Loyalty programs: The bottom line

Many companies create loyalty programs designed to inspire repeat transactions. Airline miles, credit card points, even coffee shop cards have been devised in an attempt to capitalize on a simple aspect of consumer behavior: once invested in the program, they’ll keep coming back to reap the reward (who would turn down a free cup of coffee?). We’ve written previously about the work by Yuping Liu which demonstrates how loyalty programs can, in the long run, yield significantly increased repeat purchases. However, it’s worth taking a step back and asking a fundamental question: is customer loyalty, as assumed by these loyalty programs, simply the sum of the transactions made with a company?

Author of The Ultimate Question and expert on loyalty marketing, Fred Reichheld notes that there is a difference between transaction loyalty and attitudinal loyalty. Consider, for example, a grocery store that customers hate shopping at and do so only because it’s convenient. These customers are unlikely to recommend the store to others and will probably switch to a competitor that moves in nearby. As Steve McKee of BusinessWeek notes, some of the most active members of a loyalty program may be the least genuinely loyal members of the company. This, of course, begs the question regarding what genuine loyalty is and why it is important.

According to Reichheld, loyal customers come back for more, increase their purchases, bring friends with them and invest their own time, doing all of this for free. To many, this sounds like the dream customer. Increased purchases over time in addition to marketing my company on my behalf? Sign me up; an army of these customers is destined to yield success. But by focusing on the bottom line of customer transactions, it can be easy to be led astray. While reward programs will, over time, yield increased purchases, if the customers are bitter all the while, then they’re unlikely to recommend the company or stick with it through tough times. However, if, in addition to evaluation of transactions, surveys are extended to customers and customer recommendations are measured (which is trivial with our SiphsMail service), companies can better gauge the level of loyalty among their customers.

Of course, building loyalty is no trivial thing, nor is sustaining it as the company grows. Loyalty is a result of consumer trust, which is acquired less through bribes and more through service. A company that can extend service and equity to the customer will make them feel valuable and loved. And, because we’re human, we reach out to those that value and love us when our help is needed.

June 11, 2008 |

Loyalty programs: The bottom line

Comments

Subscribe

Recent Posts