The Best Loyalty Money Can Buy

Customer loyalty is something that used to be earned, but now is purchased.

Think about it. We receive “loyalty” points by spending money with certain retailers or using specific credit cards, and in exchange for the points we accumulate get free travel and other goodies. Since nothing’s really “free” we’re actually providing the funds that are used to purchase our loyalty.

“Loyalty” is really supposed to mean fidelity, attachment and affection. It’s a lot more than just a financial relationship.

If we go back to the days of trading stamps there are many similarities to our present situation. When a place of business was the only one in its line giving away trading stamps with purchases it had a perceptible advantage over competitors and promoted this as strongly as possible.

However, the situation soon changed to being one where anybody not offering trading stamps became so disadvantaged that everyone started giving away stamps. The result was an expensive stalemate where businesses were actually afraid to drop a promotional gimmick that was costing them money and providing little or no economic benefit.

In today’s business environment there seem to be two distinct types of customers. The first type is driven exclusively by price; the second is looking for quality and value.

There’s an irony in that loyalty programs target the first category as well as raising the prices they pay. In the meantime, customers that want quality and value are being overlooked or at least not given their fair share of attention.

Loyalty programs force businesses to compete on price — the value of their giveaways. If what you’re giving away is the best (i.e. most expensive) bonus on offer you’ll in theory enjoy the feelings of customer loyalty.

However, this purchased loyalty is fleeting. Once the competition tops your offer you’ll lose customers to a rival that may be selling what you sell at the same or even a slightly higher price and can get away with providing lower standards of service.

To pursue this kind of customer is expensive and to count on their loyalty is dangerous. Most consumers participate in more than one loyalty program on a regular basis.

Genuine customer loyalty is essential to long-term growth. It is the basis for a business’ profitability. Historically customer loyalty has been created by attributes of the enterprise — its products and services, rather than by the provision of unrelated customer benefits.

In many ways loyalty programs can be seen as a compensatory vehicle for shoddy products or services. Why else should management decide it needs such a program?

But these “loyalty programs” don’t have the power to overcome the deficiencies of bad products or service. They won’t compensate for operational shortcomings like poor delivery systems or inconsiderate sales staff.

And just like trading stamps, there are businesses out there with loyalty programs they’d like to dump but they’re afraid to be without them.

There are some loyalty programs with a genuine basis — identifiable by their provision of benefits related to their own products and services and targeting long-term customers as a means of both rewarding and retaining them.

Loyalty programs are also used by “commodity” businesses as a differentiator. Airlines, it’s said, have become a commodity at the economy level, all providing the same miserable service like flying cattle cars.

The argument goes that loyalty programs are needed so customers can tell one airline from another and will choose according to their loyalty programs. Those who recall decent in-flight meals and service from attentive cabin crews may speculate on just how much extra it would cost to reinstate these passenger benefits.

Sadly, it appears we’ll never have that option without paying for a higher class of service. Economy class has been degraded and now resembles a flying city bus — with loyalty points, of course.

Let’s get back to basics. Consistently well-delivered products and services at prices that represent genuine value will be a much more effective device to create long-term customer loyalty than any add-on program such as we see proliferating in the current marketplace.

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Copyright 2004, RAN ONE Inc. All rights reserved. Reprinted with permission from www.ranone.com