The world’s best loyalty program

The world’s best loyalty program is no program at all.

If your value proposition is engineered to deliver a truly remarkable experience for your target consumers–and you’ve chosen to focus on segments that will allow you to make a profit–the result should be both behavioral and emotional loyalty.

Many of the world’s most powerful brands–Apple, Four Seasons, Louis Vuitton, just to name a few–have managed to thrive without such programs.

Let’s face it, most “loyalty” programs are some combination of ruses to collect customer data or serve as customer bribery schemes for the most promiscuous shoppers. Worse yet, many are simply me-too efforts that are knee jerk reactions to the competition which end up raising the cost of doing business without engendering true loyalty.

I understand that there are situations where loyalty programs have become competitive necessities. But before embarking on an expensive and complicated launch (or re-design) take a hard look at your underlying value proposition and customer strategy to make sure you are solving for the right problem.

 

16 thoughts on “The world’s best loyalty program

  1. The underlying principle here is the harsh but sound Brand principle of “If you aren’t number 1 or Number two in a market, get out.”
    But you know, that’s not always possible or desirable, there are plenty of Brands in large markets at number gazillion and they are profitable and happy…it gives people more choice, it doesn’t allow the markets to become monopolistic and so on.

    These number gazillion guys have to try these things, loyalty programs and what have you to keep their customers coming back.
    Either that or they need to find a niche so narrow that they “feel” they dominate the niche.

    When it all gets too much there will be a natural consolidation.

  2. A point of clarification.

    I’m not saying that a loyalty program is fundamentally–and always–a bad idea. In fact, I led the re-design of Neiman Marcus’ InCircle Rewards program and have done loyalty work for several clients. Loyalty programs, done right, create many leverage points that can drive deeper levels of engagement and better ROI than many other customer-centric programs.

    The key is to start with the underlying value proposition, rather than default to a me-too band-aid.

  3. Well I’m from the ‘old school’ of the loyalty/Performance Improvement industry after working in it from 1980 thru 1998. I can’t discount the value of the data that is collected, and the value of the communications opportunities that come from the opt-in to the program. But I think much of the value of the programs was lost when they moved away from the first rule of promotions. “Don’t reward with products you sell.” By rewarding with products from your product line(s), you not old incur the cost of the product and the same carrying costs and overhead as if you sold it, but you also loose the potential revenue of your customer buying it. That loss of revenue, and the profit that would have resulted from the purchase, rarely seem to be taken into account in projections when companies review their decisions to implement or continue loyalty programs.

  4. My experience is that rewarding with your own products (through gift cards) CAN be a very smart financial strategy. At Neiman Marcus the use of gift cards in the rewards program clearly drove incremental profits. That may not be the case for all brands of course.

  5. Need for loyalty program depends on what segment you are catering to and what your product is… for a commodity product a loyalty program could result in increase in behavior and repeated habitual buying behavior of customer

  6. Loyalty programs should be looked at a from a much bigger perspective. Brands should look at Loyalty from a bigger picture perspective and used to create a unique engagement with your brand advocates. You creates processes, interactions and “programs” when needed to create true centricity. http://www.loyalty360.org

  7. I think there does exist some very creative new bread of loyalty programs. Take for example Walmart’s Soundcheck or Nike’s Nike+. Both are not directly used for selling products, customer data is retrieved, but actually they solve a concrete problem of a brand’s targeted shoppers.

    See also our post “Best Practices For M-Commerce”: http://wp.me/p2lLHI-pW

    Best,

    Johannes

  8. I certainly can’t argue that companies who deliver a truly remarkable experience based on their value proposition and proper targeting don’t “need” a loyalty program. But, to add to your “Let’s face it…” paragraph, not everyone is an Apple, Four Seasons or Louis Vuitton.

    Apple customers are borderline militant, and their loyalty is more passionate than rabid NASCAR fans (Don’t misinterpret – I love NASCAR – Go Truex!). Four Seasons and Louis customers value status, regardless of a loyalty program they aren’t staying at a Best Western or carrying a JC Penney’s bag.

    Yes, most loyalty programs are exchanging margin dollars for customer data. What shocks me, is that most retailers don’t maximize the use of this data; to create a truly remarkable VALUE adding experience that recaptures their lost margin, by specifically marketing to what their customers truly need, want and desire.

    Your follow-up comments on 6/13 made perfect sense. Reward cards are a great way to keep customers loyal, and even better, sharing the news with friends. Word-of-mouth referrals; via a value adding gift card, beats a band-aid and a personal referral is the best kind of loyalty marketing that money can buy.

  9. I completely agree that loyalty programs must be considered part of a broader approach to drive desired customer behavior and not used as a knee jerk tactic in isolation.

    First, you have to decide who your target customers are. Then, you have to determine what behavior you want from them that they are not currently exhibiting (e.g., buy more products, tell friends about us, buy higher margin offerings, lower your cost to serve them). This will vary by company and their situation, needs and ambition. Next, you have to determine how much additional value or profit is available by this new behavior. Finally, you have to share some of this value surplus back with the customer to incent them to behave in the desired way in the first place. Some companies share back by investing in a better buying experience, some provide discounts, others share the value surplus back through reward programs, still others use combinations of these and other initiatives. The key is to not share the value surplus back until the customer has created the value in the first place…and then do so in a way that is most likely to drive the desired customer behavior moving forward. If a loyalty program (and I personally prefer the term reward program) is the right answser under these circumstances, then it is probably a good idea. You shouldn’t shy away from a good idea for your business just because it has been poorly implemented, misapplied or used for the wrong reason by others.

    The data collected from the rewards program is valuable but secondary. Furthermore, it is only valuable if you take action on the information that is meaningful to the customer.

  10. Dear Steven,
    Thanks for this – very interesting.

    My take is that loyalty is a noble goal – unfortunately it has become attached to programs which actually have little to do with loyalty.

    Most “loyalty programs” are not at all. They are reward programs. That’s great in that they create huge amounts of data, and can drive incremental profits, but often do nothing to create loyalty.

    If we called them Reward Cards I think everything would be clearer, and perhaps brand owners would focus on driving value based loyalty as you prescribe.

    Cheers

    Mike

  11. The other way around it is true. Without good proposition, customer experience etc a loyalty program will not keep customers from running away.

    But when used undisguised rewarding programs can give great interaction and insight.Then you are able to keep on growing your value proposition an CE.

    Kind regards, Alex Bos

  12. Great comments from all of you. Loyalty programs must be considered part of the overall marketing picture. If loyalty programs are used just to give out a few meager rewards and gather tons of consumer data, consumers will see through this and dump the retailer. A retailer must create value and this must be communicated through all marketing channels, including in-store with great customer service and appropriate point of purchase in-store marketing messages.

  13. Pingback: My Top Ten Blog Posts of 2012 « Steven P. Dennis' Blog

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s