INSIGHTS

Processing Customer Loyalty

I’ve had to do a lot of thinking about customer loyalty lately, both for my book and more recently for client engagements.

What’s interesting is how chaotic this market is and how many people are writing about it with very little data. There isn’t even strong agreement on the similarities and differences between rewards programs and loyalty. Are they the same? How?

We’re all familiar with rewards programs such as the frequent flier offers that most airlines have. You collect miles for your trips and eventually cash in the miles for free travel and upgrades.

The vendor derives loyalty from this because the programs are high-walled gardens, and typically the miles are good only on that vendor’s network. This fulfills the basic requirements of a loyalty program by keeping customers coming back.

The Loyalty of Addiction

Even better than a conventional rewards program is addiction. Whoa! Addiction? Really?

Consider it this way: We know that the surgeon general warns about the health risks of smoking, but despite this people still smoke, even if they’d like to quit. They’re addicted to the chemicals in the smoke, such as nicotine. So cigarettes are a kind of product and loyalty program all in one.

It doesn’t stop there, of course. For some fascinating reading, check out the Opium Wars of the mid-19th Century and the Boxer Rebellion.

Since you can’t addict customers to keep them coming back, however, high walls are a good substitute. Is this loyalty? If it is, we can stop this discussion, but I think loyalty is more these days.

Pinpointing Loyalty

Conventional rewards programs are transactions enacted for past good behavior, but they don’t do much to promote future loyalty if you take just a slightly larger perspective.

Loyal customers are those who are loyal even if they aren’t in purchase mode; they are the ones likely to recommend a vendor to a friend. Look at all the unhappy frequent fliers slavishly committed to a vendor just for the points and you will understand.

So what is loyalty and how do you promote it? Are rewards programs pass? These are tough questions. Rewards programs still work, and the airline and credit card miles programs are examples.

Nonetheless, in our society, where subscriptions are increasingly common, conventional rewards programs have tougher challenges. Subscribers know they can leave at the end of a subscription and take their business elsewhere. At the same time, subscription vendors know there isn’t enough margin in their products and services to offer elaborate reward-style loyalty programs.

Ironically, though, loyalty is more vital to the subscription vendor than to the conventional vendor.

These realities are causing a shakeup in the loyalty world. Whereas rewards programs can be transactional, in subscriptions they need to be fluid processes. For a subscription vendor, winning renewal is a 24/7 job.

More Than Points

So we’re seeing the evolution of new loyalty models focused on bonding customers to brands so that they will advocate for the brand even if they aren’t in a position to make an additional purchase.

For these vendors and their customers, loyalty involves far more than providing points. It typically involves gathering and analyzing customer data and providing specific responses when customers surface a need. I’d call this understanding your customers’ moments of truth and being there.

Often, being in customers’ moments of truth is not flashy and might not bring them all the way to delight. You might not even need to delight them. Keeping the customer’s journey simple and efficient might be all you need to ensure their loyalty, according to Patrick Spenner and Karen Freeman in the Harvard Business Review.

Perhaps it’s a little scary thinking that all you need to do to develop customer loyalty is to provide a competent product and service. Customers (all of us) have lots of balls in the air, and keeping the drama to a minimum these days is valued. Besides, competency has worked before, and it’s not exactly out of style.

Will it always work? Does anything always work? No, but the recent experience of what makes a subscription company successful — that is, retaining loyal customers — suggests that we might be turning away from simple rewards programs and toward a more nuanced approach to loyalty and customer engagement.

Denis Pombriant is a well-known CRM industry researcher, writer and speaker. His new book, Solve for the Customer, is now available on Amazon. He can be reached at [email protected]. You can also connect with him on Google+.

1 Comment

  • The two seem interchangeable and just represent a means to keep customers exclusively. Not always a great deal such as my Shell gas card. If I buy from Shell I get 3 cents back per gallon. Sounds great until you realize maybe your Shell station is a bit higher then a station down the street. I remember back when I was a kid my Dad got Green Stamps which were literally Green Stamps you collected in books and could buy merchandise with. Generally I think people just like to feel they are special and get special breaks. Rebates, frequent flier miles, memberships, they all represent trying to keep the consumer from straying. They must work, because so many use them.

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