When Loyalty Programmes Go Bad
June 2005
Loyalty Programmes Do Go Bad – We Just Don’t Hear About It
If you’ve got a loyalty programme that’s become more of a resented business overhead than a business builder, you’re not alone. Or if you’re thinking of starting a loyalty programme for your customers, think again. For loyalty programmes can be one of the most challenging aspects of a marketer’s job, and whilst there are many famous marketing disasters we can learn from, few of these are loyalty programmes.
This isn’t because all loyalty programmes work perfectly – far from it. It’s because loyalty programmes are less prone to public scrutiny, and because they can be difficult to kill off, for fear of arousing great customer indignation and possibly even legal action. This means that there are few dead loyalty programmes around for study, and many failing ones that continue to exist because it can be so hard to define when exactly a loyalty programme is failing.
Fortunately, after some 15 years of studying customer loyalty and commitment, and evaluating the loyalty programmes for companies as diverse as Air New Zealand, Furniture Court, Scott Panel and Hardware and Placemakers, we’ve come to learn a few things about loyalty programmes. There’s a lot that can go wrong, and nine of the more common problems are discussed here.
Problem # One: The Ever-Decreasing Differentiation Of Loyalty Programmes
If a category is defined by low loyalty and brand differentiation, the rationale for one brand to have a loyalty programme will be just as compelling for that brand’s competitors. And if they become commonplace within a sector, loyalty programmes risk switching from a positive differentiator to becoming a business overhead.
As a result, members of loyalty programmes are showing ever-decreasing preference for the companies in whose loyalty programmes they belong. If a customer belongs to enough loyalty programmes, the need to specifically seek certain brands diminishes. Why seek out a Shell station for your Fly-Buys when the BP one will give you AA Rewards? Why bother at all when you can get ASB True Rewards points wherever you go?
We’re now seeing companies promote themselves in terms of who’s got the better loyalty programme rather than whose got the better brand, product or service – talk about a vicious circle!
Problem #Two: Is A Loyalty Programme All You’ve Got To Differentiate Yourself?
A loyalty programme is often an admission that there’s nothing else to markedly differentiate a brand. In many categories this is no fault of the brand or the marketing.
If you’re aware this is what you’re saying through your loyalty programme, that’s fine – as customers won’t be fooled easily, and over-stating the benefits of a loyalty programme won’t go down well. This is where the quality and value of a loyalty programme separates the business builders from the business overheads.
The starting point for evaluating the quality and value of a loyalty programme is to define what your loyalty programme is actually for.
The ultimate loyalty programme is a marriage between your brand and your customers, not a one-night-stand or a series of costly bribes that retain the connection but fail to add value or build commitment.
So how do customers think of loyalty? If customers think that you love them, they’ll love you back. But the love as shown by loyalty programmes is often far from the love the customers are seeking. Love that’s hard to earn and full of special conditions and strings does not encourage loyalty, just short-term Pavlovian bribe-and-response.
Problem # Four: Ensuring Sustainability
A bribe only becomes good business practice when it’s dressed up as a loyalty programme that offers quality and value to its customers.
Therefore you first need to identity what you can sustainably deliver.
To deliver sustainable value, you need to understand what is it that customers actually value, and which of the two main types of loyalty programmes yours is going to be:
- rewards for customers who are already loyal (or apparently so judging by their spend); or
- something that you offer ‘at-risk’ customers because you believe that without it they’ll go and use someone else.
- something that you offer ‘at-risk’ customers because you believe that without it they’ll go and use someone else.
These are discussed below as Problems Five and Six respectively.
Problem # Five: Offering Customer Value When Rewarding High Value Customers
The decreased brand affinity and differentiation between loyalty programmes has been especially prevalent amongst the high value customers within many markets. This is because the more valuable a given customer is, the more they are probably spending in other categories as well, and the more loyalty programmes they are involved in.
As well as this, the greater a customers’ activity or spend in a category, the smaller your share of their wallet and mind is likely to be. This is because a heavy user is unlikely to ever have 100% of their needs served by a single brand – so they have more experience of your competitors despite your best intentions and belief that they’re highly loyal to you.
High value customers are used to being courted, and what they often want is not monetary, nor just discounts or more of what they’re already buying. What they want is recognition; they want perks; they want stuff that no one else can have yet which others will notice.
Problem # Five: Offering Customer Value When Retaining At-Risk Customers
If you’re in a category characterised by low loyalty, route purchasing, or low product differentiation, a good sustainable loyalty programme is one that is easy for these usually less-interested or involved customers to use. Such a scheme needs to be easy to use with a short road to redemption.
For these schemes, it really comes down to saying to your customers ”what would it take to keep you coming back?”.
Problem # Six: Poorly Researched Programmes
Would you be more likely to buy a brand if it offered more of something for no extra price? Of course! If you don’t have a loyalty programme and you ask consumers whether you should have one, naturally they’re going to say “of course”!
Far better is to research their lives and what is involved with their use of your brand – how can you add value to them as people, rather than just discounts or offloading surplus product?
Problem # Seven: When It’s Too Hard To Redeem The Rewards
The more strings attached to the redemption process, the more you weaken the premise that you’re offering a rewarding loyalty programme. Making a drama out of redemption counteracts a programme’s intentions and tells customers that it is just something begrudgingly being given out so that they keep using your stuff.
Problem # Eight: Changing the Fine Print
If you want to change a programme, customers’ immediate reaction is “oh, so you’ve discovered you can’t afford what you were offering and you now want to do me out of something”. There is this deep suspicion about corporate loyalty programme behaviour that says, “you’re doing it for you, not me, and you’re dressing it up as a benefit to me, which is not always the case”.
The more often changes are made; the more customers will rethink the loyalty programme and see it as a crude lever to make them buy more. Because by having a loyalty programme you’ve said you love them, and then you’ve started behaving like you don’t care and want to change the rules.
Problem # Nine: Not Collecting or Using the Customer Data
The Kachingo! technology was fantastic, but they weren’t using it. Retailers had no way of knowing who customers were when they gave them their Kachingo! tickets. There was nothing in it for them other than the hope that for the love of the Kachingo! tickets the customers would come back – and the customers had so little investment in gaining the tickets that the effort of redemption wasn’t worth it. Nothing of added value was provided for customers nor retailers.
Loyalty programme data is about helping suppliers to better meet their loyal / high value customers’ needs. The opportunity in any loyalty programme is to use the data to make it so easy for customers to use you that they wouldn’t dream of switching because they would lose so much more of the experience than just the core product or service.
You should be able to look at each customer in your loyalty programme and fully understand the value that both he or she, and yourselves, are getting from the relationship. That is what a loyalty programme is for.
Debra Hall and Jonathan Dodd