Media Watch: Taking loyalty programmes to task

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By: RickFerguson |

Posted on June 16, 2016

Periodically it behooves us to peruse the general consumer media as a temperature guage for general consumer opinion of customer loyalty programmes. Even as Wall Street has come to see investment in customer loyalty as a "buy" sign, and even as marketers report that they plan to invest more in customer loyalty in 2017, the mainstream press has a somewhat more dour take on the industry: programmes are becoming less rewarding, and consumers aren't happy about it.

Most of the press grumbling stems from the same source: Airlines such as American Airlines and retailers such as Starbucks shifting their programmes away from frequency-based and toward revenue-based earning models. As we've long argued in these pages, such a shift is long overdue and essential to the long-term financial health of these programmes. The mainstream press, however, sees it differently. Our first money quote comes courtesy of Money magazine:

"...once a company feels its programme is big enough and the rewards have perhaps gotten too rewarding, they'll ease off the gas and change the terms of the programme to cut internal costs. Loyalty members will hear about these changes as being 'enhancements' or perhaps 'upgrades' to the programmes. That sounds nice and all, but it's often pure spin. Now that loyalty programmes are ubiquitous and consumers are comfortable signing up for them without too much enticement, you can assume that any rewards system change will make it more difficult for customers to get rewards."

The sad truth is that this perception of reward programmes naturally becoming more stingy over time is often based in reality. Many programmes are gutted - either through short-sighted C-suite decisions based on driving short-term balance sheet results, or as a result of poor design or planning that sends the programme plummeting into a sea of red ink.

The oft-cited changes by American and Starbucks, however, do not fall into this category. These companies are enacting structural changes to their programmes designed to better orient them toward their ultimate goal: to build stronger relationships with their best customers. Reward programmes don't exist to give free stuff to anybody who wants it; they exist to drive profits for the businesses who operate them. By happy circumstance, it turns out that recognizing and rewarding best customers is a proven way to drive those profits - but doing so requires a business to understand which customers are most worthy of reward and recognition. American and Starbucks are guilty only of re-orienting their programmes toward those customers who mean the most to their bottom lines.

Our second money quote comes courtesy of contributor Dina Medland in Forbes, who advances the perennial argument that marketers should dis-invest in "archaic" customer loyalty programmes in favor of some fuzzy, ill-defined investment in the "customer experience." Money quote:

"Searching for customer loyalty today surely has to be a function of business innovation, not tinkering with existing 'loyalty schemes.' There is also an entire generation - the millennials - coming up for whom the very premise of airline loyalty schemes differentiated by who pays more is unlikely to be compelling."

This thinking is precisely incorrect in any number of ways. First: loyalty programmes are not designed as a substitute for delivering a compelling customer experience, for offering quality products and services, or for "business innovation." Loyalty programmes are designed to provide a sustainable business advantage in environments of competitive parity. They provide a platform for building relationships by exchanging reward and recognition for deep insight into best customers. They work as a result of business innovation and experience delivery, not as a replacement for them.

Second: businesses don't invest in reward programmes because they are afraid or incapable of jettisoning tired, Baby Boomer-generated marketing models in favor of innovating or building brands that resonate with perpetually persnickety Millennials. They invest in them because, properly designed and executed, they work. Loyalty marketing is rooted in fundamental human psychology that is perpetual and enduring, and Millennials will respond to the same stimuli as their forebears.

That the mainstream media so often has an incomplete or dysfunctional view of loyalty programmes should serve as a clarion call to the industry to design and operate programmes that deliver clear, compelling, and relevant value; to communicate programme changes with clarity and and without apology; and to always demonstrate loyalty to your best customers. We owe it to ourselves, and to our customers, to be the best loyalty marketers that we can be.

- Rick Ferguson



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