Why So Many Loyalty Programs Fail – Part 2

Posted on 06. Oct, 2011 by in Loyalty

Businesses have learned their lesson; keeping customers (specifically profitable ones) is the ticket to survival.  Consequently “loyalty” has become a point of focus among most of today’s CEOs.  And yet we all see loyalty initiatives and programs launched and relaunched, often in a period as short as one or two years!  While all businesses desire loyal customers, building programs to ensure loyalty still appears a mystery to most.  In this posting I’ll continue to discuss some of the reasons for this poor success record.  Hopefully my observations will help those of you struggling to formulate truly successful loyalty programs.

What’s Your Currency of Loyalty?

Another of the major reasons that so many loyalty programs fail is the ineptness of program architects to identify an attractive “loyalty currency” or reward.  To see for yourself, randomly select 10 loyalty programs you may know of.  Without worrying too much about losing, I’ll bet at least four of these programs reward loyalty with a dollars-off coupon for an auto oil change at JiffyLube!  This is neither an adequate nor a compatible incentive.  The discounted oil change is an inappropriate currency of loyalty.  It lacks magnitude, attractiveness and relevancy.  It is inadequate to bond a new customer or to reward a continuing customer.

Let’s step back for a moment and consider the role of a reward.  Implicit in the formulation of a loyalty program is an exchange of values; the customer’s continued business is a value to the marketer, in exchange he/she is willing to offer the customer something extra; an immediate reward for their patronage.  If this conjures up Pavlovian conditioning you’re understanding part of the role rewards perform.  They should be attractive enough to immediately reinforce the sought behavior: brand repurchase.  But when the “reward” is insufficient and lacks attractiveness and relevancy, the loyalty program becomes nothing more than an ineffective extra cost.

Loyalty as Emotional Glue

I have often visualized customer loyalty as “emotional glue” – an emotional bonding that “sticks” customers to brands and companies.  The strength of this glue is increased in proportion to the value of the benefits and rewards a customer perceives she derives from maintaining a relationship with a company or brand.  Benefits can be classified into four categories: functional benefits – how well the business, product or service “works”; service benefits – the treatment and servicing the customer receives in transacting with the business, product or service; transactional benefits – how easy it is to conduct business with a company/firm/brand, and emotional benefits – the emotional satisfaction a customer derives from ‘affiliating’ with a company/firm/brand through continued purchases.

The first three benefit categories fall largely in the realm of the core product/service and its accompanying services.  It’s the quality of materials, craftsmanship of manufacture, conduct of sales people and the support of Aftermarketing policies that provide functional satisfaction with the purchase.  But a well-designed loyalty program can make a significant contribution to the fourth benefit, the emotional component.  That’s because a good loyalty program is about, as Feargal Quinn said, “crowning the customer”.  The structure and benefits of a successful loyalty program are less about discount coupons and more about “value added”.  The things a company can do to make desired customers feel appreciated and special.  And these rewards create emotional bonding.

True, such programs are harder to conceive and perhaps execute, but they’re also much harder for competitors to match because they’re built on keen insights into what will really please a cherished segment of customers.

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One Response to “Why So Many Loyalty Programs Fail – Part 2”

  1. current postage rate

    15. Nov, 2011

    Should You Think about Online Rewards Programs?: tags: loyalty, online, program, Programs, rewards, s, This kind of save is all about…

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