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How Valuable are Loyalty Programs? What’s Needed to Make them Successful?

POINT: Paul Williams

“It’s not about customers being loyal to you. It’s about you being loyal to customers. You earn loyalty by giving it.”

I love that quote from from “Managing the Customer Experience”

Most of the time when marketers think “loyalty” they think of programs that create artificial means to lock-down or push incremental purchases from their customers.

For example, the buy 10 get the 11th free program. This isn’t a loyalty program… It is a free coupon with strings attached.

The Starbucks Card is referred to as a loyalty program.

It is really just a form of currency. All it is is a debit card. We’ve given Starbucks our money ahead of time – allowing them to bank it and collect interest on it until you spend it. Yes, they’ll give us a free drink after we buy 15… But that’s more of an incentive for us to use the card more often.

John and I were part of the initial team when the Starbucks Card was first designed. Our discussions were much different. The idea was to truly to build a loyalty program. Something designed to serve the customer as much as it helped Starbucks.

We talked about gathering customer information via the card. Learning about the customer, their visit habits, their purchases, their drink preferences, which stores they visited, all sorts of neat data…

The Starbucks Card was supposed to be a smart card that acted like a favorite barista who knows the customer well and would share the inside scoop.

All the information gathered would prompt the barista – at the point of ordering – to make relevant information available to that customer. Additionally, the card would contact us via email or via our personal page on the Starbucks website.

For example, since I always buy a flavored latte, the card would send me an email alerting me know that a new promotional flavored latte would be launched next week.

The card would invite me to be the first to try the new flavor AND automatically increase my available balance on the card making the drink “on the house.”

Or, knowing I drink brewed coffee would recommend I try the new lemon cookie since it would be a perfect pairing.

Sure, all these ideas help Starbucks too… But, they would be offered as if a friend was telling you, not as a slick sales gimmick.

Starbucks hasn’t gone this path. Bummer too… I don’t know of any company who has. Starbucks had a chance to truly do something meaningful with the card.

Just like the quote I led off with… For loyalty programs to be a success you have to be loyal to your customers. Loyalty is going out of your way to invest to strengthen the relationship, in a meaningful way, with your customers.

COUNTERPOINT: John Moore

Most marketing activities from companies seeking to build customer loyalty are designed more to entrap customers than to enrich customers.

Loyalty cards from supermarkets entrap us into being labeled “loyal customers.” These customer loyalty schemes are based upon offering customers lower prices to gain greater loyalty.

But lasting loyalty isn’t earned by offering the lowest price. Businesses that gain sales solely by low prices are only as good as their latest, cheapest offer. As soon as a competitor can beat the price, all those “loyal” customers will chuck their loyalty cards and shop elsewhere.

Loyalty programs reverse the logic of great customer service: they ask customers to sign up for a card or buy a certain amount of product before they can enjoy the benefits of being part of the club. Do you really want to create two classes of customers? One that gets the “good stuff” at a good price, the other that gets a raw deal?

I’ve always viewed loyalty programs as either transaction-based or relationship-based.

Frequent flyer programs from airlines are an example of a transaction-based loyalty program. It’s designed to get you to buy a round-trip ticket in order to receive frequent flyer miles. However, it’s less about customer loyalty and more about customer entrapment.

The only reason I am loyal to an airline is because I’m trapped. I have too many miles on one airline not to use them. I use them not because I think they do a good job. I use them because I’m trapped.

However, I am a fan of loyalty programs that recognize customers with special attention more than reward customers with special discounts.

Playing off Paul’s Starbucks example, having the barista at your neighborhood espresso shop know exactly how to make your drink is a loyalty program that is relationship-based. It’s the high-touch, low-tech way to developing customer loyalty because it requires a personal connection between the employee and the customer.

Customer loyalty works both ways. If you want customers to stay loyal to you, stay loyal to your customers—treat them as people, help them as individuals, offer them something extra, and they’ll come back for more.

Crackerjack Marketer

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