Two Things That Guarantee Your Loyalty Program Won’t Work
I have a confession to make.
Despite the fact that I’ve worked on a number of loyalty program transformations that have been quite successful, I loathe loyalty programs.
I think they’re great for me as a consumer but for the companies I’ve worked with they would have derived more loyalty by investing in earned loyalty (consumers who love you because the experience is outstanding) and less on bought loyalty (bribing your customers until they’ve built up a bank of economic switching costs that make it hard to leave). And it would have cost them less to do so.
That said, I’ve grudgingly made my peace with their existence. To that end, there are two failure points that guarantee a loyalty program performs poorly. Most poorly performing, or even just adequately performing, loyalty programs fail to answer two simple questions that guide the entirety of program design and delivery:
Question #1: Loyalty amongst whom?
Question #2: Loyalty to what end?
Question #1: Loyalty programs can only do so much. Let’s look at groceries and convenience stores for question #1.
The vast majority of loyalty programs in those sectors are discount programs that do very little for either the top or bottom line. In both milieu’s a common action is you checkout, they ask you if you have your ‘Whatever Card’, and if you don’t, the checker grabs one off a pile and scans it on your behalf.
Who are you trying to instill with loyalty in that scenario? The answer is evidently everyone. What the hell good is that?
By failing to skew the program design toward a particular segment or persona grouping, these companies default them to being appealing to the most price-sensitive shoppers. If that’s your target, it’s working. If it isn’t, you’ve created discounts for everyone from your most unprofitable customers to your least price-sensitive shoppers and, in the process, guaranteed you get no loyalty from either group.
Question #2: Again, these programs can only do so much.
Loyalty programs are bad at acquiring new customers.
They can be effective, when they are effective, at increasing customer lifetime value either through extending a customer’s tenure with your brand or by spurring them to buy more often or buying more each time they buy.
A well-designed program will be clear on the first question, and equally clear on what the company wants to inspire the target group to do. Returning to groceries and C-Stores, the vast majority of programs don’t have any discernible outcome they’re aiming for.
If I get my ‘Whatever Card’, is it because you don’t want me to go to any other grocer? Is it that you want me to buy what I always buy more often?
I have two mainstream grocers equally distant from my house. They have, as near as I can tell, identical loyalty programs where I get discounts on nothing that matters to me and if they didn’t offer those, would have no impact on me shopping there. Given the undifferentiable programs and the lack of importance I (and many others) place on them, what are they accomplishing with the program? Giving discounts to people who would have shopped there without the discount being offered.
That’s not loyalty. That’s inertia.
The point is, if in your program design you are not clear on loyalty amongst whom and to what end you guarantee your program can’t work. Because you never bothered to figure out what success would be.