Terry Vavra's Blog

Why Loyalty Programs Fail – Pt. 3

Posted on 04. Nov, 2011 by tvavra in Loyalty

Customer loyalty and programs to nurture it are no longer ‘tough sells’ to corporate executives.  In fact, the availability of “out of the box” applications may have made them almost too easy a sale.  These “one size fits all” solutions lack the necessary insight into an organization’s actual customers’ needs and interests; consequently they’re prone to failure.  I’ve spent a good part of my career dissecting loyalty programs looking for key criteria which identify ‘best in class’ programs.  The most important of these, is the benefit offered.

Interactions (purchases) with brands, products and organizations offer four basic benefits:

1. They satisfy our need for the functional/performance benefit of the product or service;
2. The service and servicing that accompanies and supports the product or service enhances our use/knowledge of the product or service;
3. The ease/simplicity of conducting business with the organization can provide ‘transactional’ benefits; and
4. “Associating” with a reputable organization or a valued brand can provide emotional/relationship benefits.

The first three of these benefits flow mostly from the basic product or service or the sales and servicing processes of the manufacturer.  But, a customer loyalty program can enhance and considerably strengthen the fourth benefit; the emotional benefits customers receive in dealing with a brand or company.

So the strategic design of a loyalty program should include substantial consideration of the emotional benefits to be offered.  In designing your emotional benefits choose them carefully to be:

• relevant to the associated product or service;
• of meaningful magnitude so as to be appreciated;
• perceived as an added-value;
• easily understood and
• simple to use or redeem (not bogged down with extensive limitations and conditions); and, if possible,
• perceived as offering exclusivity.

Ultimately, the design of an effective loyalty program requires a strategic intention.  Whatever the rewards that are offered, they should be chosen so as to be consistent with the business’s primary goal.  It may be: to increase purchases, grow share of wallet, fortify against competition, or stimulate positive word of mouth.  The rewards and their structure should be chosen to help achieve this goal – not selected in isolation of it.  As a case in point, think about “loyalty programs” of which you’re aware.  If you use the rewards offered as a criterion by which to assess the programs, many can be seen for what they really are, not loyalty programs at all, but simply “mileage” programs!  Their primary focus is on maximizing sales – the more a customer buys, the greater volume of rewards offered.

As an example, consider airline “frequent flyer” programs (though ironically these programs were created not to reinforce loyalty but rather to help the companies identify who was onboard their aircraft – at the time the majority of seats were being sold by travel agents).  Nevertheless these programs morphed over the years into recognition programs doing a marvelous job of making valued passengers feel very special – an issue well-portrayed in the 2009 hit movie, Up in the Air.  Unfortunately today many of these same programs are losing much of their customer appreciation aspects – generally the targets of circumspect cost containment.

Casino loyalty programs (in the US) are aimed at bestowing feelings of specialness and appreciation to “whales” (gamblers willing to put extraordinary amounts of money at risk).  These programs successfully convey recognition and appreciation without necessarily challenging guests to spend even more.  Casinos are somewhat unique in their ability to privately lavish rewards on their chosen targets without directly affronting other guests who don’t warrant the same special perks.  (In other categories, the “visibility” of conferring special rewards and treatment to Desired Customers often, unfortunately, derails very interesting potential program rewards.  For example, could a supermarket successfully introduce privileged parking spaces or no-wait checkout aisles for high value customers without antagonizing non-deserving low value customers?)

Tags: customer loyalty, customer scoring, emotional bonding