Notes On Loyalty Programs

Loyalty is probably the most abused word in the marketing lexicon and is usually defined using a retail context.


It’s use has been warped, twisted and misappropriated to mean nothing more than a discount that rewards a guest for dining with you or to dine with you at some future time (frequency). So much so that in a recent consumer survey, consumers defined loyalty as a “…window of allegiance lasting 6-12 months before move[ing] on to explore alternatives.”

What this means is that we have trained the guest to think transactionally also. This is insane.

Any Loyalty Program You Create Probably Won’t Work

Most loyalty programs don’t work.  In fact, a recent study from Edgell Knowledge Network found that the level of actual brand loyalty among consumers who are part of a loyalty program versus those who are not, is not materially different.  Loyalty program members are not, in effect, any more or less loyal.  What’s worse, according to the same study, is that 81% of loyalty program members don’t even understand what their rewards entitlement consist of or how they’re paid out, which shouldn’t be surprising, given that the survey also found the average consumer belongs to as many as 18 different loyalty programs! So, why don’t most loyalty schemes work?  Research points to several reasons:

The you do this and we’ll give you that, transactional nature of most loyalty programs is a shaky foundation for any guest/brand relationship, resulting in what some researchers have dubbed mere “deal loyalty” as opposed to true brand loyalty.  The programs train guests to respond to points, rewards or incentives but does nothing to foster real, organic loyalty to the brand.

Consequently, relationships based on this sort of tit-for-tat dynamic tend not to be very sustainable. The best brand/guest relationships are those that become transformative in the sense that the guest feels (emotional) better for having been a guest in the first place.

The experience is the loyalty program.  And guests love them, not because they earned a few points or rewards, but because the experience was unique and remarkable. Trader Joe’s, Apple and Cirque du Soleil are good examples of brands that command a kind of fandamonium and brand love without the need for any transactional loyalty (frequency) schemes at all.

Most loyalty structures are based on arbitrary and generalized levels of purchase volume or frequency – bronze, silver or gold – so to speak.  It’s all largely measured using structured sales data grouping guests loosely into tiers or categories of loyalty.  As such, they treat guests largely the same, instead of recognizing them as the unique individuals they actually are in terms of what they buy, as well as how, when and where they buy.  Highly progressive brands, on the other hand, are doing just the opposite.  They’re using customer data to build intense personalization directly into their experiences, so as to build loyalty intrinsically, and without the need for any sort of generalized and superficial reward system. Netflix, Facebook and Amazon all use individual data to build personalization and thus loyalty while customers are using their sites in real time.  In other words, the experience itself is the loyalty program.

Show me the companies in a given category that most aggressively push their loyalty programs and I’ll show you those that are the least differentiated from their competitors.  I’d go so far as to argue that for these brands, loyalty programs become a potentially deadly distraction from the deeper issue of competitive parity they face.  Gas stations, credit cards, and airlines very often fall into this category.  Rather than spend meaningful effort to make their product or service unique, they simply play with the size of the carrot they dangle in front of their customers, which makes for lowest-common-denominator loyalty at best. The risk of course, is that if and when a new brand comes to market with a differentiated experience, incumbents who have been leaning on incremental loyalty games become irrelevant.

Experience First, Loyalty Last (and maybe not at all).

So, unless your brand is delivering meaningfully, differentiated value at a very personalized level of experience to every guest, loyalty programs will serve as nothing but a drain on your ability to make progress on these other, far more important areas.  Similarly, if you really are creating a remarkable experience, you probably won’t need a loyalty program at all.

Put another way; if your loyalty program doesn’t work, it most likely wouldn’t have helped you much anyway. And If it does work, it probably means you didn’t need it in the first place.

Then What Do You Do?

Here are some things you DO need to do:

  1. Define what loyalty means to your brand right now and for the future (lifecycle of both your business and your guests). Increased visits, incremental PPA increases, word-of-mouth, etc…
  2. Define what behaviors are important to increasing guest loyalty from both sides of the table.
  3. Reward those behaviors in a meaningful and highly personal way.
  4. Develop data/metrics to help you make better decisions across the entire guest experience.
  5. Use this data to grow your ability to personalize the guest experience.
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Digging Deeper

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