Loyalty programs won't work if a company's core product or service is perceived to have little or no value.
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If you're like many customers you carry several loyalty cards from your local supermarket, video store,
or coffee shop (get-a-free-coffee punch cards are popular). How many airline mileage programs do you belong to? Ask yourself a simple question: Do they really work? Do you really shift large amounts of dollars to those vendors? If you are like most consumers, it is simply a way to collect freebies. Loyalty programs are a dime a dozen and everyone does them these days.
The search for customer loyalty is in full gear and not about to stop anytime soon. Companies are spending billions in the name of loyalty marketing, seeking ways to reward loyal customers and trigger future--hopefully larger--purchases. An entire industry has developed to assist companies in loyalty marketing. But a crucial question remained unanswered: Are your products really that great that you deserve customers coming back repeatedly.
The question of the core experience, its quality and value in the eyes of customers, is a critical one all companies must address before they rush to create a loyalty program. Unfortunately, we often see companies rushing to loyalty programs to cover up a harsh reality: Their products and services are not that exciting. These companies seek redemption through freebies to mask the boredom their products or services inspire. A lipstick-on-the-pig program that increases the cost of doing business, but does not increase the overall value provided to customers, is bad business.
A good example is the pioneers in loyalty marketing--the airlines. Since 1982, when American Airlines established its mileage program, the industry has barely demonstrated any visible impact like increased loyalty or improved margins.
As a form of customer compensation for ever-depreciating values, customers have taken full advantage of these programs, but the additional value to the airlines' business has been marginal. The struggle the airlines have had with limiting bonus tickets, increasing the miles required for each ticket, and other tricks demonstrates how the loyalty program simply did not build loyalty. Why didn't it work? Because the flight service was not authentically exciting. Airlines' loyalty programs are proof that you cannot fool customers. They will not come back to a lower quality value or boring experience subject to ongoing value reduction efficiency efforts. Simply put, loyalty programs will not save you from the truth.
For companies to build true loyalty that actually improves both top- and bottom-line growth, they must address the critical question: Do we have the type of product that will trigger loyalty? Companies with great products do not need a superficial loyalty program. Customers do not need incentives to buy what they perceive as valuable, authentic, and different. It is much easier to create a loyalty program, but it will not solve the critical question of whether your company is valuable enough for your customers.
Just like a good cup of coffee, a great experience will bring people back naturally. Authentically appealing experiences are difficult to create, but they are well worth the effort. Next time you wonder why loyalty is declining, skip the inclination to use short cuts. Face the truth. Sit down with a good cup of coffee (no loyalty punching cards allowed) and consider the simple question: Are we really that great to merit customers coming back to us?
Enjoy the coffee and the journey.
Lior Arussy is the president of Strativity Group and the author of several books. His latest book is Passionate & Profitable: Why Customer Strategies Fail and 10 Steps to Do Them Right! (John Wiley & Sons, 2005).