Customer loyalty programs first launched with great marketing hype surrounding their intention to thank and reward the business’ most loyal customers.  Truth be told, they were conceived as part of a customer acquisition strategy and designed to be a differentiator that pulled customers away from competitors or to encourage repeat purchases.   These programs have expanded to almost every industry (if you don’t believe it, ask me about the loyalty program I built for chicken farmers); however, the basic purchase-reward mechanism of these programs hasn’t changed much.

When loyalty programs became part of the customer’s base expectations they lost their ability to significantly grow the business’ revenue.

What Loyalty Should Have Been Designed For

Had loyalty programs been created with the true intention of strengthening the customer relationship we would have seen more variety and innovation within the industry.   Today, we’re at a fork in the road where a business can choose to:

a) continue down the path of purchase-reward mechanisms, which will continue to “satisfy” customers; or,
b) re-navigate their strategies toward a customer development  path that moves customers from “satisfaction” to “advocacy.”

In both B2B and B2C industries, businesses must move beyond simply acquiring and satisfying customers. This is a short-term strategy fraught with reactionary service and increased churn rates.

A strong and healthy customer base that earns advocacy serves two purposes: First, it increases customer data and insights; second, it floods the marketplace with the recommendations, content and conversations that modern buyers increasingly turn to when making purchase decisions.

Balancing the Relationship

Traditional loyalty programs took more than they gave and created an imbalance in the business-customer relationship.  “Today’s consumers are intensely aware that they are being tracked, and just as aware that they aren’t receiving commensurate value from the companies doing this,”, states Bryan Pearson, President and CEO of LoyaltyOne.

In his book The Loyalty Leap, Mr. Pearson claims that loyalty programs must become about customer intimacy rather than rewards. For customers to become advocates they must be engaged on a deeper level as equal partners in a relationship, not in the predatory style in which loyalty programs originated.  Conversations, equal exchanges of information and value beyond “points” and price breaks will become the true differentiator of modern businesses deploying loyalty strategies.

Customers understand that their transactional history, preferences and demographics are being collected and analyzed at every pass, regardless of whether or not they’ve authorized businesses to do so. Loyalty programs can leverage this situation to engender trust by individualizing the customer experience.

Personalized Value

As Mr. Pearson outlines, relevance in your customer’s experiences with your business is a longer-term and more profitable strategy than price-breaks.  “Relevance is what makes the customer engage you when they shop, and not just because you have a cheaper price,” he writes.

Customers are demanding more. They’re empowered by the resources they have quick, free and easy access to. They are emboldened by the wisdom of crowds they participate in through their myriad of interconnected devices and social channels.  The balance is shifting.

Are you rewarding your customers or are you strengthening your relationship with them?

Join the debate! Are loyalty programs simply a cost of doing business? Do they have the potential to evolve and once again drive business value?

Sam Fiorella – Sensei
Feed Your Community, Not Your Ego