Why loyalty programs don’t actually build loyalty!

Posted by Osman on Aug 31, 2020 in B2B Marketing, Blog, Customer Experience Management, Loyalty | 38 comments

Loyalty programs have been the focus of attention of both managers as well as researchers.  In fact, when most companies think of building customer, or partner loyalty, they think of a loyalty program or scheme.  However, increasingly we find that loyalty programs don’t actually build loyalty, or at least not the right type of loyalty (one of my blogs talks about different types of loyal customers).  So what exactly is wrong with loyalty programs and how can we improve them?

Many companies today heavily rely on loyalty programs.  Most think that they will build loyalty, and others use it as a means of getting customer data.  As a tool for getting access to customer data, I think they are brilliant.  You can get all sorts of information about the customer’s spending habits, which you wouldn’t normally get through any other source.  This data can then help you to target your marketing strategies according to the individual customer.

What’s wrong with loyalty programs

On the other hand, many companies are in an illusion, thinking that they will building customer loyalty.  If we break down what loyalty programs really do, we can see that they don’t achieve their stated goal.  Loyalty programs give customers points for every purchase they make.  The higher the quantity and frequency of purchases, the more points you get.  These are then traded in for discounts, and awards, etc.  Looking back at the definitions of loyalty, the higher end of the spectrum focuses on creating positive attitudes, and an emotional bond with the brand.  The lower level of loyalty focuses on repeat buying.  Hence, loyalty programs actually only encourage the customer to come back, and does not form a bond with the customer.

Some managers argue that this repeat purchase will eventually lead to higher levels of loyalty.  That may be true, only if it is accompanied with other factors, as I discussed in my blog on emotional attachment).  The loyalty program on its own will not achieve this.  In fact loyalty programs may be doing the opposite.  Customers become attached to the loyalty program, instead of the company.  For instance, in the UK there is the Nectar card.  This is a loyalty card which can be used by the customers in a number of different companies, ranging from BP and Sainsbury (supermarket) to Ford and Hertz.  Customers who become loyal to the card, would stick with whichever company is associated with the card.  For instance, if the card dropped BP, and instead went with Shell, then those customers who are loyal to the card would switch to Shell.

A similar situation can take place where a loyalty scheme is run by a single company.  For instance, if a customer uses the Emirates Airlines loyalty scheme, and later finds that Singapore Airlines is offering more points, or better rewards, he/she may switch airlines.  In both of these cases, the performance or the quality of the products or services are not considered by the customer.   Instead, the loyalty is towards the points, or the rewards that a customer gets.

How to improve your loyalty program

So what should you be doing to improve your loyalty programs?  Scrapping the loyalty program is not the best option.  The idea should be to improve it to adapt to the ever changing consumers.  More importantly, we need to reward the right things in order to build real loyalty.  For example, giving rewards not just for using the product or service, but also for things like recommending it to others, giving suggestions, complaining about poor services, taking part in customer focus groups, etc.  These are just a few of the behaviors we need to reward to encourage customers to build bonds with the brand.  The main idea is to move the customers from being passive to active, and to take ownership of the brand.

As an example, I worked with a firm based in Manchester, England to improve their B2B loyalty program. One of the things we did was to introduce an incentive for customers to take the initiative to help other customers.  So a customer who was familiar with the system would help out a new customer who may be having a problem setting up the machines or equipment.  In this case, both customers were offered rewards, with the one doing the helping getting higher rewards.  This not only reduced the burden on the tech support help lines, but also build a sense of comradeship between the customers.

There are countless other things which companies can do to improve their loyalty programs.  If your company is doing something innovative, or you’ve seen something which matches any of this, then please do share it.

38 Responses to “Why loyalty programs don’t actually build loyalty!”

  1. Samantha Simpson says:

    Good work. Keep it coming!

  2. Donna Bailey says:

    I spent several years in Marketing for Membership Rewards at American Express and developed Memberhship Rewards Exclusives (not called Online Specials) that is a successful engagement and revenue driver for the program 5+ years later.

    I also ran a consumer loyalty program for Symantec/Norton ( security software co) and the program was not about points or incentives. One of the main benefits of the program was about access to products and content before the “masses”.

    A way we were driving loyalty was through a social network where the customers wrote, had the ability to publish ( on CNET.com, Amazon or Norton.com) and share product reviews.

    The reward was more about seeing their review published online - it was a type of status.

    Would be interested to read other ideas

  3. Alan Smith says:

    You’re so right. That’s exactly what we are trying to achieve.

  4. Osman,

    Following your “Nectar” example - do you think engaging in multi-partner scheme is therefore dangerous for the “big guns” like BP? Especially considering they owned loalty scheme, which proved to be successful (as in Poland).


  5. Hi Jakub,

    Its a two edged sword really. You do have some benefits, i.e. more people are likely to use it because of the number of retailers involved. However, I think the costs out wight the benefits. First it doesn’t build real loyalty. Second, customers may decide to not buy from another retailer linked with the card, and hence shun all retailers linked with that card. I guess the company loses much control in this situation. Take for example the recent oil spill in the US. Consequently, BP received much negative publicity. Many US consumers boycotted BP. If this was in the UK, then that would mean perhaps many customers not using the Nectar card at all, and possibly not going to any of the ‘partner’ retailers linked with the card.

  6. We maintain loyalty by taking booking recommendations from customers, credit them in print and empower them to help us sell out the show.

    Don’t think card schemes work simply because people just have a large collection of cards… they buy into an ideology and by maintaining and leading that aspirational message, you maintain loyalty - if done right, the brand isn’t dead…

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