Loyalty Cards Don’t Drive Loyalty

Loyalty Cards Don’t Drive Loyalty

My wallet is full of loyalty cards. In fact, I have hundreds of them for all the top airlines and hotels. The sheer number of ‘loyalty’ cards I possess begs the question: If I have a loyalty card for one airline and I choose to fly with another airline, does that make me an adulterer? What is even worse is that I have a loyalty card for the second airline also. So does that make me a bigamist?

Of course you know that I am being facetious. I don’t really ask those questions, nor do I even give this a second thought when I am booking my flights. But the name ‘loyalty card’ has so many connotations associated with it that one can’t help but wonder why it doesn’t necessarily make a customer loyal.

Defining Loyalty

Defining loyalty is important here. Loyalty is an emotional attachment. If you consider whom in your life you are loyal to, it will likely be your friends and family. We are loyal to our friends and family because we have a bond with them. We may not appreciate everything that they bring to the table all the time, but we stand by them because we have that bond. This is what defines the term loyalty.

Customer Loyalty is a completely different kind of loyalty. At Beyond Philosophy we define customer loyalty as “the result of consistently positive emotional experience, rational attribute-based satisfaction and perceived value of an experience, which includes the product or services.” Your loyal customers are your future sales and the most likely customers to buy your most profitable supplemental products and services.

Loyal customers bring a lot of value to your organization. The more loyal customers that your organization can develop, the more you can reduce your costs for consumer education. They will keep ordering from you even when they probably should shop around. That’s because real loyalty in action may require customer sacrifice on the part of your customer, who continues to make their purchases from you even though another and possibly better option exists. This is partially what makes real customer loyalty hard to acquire and develop.

But developing customer loyalty is not a result of your loyalty card. Customer loyalty is built over time, a lot like relationships. In my post, How to Build Lasting Business Relationships, I discuss the similarities between building a relationship with your loyal customers and building a relationship with your spouse. Our loyalty is built on a foundation of mutual attraction, shared values, compromise, and trust. I don’t know about you, but my spouse did not come with a loyalty card.

The Difference in Perception of the Loyalty Card

So what is the purpose of a loyalty card? Despite what the name implies, a loyalty card does not purchase a customers’ loyalty. Research company Ipsos Mori and loyalty scheme provider ,The Logic Group, asked a group of 2,153 people if their membership in a loyalty program influenced their buying decisions. While 63% of the respondents were enrolled in a program, only 23% of them said that it influenced their buying decisions. Whether the low numbers indicate that the loyalty program is not working or that the respondents are unaware of how much influence the program may have had on their decision is unclear.

But the research does show that to most customers, a loyalty card is just another rational part of the company offer. They are not loyalty cards. In the customer’s perception, the free hotel stays, free flights and preferential treatment are an extension of the offer of service a company provides. They become, in this way, reward cards.

But Loyalty cards are different than reward cards in concept. Loyalty cards are perceived by companies to build loyalty from the customers that use it by providing additional benefits to the possessor while reward cards are meant to incentivize behaviours. This distinction between the two types of cards is too often lost on companies that mistakenly believe that the loyalty card is helping secure loyalty from their customers. It does not.

How Will You Use Your Loyalty Program?

Companies need to ask themselves what they want from their loyalty card program. Loyalty programs can be designed with many aims in mind. One of the most useful to companies is data gathering. Companies can use the data they collect from their customers’ use of their loyalty cards for predicative analytics of customer behaviour.
This can have a Big Brother sound to it, which has a sinister implication. But often the benefits to the consumer as a result of this analytic are anything but sinister. In fact, the data mining that results from these analytics usually benefits customers in the most personal and useful way.

A great example of data mining in action is Britain’s Nectar card that has over 18 million subscribers and hundreds of member companies. When the card is swiped, the company can then use the data collected on the purchases to offer targeted promotions that fit the behaviours of the consumer. This application of a loyalty card has exciting possibilities.

Here in the States is another great example of data mining for a company’s loyalty program with grocery store giant, Kroger. Over 40% of United States households have a Kroger’s loyalty card. As a result, 90% of Kroger’s sales are processed with the card. By using this data from the transactions, Kroger’s’ mailings can have up to 95 % customization for consumers (kypost.com) sending each household coupons and savings on products that they already buy, while sending their neighbour a totally different set. This strategy is part of Kroger’s long-term strategy to build customer loyalty for life.
So it’s clear what Kroger and companies like them want from their loyalty programs. But what do consumers want? The answer is surprisingly enough, not as much as you’d think.

According to a research company in Britain called ICM research, most consumers they surveyed would rather have a small reward that is guaranteed rather than a chance at a big prize. Also, most would like to have an easy to use and understand program because if it’s too complicated, they won’t bother to use it. Most importantly, the offers need to be relevant. Many unused loyalty programs have simply become irrelevant and as a result ignored by the consumer.

Loyalty Cards Are a Useful Tool in Building Customer Loyalty

So loyalty cards can serve a purpose, just not the purpose that is inherent in their name. Loyalty is an emotional decision that cannot be forged over the use of a plastic card. Instead consumers form loyalty over a period of time based on their experiences.

But if they can’t build loyalty, loyalty cards can be a tool that companies use to foster a loyal following. Loyalty cards can give retailers and businesses insight into their consumers’ buying decisions. This insight can help companies offer targeted promotions that directly benefit the consumer. This in turn helps build the long-term relationship by providing a better customer experience. Ultimately, the customer experience that loyalty cards can help you provide will deliver you the loyal customers you seek to continue to grow and prosper as a company.

Photo Credit www.flickr.com/ Robert S Donovan

Colin Shaw is founder & CEO of Beyond Philosophy, one of the world’s first organizations devoted to customer experience. Colin is an international author of four best-selling books & recognized Business Influencer by LinkedIn. Beyond Philosophy provide consulting, specialised research & training from offices in Atlanta, Georgia and London, England. Follow Colin Shaw on Twitter: @ColinShaw_CX