Loyalty Truth

Rarely a day goes by without an article being published about Loyalty Marketing. Some are straightforward program reviews, while others are self-serving press releases. Lately, however, there has been a steady stream of articles challenging foundational concepts of the business.

This criticism is based in faulty belief. Loyalty programs inhabit space in the marketing world often incorrectly characterized as nothing more than margin-cannibalizing deferred discount proffering programs that are complex to operate and don’t always change customer behaviour.

As a marketer and business-person, how do you cut through the noise of competing opinions and discern which articles offer valuable information you can use in your business?

A first step might be to consider your personal worldview of loyalty marketing. If your worldview is composed by belief that the myriad of simplistically designed “rewards programs” define the category, you will probably be in agreement with the most critical of loyalty naysayers.

If however, you understand that data-driven customer marketing offers brands the best opportunity to impact customer behaviour while measuring return on invested dollars, you know that loyalty marketing should not be defined by one category of poorly designed programs.

There are key differences between loyalty programs and rewards programs.

Rewards programs typically skew toward merely forking over a reward, and away from providing real recognition. Under a rewards program, participants earn points for purchases and other desired behaviour, while marketers make only cursory efforts to leverage any data collected to deliver personalized offers or to better understand customer preferences. The earning mechanism in a rewards program is highly transparent, which often reduces the impact of the program to just a notch above a punch card program.

Well designed loyalty programs represent the best embodiment of data-driven marketing. Customers should be able to recognize that the brand sponsor is “listening” to them via the data they have collected. The reverse is certainly true: When I receive letters from a program sponsor addressed to “Valued Member” or “J. Hanifin”, any distance between myself and the brand is accentuated. When the letter (or email) contains irrelevant offers framed as chosen “especially for you”, my sense of recognition by the brand is decimated.

Rewards programs based on issuing points for spending still work in many cases, but can easily miss the opportunity to reach full potential if certain design elements are overlooked. When designed and deployed as just another direct marketing campaign rewards programs can fall prey to:

1. Failing to offer sufficient opportunity for members to earn points or rewards (boredom sets in)
2. Failing to issue rewards by customer value (not all customers should be treated the same)
3. Lacking ability to add value to the customer purchase experience (program is equated to another form of discount)

Let’s agree on one thing. Every brand has a customer base and is inundated with associated transactional data. Some have enhanced this data with qualitative preference data gleaned from primary research, third party sources and, yes, loyalty programs. Every company has its hands full with some form of business challenge.

To me, that means that every company needs to develop a well-crafted data-driven customer strategy. That need should not be interpreted as a mandate to build a “rewards or loyalty program” in the genre of those poorly designed programs we’ve mentioned here.

If you are seeking to understand why and how the loyalty marketing industry is changing, I encourage you to think through your worldview of loyalty marketing, especially in terms of the difference between a loyalty strategy and a loyalty program.

By doing so, you will be in a much-improved position to interpret the noise created by the competing opinions about loyalty marketing.