Opinion: Knocking down the loyalty straw man

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By: RickFerguson |

Posted on April 14, 2016

Once a year or so, it becomes my solemn duty as a customer loyalty evangelist to knock down a few well-worn arguments about the efficacy of customer loyalty programmes. These arguments invariably make the same points, over and again: loyalty programmes are about "bribing" customers; loyalty programmes don't build loyalty; and points programmes are ineffective in today's digital age. Here's the thing: each of these points are effectively strawmen, as no one who works in the loyalty industry, either on the provider or client side, believes the opposite of any of these points to be true.

The latest broadside comes courtesy of "author and entrepreneur" Carol Roth on Entrepreneur.com. After emphasizing the importance of customer engagement as "the holy grail" and dubbing her definition of loyalty as "Loyalty 3.0," Roth proceeds with setting up her series of strawmen. Stop me if you've heard these points before (all quotes from Roth's article):

  • "In trying to create customer loyalty, most businesses tend to do something that looks more like bribery. They give you one point per dollar spent or �buy nine, get the 10th free� type of programmes in the name loyalty. But neither is loyalty at all."
  • "You also create loyalty to a programme, not your brand. Starbucks is struggling with this right now...You want to create loyalty to your company, not a programme structure."
  • "The old-school loyalty also creates the issue of rewarding 'spenders' but not 'senders.' You measure the people who are spending directly with you, but not the influencers who are conduits to bringing new customers into your business."

Arguments of this sort - which crop up every spring, like dandelions - betray a fundamental misunderstanding of the purpose of customer loyalty programmes. Roth is right in that loyalty programmes don't "create" loyalty. Loyalty is created by the fundamental drivers of quality, service, experience, and value - the same drivers articulated by McDonald's founder Ray Kroc nearly 70 years go. Loyalty programmes, in contrast, exist so that the brand can demonstrate loyalty to its best customers in the form of recognition and reward.

The simplest way to properly position loyalty marketing conceptually is simply to flip the words around. If you operate a successful loyalty programme, you're not engaged in loyalty marketing. You're actually marketing loyalty.

The "programme structure," meanwhile, is simply a means to an end. The best loyalty programmes - Amazon Prime, Starwood Preferred Guest, or, yes, Starbucks Rewards - become synonymous with the brand. Recognition and reward become embedded in the brand DNA.

Roth's biggest misunderstanding of loyalty as a marketing discipline, however, comes with this quote: "Finally, these old-school programmes also aren�t loyalty, because loyalty is not transactional - period."

We beg to differ. Loyalty is transactional - because all successful relationships, whether business or personal, are transactional in nature. Value is exchanged for value. The relationship is successful only in as much as both sides perceive value in the transactional exchange. For customers, that value comes in the form of reward ("I get my money's worth") and recognition ("They perceive me as a valuable customer"). For the brand, value comes in the form of increased spend, longer tenure, and more referrals. Loyalty programmes are merely a mechanism to facilitate this value exchange.

We'll wrap up by focusing on the positive. Roth is right on when she says:

"The future of loyalty is about creating relationships. It�s listening to your customers and potential customers, using information about them to build connections and making them feel cared about."

That's the gospel truth. No successful loyalty marketer today believes that a simple points-per-dollar programme is sufficient to build loyalty - hence the continual reliance on strawman arguments to refute the value of loyalty marketing. The best programmes serve as a platform upon which to build stronger, more valuable, and sustainable customer relationships. They provide a place for listening, for dialog, and for the clear exchange of mutual value. That's Loyalty 3.0. And it works.

-Rick Ferguson

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