If you are over sixty, you may remember the thrill of filling S&H Greenstamps books and taking them to the redemption center.
That is how loyalty programs suck us in: we buy the things we always buy, but we get something extra. The more we buy, the bigger the reward. Today we expect loyalty programs to be part of our purchases, hence the popularity of frequent-flyer miles, supermarket discounts, merchandise rewards for credit card spending, and lower fees for maintaining higher bank balances.
But Loyalty Programs are Not Enough
You must offer a compelling value proposition and ensure that the customer’s experience is positive.
The financial value of a loyal customer is well documented. It costs a company to acquire (buy) customers with advertising, loss-leader items, and other incentives for initial purchases. If customers buy again, the company makes back its money. If they keep buying, more money is made. It becomes cheaper for the company to satisfy customers because repeat customers do not need as much support and understand the value of the brand. They even send new business. Therefore, companies need enticing ways of keeping customers.
You now have many options for incenting loyalty. You can offer discounts, provide points redeemable for free stuff, offer improved service (such as free shipping or fast turnaround), or priority treatment. As you look at your loyalty programs, determine which rewards appeal most to your customers—and then match the rewards to their desires.
Three Motivators for Loyalty
I see three reward programs, each supporting a different motivation for loyalty. Each motivation can be expressed positively or negatively:
- Reward/Greed. This is the “I get something for nothing” motivator. Flyer miles, and membership points are examples that appeal to people on a personal level. S&H Greenstamps recently reinvented itself as S&H Greenpoints (www.greenpoints.com). Their motto is “Earn them on the things you buy. Spend them on the things that make you happy.” You now register as a Green–points user and collect electronic points for shopping at affiliated stores or Web sites. You redeem your points from an online catalog of products.
- Philanthropy/Guilt. Some customers react more on a community level. These customers respond most positively to loyalty rewards such as donations to charity. A good example is the affinity credit card. I have accepted credit card offers from banks because a small donation in my name will be made to my alma mater. You can get affinity cards for your favorite charity. It is a painless method of philanthropy because you do not take anything out of your wallet; the vendors with whom you do business give the money.
- Love/Obligation (or Fear). This loyalty program is targeted at customers who want rewards to serve them as a family rather than an individual. These customers also want relief from the financial burdens of family obligations. A new company that has endorsed this motivation for loyalty is UPromise. Its loyalty program makes donations in their children’s names to tax-deferred college funds when purchases are made from participating companies.
Most companies have a mix of customers with different hot buttons. You can offer different types of reward programs to appeal to each type of customer.
Dangers of Outside Loyalty Programs
Loyalty programs provide rewards separate from the brand of the company sponsoring the rewards. In addition, there are dangers inherent in promoting outside brands as a bonus.
- More expensive to fulfill. When you offer a product from a different company, you may pay less than its list price, but the cost is still tangible, and you do not control it.
- Loyalty to the reward, not the brand. The biggest danger of offering rewards that are not part of your brand is that customers become more loyal to the reward system than to you.
- Held hostage to your loyalty program. As a company offering rewards you are, in some way, being held prisoner by your rewards provider.
As appealing as loyalty programs may be, they are not enough to keep customers coming back. Unless the customer finds value in your products and finds it easy and pleasant to do business with you, no loyalty program will work. You must have a compelling value proposition independent of any reward system. Your customers must value you! The loyalty reward is just a bonus.
Identify the motivators and incentives that appeal most to your target audience and customers.