Why Loyalty Marketing Doesn’t Add Up

By: Joan MacDougal - August 30, 2017


Loyalty marketing isn’t always smart business!

 

I have to say, as a consumer, loyalty marketing does my head in. If I’m asked once, I’m asked a hundred times whether I’m in this or that loyalty program. Here’s why it annoys me. I’d have my card out wanting my points if it was a program I valued. Cashiers would not have to constantly remind me. Now, as a marketer by profession, I am even more annoyed at the way marketers use loyalty programs as a be all and end all. It’s a cop-out. Most loyalty programs are costly exercises of no business value. They tie businesses into expensive bad practices. What’s more, once you’re in, they are near impossible to get out.

Marketing is about examining every aspect of the products and services you offer and generating maximum revenue and profit from them. Why then would any marketer recommend a marketing strategy that is counter-intuitive to the end game?

I’ve studied loyalty marketing for more than fifteen years. I’ve considered them from every angle looking for ways to make them work. There is an answer. Before I share it, let’s look at some of the flawed assumptions in today’s loyalty marketing.

a) Is there such a thing as loyalty to a business?

 

The answer is yes. However, the big misconception is that it can be bought.

As a shopper which would you prefer? Exceptional customer service and great value for your purchase. Or… Everyday service and a few points for choosing to shop with them. My research shows most shoppers prefer exceptional customer service and the perception of great value.

Before any business embarks on implementing a loyalty program, you need to ask. Am I trying to hide a problem or is this program really complimentary to an already good business model? I suspect if you’re running a great business, the last thing on your mind will be any form of loyalty marketing.

b) The program will pay for itself with repeat business.

 

It’s my experience that this could not be further from the truth. Every point issued has an associated cost and the fulfilment becomes very expensive. Historically what businesses have done to address this problem has been to make redemption harder. All this does is annoy the customer. The last thing any marketer should want to do is offer a benefit that ultimately disappoints the buyer. Eventually, all businesses put their prices up to cover the cost of their program. In the end, you penalise all your customers whether they’re in your program or not by charging higher prices for what I consider to be sloppy or lazy marketing.

c) We’ll attract and keep good customers.

 

This is also a myth. Most high net worth customers who participate in loyalty marketing are in every program and skillfully use the benefits of each to their advantage. There is no loyalty in their approach to loyalty marketing. It tends to be lower educated, lower disposable income customers who blindly buy into programs on the hope and promise of a benefit. Not that I want to put down any customer. They all have a value. However, would a business typically invest heavily in providing benefits to the poorer less profitable of their clientele? I wish I could answer yes to this, but sadly, modern capitalism doesn’t demonstrate much of a social conscience, so I suspect not.

Loyalty Marketing lock ins
Golden handcuffs don’t work

Incentive-Based Marketing is a different story!

 

I have been pretty hard on loyalty marketers. I’ve not been altogether fair. Many have inherited the problems of loyalty programs. Most are doing their best to manage a problem that until now,  had no solution or exit potential. As a result, over the years more programs have done more to try and make their programs seem more beneficial to their members. For the most part, it still involves a lot of smoke and mirrors.

As an example, a friend and I are going on a holiday to Phuket next year. My friend is a loyal frequent flyer with Singapore Airlines. He purchased a full fare economy ticket and tried to use his points to upgrade to business class. My friend was advised there were no seats available. I then went on to Skytracker or one of those discount airline sites and managed to pick up a return business class fare on the same flight for not much more than my friend paid for their economy ticket. How do you think my friend feels right now?

Yes, many of my friends tell me they use their points to fly on many occasions. I get it, but even when they do, it’s not entirely on their own terms. They go on the flights the airlines make available, not the other way around.

After years of research, I advocate incentive-based marketing over loyalty marketing. The basic principle of incentive-based marketing is that there are no strings attached to the benefit. Yes, there is a call to action and reward for that action. However, the benefit has no limitations or barriers to its use.

There are some guiding principals to incentive-based marketing.

 

1) To be great at incentive-based marketing…

 

You need to understand the premise that if you offer a customer a discount, you have no control over what the customer does with the benefit of that discount. The same premise is true in incentive-based marketing. Don’t try to control or lock the customer in to a controlled benefit.

2) Whatever the incentive, it must be good for the business…

 

It must accord with the basic rule of marketing, that is, examining every aspect of the products and services you offer and generating maximum revenue and profit from them.

3) Think win/win for everyone…

 

In the development, if you come to any conclusion where you feel someone is disadvantaged and the concept is not win/win. Scrap it. It will come back to bite you and cost you money.

4) Point per dollar spend is counter-intuitive…

 

Why give an incentive to a customer for a purchase they were going to make anyway. Your platform must be intuitive enough to allow you to offer points on distressed or poorer performing inventory. Typically, your points should be allocated where you once might have applied a discount.

5) Allow your customers to use their accumulated points on whatever they like…

There are ways to manage this so it is worth your while and even profitable to your business.

6) Listen and learn…

 

A great incentive marketing program will provide you with an enormous amount of additional information about your customers. Use it wisely and you will grow your business exponentially.

7) Remember no program…

 

Whether it’s a loyalty marketing program or an incentive-based marketing program, neither will compensate for doing your business badly. Great customer service, real value for money products and services and genuine caring will do more for your business than any program.

Navigating Incentive Marketing in Your Business.

 

If you have an interest in exploring revenue generating and profitable incentive-based marketing, we offer a free self-assessment tool to help you make good decisions about moving into reward, loyalty and incentive systems. Register here and we’ll get the template to you within 24 hours of registering.

 

About The Author:

 

Joan - The author

Joan MacDougal is the CEO of Macrison. She is the founder and owner of this innovative and original marketing company. Prior to Macrison Joan held senior roles at both American Express and Telstra. With 30 years of front-line marketing, advertising and communications experience Joan brings honesty and perspective to her views on better marketing, communications and advertising. Visit Joan’s website www.joanmacdougal.com to get to know Joan a little better. For more information on our Services click here Macrison Services

 

 

 

 

Comments:


One response to “Why Loyalty Marketing Doesn’t Add Up”

  1. It’s a fine line and one of those cases–that’s happening more and more often–in which loyalty marketing goes overboard. But the line is so much easier to cross when the company is unable to offer bottom-line transactional value at the end of the day as well.

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