The Long Wow 11 Dec 2007

Brandon Schauer has published a great essay on customer loyalty over at Adaptive Path's blog. His central thesis is that long-term customer loyalty can only be achieved through systematically impressing your customers over the course of many interactions - and that it cannot be artificially manufactured by simply creating a loyalty program.

Here's what Brandon has to say about loyalty programs:

"It's no surprise that the MBA-knee jerk reaction to a loyalty problem is to create a loyalty program, but you can't manufacture loyal customers by issuing them bronze, gold, and platinum ID cards. Such shallow solutions don't resonate deeply with customers. Instead, these artificial attempts at loyalty create extra overhead in the customer relationship, they deliver pseudo-benefits the customer never needed, and they may event create barriers, resentment, or revolt.

"At Adaptive Path, we've observed this superficial nature of loyalty programs first hand. When talking to customers of a well-known financial institution who were enrolled in a loyalty program. We found multi-millionaire, 'platinum-level' customers that didn't know (and didn't care!) about their special status and benefits, even though the company considered that program an essential advantage and an attractor. The customers simply wanted the good products and services they were paying for in the first place."

While we wholeheartedly agree with the sentiments expressed in the first paragraph above, we're not so sure about some of those expressed in the second. In our experience of researching loyalty schemes, we've certainly found that many customers resent them - many people dislike the sense of "obligation" that these programs create in persuading them to persist with mediocre companies' products and services. We've also found that people are usually unaware of the "special" status and benefits conferred upon them as a result of their membership to these schemes (Many execs can't even remember which schemes they are signed up to, let alone what each one offers). However, while loyalty programs may not be liked, they do seem to work - at least, they do for some companies. In the travel sector for example, we've spoken to plenty of people who will not fly on any airline outside of the Oneworld alliance or stay in a hotel that does not fall under the umbrella of the Starwood group. Why? Because they are collecting the points necessary to enjoy free / discounted flights and accommodation. While none of the other benefits seem to matter to them, these freebies create a fierce loyalty to the vendors that offer them...So, while we agree with Brandon's main point - a great customer experience, sustained over time and multiple interactions, should be a company's key differentiator - we're not sure that you can write off loyalty schemes completely.