Loyalty schemes have nothing to do with true loyalty

Whippet's Steve Stoner explains how loyalty schemes don't actually generate the one thing marketers expect them to: genuine, consistent customer loyalty.

‘Driving loyalty’, a subject which confuses many a marketer. Discussions inevitably swirl around, name checking schemes from around the globe: Nectar in the UK, Plenti in the US, Flybuys in Australia, and of course, the elephant in the room: Amazon Prime.

The question our clients mostly ask is: “What can we do to drive loyalty?”. What they really mean is: “How can we drive more sales, more often?”. It’s easy to mistake repeat behaviour with loyalty, but they are very different beasts.

The truth of the matter is that most ‘loyalty schemes’ are simply ‘always on’ marketing tactics, which offer customers something extra in order to persuade them to buy more – and more frequently. 
There’s nothing wrong with this for a retailer of course, but loyalty, in this instant-results driven world, is sadly misunderstood.

So how are retailers tackling it currently? Broadly speaking, there are two types of program:

1) Spend / collect / reward

This is the most traditional approach to driving repeat business. Typically, it involves the customer spending and then receiving either a discount on purchases, or points towards a future reward of their choosing.

It’s a straightforward transaction. “Spend X with us and we’ll give you X discount or X points”. Easy. An instant discount is simple to understand, however it is shallower and can potentially generate suspicion in the customer. “Why can’t the retailer just offer the discount to everyone? Why do I have to sign up? Oh, that’s right, they want my data.”

Schemes based on the collection of points towards a future reward are far more common, and are designed to generate excitement and anticipation with customers. They are also far more attractive to the retailer, largely because they build in a deferral of redemption, an enforced delay before customers can claim their reward.

In addition, there is significant ‘breakage’, where customers may never redeem their collected points at all. There are all sorts of variations on this method of course, but whether you’re collecting stamps on a coffee card or miles from an airline, they’re essentially the same.

2) Privileged membership

This is where customers get ‘special’ membership with access to additional benefits, either through their purchasing frequency (e.g. most airline miles programs) or by simply paying a membership fee (e.g. Amazon Prime).

The benefits received may or may not be transaction related, but members are made to feel part of an exclusive club. These schemes play to pride, ambition and our drive for perceived status, but often include complicated conditions or limitations.

Undoubtedly, both of these types of scheme work. Amazon Prime in particular has achieved remarkable success, but when you look at what Amazon customers receive for their annual fee it’s hardly surprising.

Even if you only place half a dozen orders a year (with free next-day delivery) and watch Prime Video occasionally, 
it adds up to a very good deal.

But is this driving loyalty, or is it simply a bribe? If Amazon Prime did not exist, would customers still flock to the normal Amazon? My guess is that Amazon would be just fine because the fundamentals of their offer are sound.

They deliver value and convenience, as well as service levels and consistency that most retailers are struggling to keep pace with, regardless of whether delivery is ‘free’ or not.

What’s remarkable about Amazon is that they have taken the gym membership, advanced payment model to new levels, which has then enabled them to create such a volume of added value for the customer that it is difficult to ignore. It’s a logical decision to sign up for Amazon Prime because it’s ‘good value’ – however I find it interesting that I rarely hear anyone saying how much they love Amazon in the same way they might with Apple or even Google.

I myself extol its many virtues, but I am not moved by it in any way. Are the millions of Amazon customers truly loyal, or are they simply logical?

What’s the deal?

The problem with loyalty programs is that generally they are schemes – ongoing deals, tactics and offers designed to drive a sale, not engage a customer. Yes, they influence consideration, but loyalty is not a value calculation for a customer to work out in their head.

From the very start, the act of signing up establishes a transactional “What’s in it for me?” mindset, where customers immediately feel entitled to something more than their normal shopping experience. From this point, all efforts by a brand to deliver extra benefits are simply meeting the customer’s newly raised expectations rather than being seen as something ‘over and above’.

There are ways to counter this, however. Costco for example, asks customers to sign up immediately, just for the privilege to shop. This means Costco captures customer data immediately and customer expectations are met instantly. Subsequent reward-based incentivisation is therefore less critical, and repeat customer visits are driven by consistently delivering a great retail experience.

Real loyalty is driven by a customer’s passion for a brand even when there are no incentives, no special offers, no deals and no discounts. It is rooted in the truth of a brand’s behaviour. It’s when customers queue up to pay full price ahead of cheaper offers, because it’s a brand they love and believe in. Think of the lines for every new Apple phone. 
It’s when logic goes out the window.

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So, how do you increase customer loyalty?

For retailers, the road to real customer loyalty might start with friendly store staff, consistently well-stocked shelves, clear price tickets, a clean and welcoming store environment, a no-quibble returns policy, fast and easy home deliveries, a convenient store location or easy parking. These kinds of things are the customer touchpoints that really matter – aspects that customers remember and encourage them to come back.

Most importantly of all, a brand has to generate an emotional response. It has to stand for something. Customers must ‘get it’ and believe in it. For instance, I consider myself to be a loyal Paul Smith customer. The clothes fit me, look good, and the quality is excellent. Service is always superb and the store environments and website are elegant and interesting.

What helps me get past the prices (ouch!) is that Mr Smith’s ‘classic with a little kick’ sensibilities appeal to me on an emotional level. Paul Smith resonates with me because at every touchpoint it delivers an experience that goes a little bit further than expected, both in the product and the entire shopping experience. The brand makes it feel personal and it’s this, not an engineered offer, that compels me to go back again and again.

Perhaps the best form of loyalty program is the one that is not customer-facing, that doesn’t need customers to do anything, but works behind the scenes to understand every customer better and deliver them an experience that is unexpected, appreciated and special.

Technology plays a big part and the recognition and tracking of customers is crucial to delivering successful personalised interaction. When a loyalty program is unobtrusive, or even invisible to the customer, any rewards delivered are less expected, perhaps more valued and therefore can generate a more natural, emotional response.

To achieve true customer loyalty, brands must strive beyond prices, offers and transactional incentives to deliver not just the best, but the truest experience possible. When this happens, customers won’t just buy, they’ll buy in. And when customers buy in, they keep coming back.

Steve Stoner is founder and CEO of retail brand transformation agency Whippet. He can be contacted at steve@whippet.com.au.


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