumer\/brand relationship, resulting in what some researchers<\/a><\/b> have dubbed mere \u201cdeal loyalty\u201d as opposed to true brand loyalty. \u00a0The program trains customers to respond to points, rewards or incentives but does nothing to foster true allegiance to the brand. Let\u2019s face it – if marriages were built like most loyalty programs, they wouldn\u2019t be very gratifying. Consequently, relationships based on this sort of tit-for-tat dynamic tend not to be very sustainable.<\/p>\n The best brand\/consumer relationships are those that become transformative in the sense that the customer feels somehow better for having done business with the brand.\u00a0 The brand and shopping experience are<\/i> the loyalty program.\u00a0 And customers love them, not because they earned a few points or rewards, but because the experience was unique and remarkable.<\/p>\n Trader Joe’s, Apple and Cirque du Soleil are good examples of brands that command a kind of fandamonium<\/i>\u00a0and brand love without the need for any transactional loyalty schemes at all.<\/p>\n <\/p>\n Most loyalty structures are based on arbitrary and generalized levels of purchase volume or frequency \u2013 bronze, silver or gold –\u00a0<\/em>so to speak.\u00a0 It\u2019s all largely measured using structured sales data grouping customers loosely into tiers or categories of loyalty.\u00a0 As such, they treat consumers largely the same, instead of recognizing them as the unique individuals they actually are in terms of what they buy, as well as how, when and where they buy. \u00a0Highly progressive brands, on the other hand, are doing just the opposite. \u00a0They\u2019re using customer data to build intense personalization directly into their product, so as to build loyalty intrinsically, and without the need for any sort of generalized and superficial reward system. Netflix, Facebook and Amazon all use individual data to build personalization and thus loyalty while customers are using their sites in real time.\u00a0 In other words, the product\u00a0itself\u00a0is\u00a0<\/i>the loyalty program.<\/p>\n <\/p>\n Show me the companies in a given category that most aggressively push their loyalty programs and I\u2019ll show you those that are the least differentiated from their competitors.\u00a0 I\u2019d go so far as to argue that for these brands, loyalty programs become a potentially deadly distraction from the deeper issue of competitive parity they face.\u00a0 Gas stations, credit cards, and airlines very often fall into this category.\u00a0 Rather than spend meaningful effort to make their product or service unique, they simply play with the size of the carrot they dangle in front of customers, which makes for a fleeting degree of loyalty at best. The risk of course, is that if and when a new entrant comes to market with a differentiated brand offering, incumbents who have been leaning on incremental loyalty games get annihilated.<\/p>\n <\/p>\n So, broadly speaking, I see loyalty programs as being a lot like vacation Loyalty programs are transactional. Loyalty isn\u2019t.<\/b><\/h2>\n
Loyalty programs generalize behaviors.<\/b><\/h2>\n
Loyalty programs breed commoditization.<\/b><\/h2>\n
Experience first, loyalty last (and maybe not at all).<\/h2>\n
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<\/a>properties.\u00a0 Unless your investment portfolio is maxed out in all other aspects, vacation properties tend to be poor investments.\u00a0 Similarly, unless your brand is delivering a remarkable, transformational and personalized level of experience to every customer, loyalty programs will serve as nothing but a drain on your potential to make headway on these other, far more important fronts.\u00a0 By the same token, if you really are creating a remarkable product and brand experience, you probably won\u2019t need a loyalty program at all!<\/p>\n