If you’re like me, you have loyalty cards for three different supermarkets, a half dozen airlines, several hotels, a dozen or so assorted retailers and the local frozen yogurt shop.
But how can I be loyal to Florida grocer Publix and also their competitor Winn-Dixie? Can I be loyal to American, United and Delta? To Starbucks and the coffee shop down the street?
No of course not, and that’s the problem with calling these pieces of plastic “loyalty cards.” I didn’t get any of these cards out of loyalty, I got them to get a discount at the cash register, or, in the case of the airline and yogurt shop programs, because I didn’t want to lose out on accumulating points that I might be able to use sometime in the future. I’ll still compare prices on big purchases. With everyday things like grocery store trips, I’m driven more by habit, convenience, and weekly specials.
As I’ll discuss later, most consumers are a lot like me. And it makes you wonder, why do we call them “loyalty” programs if they don’t make customers loyal?
What is Loyalty Anyway?
Loyalty means you’ve made an emotional attachment. Most of us are loyal to our families and friends. You may not always like all your family members, but you do have a strong emotional bond with them. You’ll stand by them and in times of crisis you’ll be there for them. That’s loyalty.
Customer loyalty is a bit different. In our customer experience consultancy, we describe customer loyalty as “the result of a consistently positive emotional experience, rational attribute-based satisfaction and perceived value of an experience, which includes the product or services.” Loyal customers will buy more in the future and will be more willing to purchase premium products and services.
Loyal customers are valuable because they tend to stick with you no matter what. You don’t have to spend money educating them about your company and your offerings, and they’re less likely to shop around for a better deal. Your loyal customer will make sacrifices for you, buying from you even when there’s a better option out there. This is part of the reason that it’s hard to develop real customer loyalty.
It’s easy to see that a true loyal customer is a far cry from a customer who happens to have your loyalty card. True loyalty is based on shared values, positive emotional experiences and trust.
What about those Loyalty Cards?
Loyalty programs have exploded in popularity in recent years. According to a recent report by the professional services company Accenture, over 90 percent of companies now have some sort of loyalty program, with membership rates growing 26.7 percent between 2012 and 2014. It stands you reason that you can’t really be loyal to everyone who offers you a loyalty card.
And customers know this, even if the companies offering loyalty cards don’t: 71 percent of people in the Accenture report said that loyalty programs do not create loyalty, and 23 percent – particularly Millennials – said that loyalty programs have no effect or a negative effect on their spending decisions. And the very nature of loyalty is shifting: 77 percent of all consumers say they’re more willing to switch brand loyalty than they were even three years ago.
This just confirms what I have been saying all along: a “loyalty” card doesn’t increase customer loyalty at all. It’s really just a “rewards” card that offers additional perks that might factor into a customer’s rational decision about whether to buy from one company or another. Should you rack up more frequent flyer miles on an airline you’ve used before, or should you buy a cheaper ticket on a different airline? This is a rational decision based on the relative value for you of frequent flyer miles vs cost savings. Loyalty nothing to do with it.
This distinction is often overlooked by companies that think their loyalty card is creating loyal customers. It is not. As I discuss in depth in my book, The Intuitive Customer: 7 imperatives for moving your Customer Experience to the next level(co-authored with prof. Ryan Hamilton of Emory University), loyalty is an emotional decision, not a rational one, and customers do not behave rationally.
If Loyalty Cards don’t build loyalty, are they of any use?
Loyalty programs aren’t a waste of time, even if they don’t actually create customer loyalty. One of the most useful aspects of loyalty cards is that they give companies a tool for data mining. By collecting and analyzing customers’ loyalty card use, a company can begin offering customers more of what they want.
For example, the Nectar card is the largest loyalty card program in the UK, with hundreds of member companies. When the card is swiped the company can use data to offer targeted promotions based on a particular consumer’s buying patterns.
In the U.S., grocery chain Kroger has used its rewards program to mine data for years. People make frequent trips to the grocery store, and Kroger sales are processed with a card. This gives the grocery giant incredible insight into buying behavior, and Kroger has for several years been sending individual households customized coupons and savings for products they already buy. This is part of Kroger’s strategy to create lifelong loyalty.
These sorts of strategies are consistent with research that shows that most consumers would rather have a guaranteed small reward, rather than a chance at a big prize. Or, savings at the grocery checkout today, rather than points accumulated toward a larger reward.
When companies recognize that “Loyalty” cards won’t automatically create loyal customers, they’ll begin to leverage the power of those cards to create offers, products and services that consumers want and that will keep them coming back.
How many loyalty cards do you have? Are you actually loyal to any of these companies or brands? Let’s talk about it in the comments box below.
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Colin Shaw is the founder and CEO of Beyond Philosophy, one of the world’s leading Customer experience consultancy & training organizations. Colin is an international author of six bestselling books and an engaging keynote speaker.
Follow Colin Shaw on Twitter @ColinShaw_CX