No rewards for buying loyalty ruse

Everyone’s jumping aboard the loyalty bandwagon, with companies happy to invest millions of pounds on supposedly shaping customers buying habits. But the reality could be that they are throwing money away on schemes which will ultimately yield

How could marketers have been so gullible? Looking back at the Eighties, it’s hard to accept that so many could have really believed margins and prices could be pumped up indefinitely simply by pushing aspiration and image. Yet they did. Even the City began to believe in the premium brand as a universal key to extraordinary profit improvement – until recession and a ferocious consumer backlash wiped the smile off everyone’s face.

“We’re wiser now.” “We’ll never repeat those mistakes again.” How many times have we heard comments of that sort? So what are we doing instead? Making new ones, with the Nineties candidate for the universal key to extraordinary profit improvement being loyalty.

Nowadays everybody is in the relationship-building game, and few self-respecting marketers are without some form of loyalty scheme. After all, if you can improve loyalty rates by just a few per cent then profitability can double. We know this because we’ve been told so in speech after speech, article after article.

There are, however, a number of things wrong with loyalty. First, like other “weasel” words such as “community”, it’s used to cover so many things that its information content is nil. Consider, for instance, the following triggers of “loyal” behaviour:

Customers are loyal because they identify with the brand’s values;

They are surprised and delighted by its service;

The product matches their needs – the brand consistently offers the best deal in town;

The whole way they are treated displays a deep and personal understanding of individual needs;

The brand offers the best loyalty rewards in town (or takes them prisoner by raising high barriers to exit); l It’s just a matter of habit or inertia (it’s easier to continue buying than find an alternative);

Convenience (it’s easy to buy).

Each one of these triggers implies a different – not a single – marketing focus.

Second, loyalty is intimately associated with another weasel word: If. Everything hinges on that if. If we can improve retention rates by X per cent; if share of wallet can be increased by Y. Yet there may be good reasons why the “if” never happens.

For example, marketers have already discovered 100 per cent satisfaction doesn’t necessarily translate into loyalty. They are beginning to realise that when consumers see a discount they’ll take it, no matter what fancy loyalty reward terms it’s dressed up in. And they’re discovering that most consumers reserve concepts like loyalty and relationship for friends and family.

Marketers, it seems, have forgotten another word, “choice”. For decades choice was integral to marketing ideology. Then, in an act of collective madness, marketers in car companies, banks, airlines, fmcg, utilities – you name it – began kidding themselves that somehow they could deny consumers the joy of the repertoire and ensnare them in life-time monogamous relationships.

Yet still, like some latter-day Pied Piper, loyalty is leading thousands of marketers a jolly old dance. One intriguing alternative model was outlined by the Henley Centre’s Bob Tyrrell. Instead of seeing markets in terms of producers and anonymous consumers, or alternatively as suppliers and customers in long-term shared destinies, try seeing them as users and facility providers.

A marketer wishing to become a leading facility provider needs to do a number of things, suggests Tyrrell. The most critical one is to rethink user interfaces. Don’t divide the world into discrete products, services, and distribution channels. Look at the facility from the user point of view. Users want this particular bundle of products and services delivered via that channel at this time. Instead of marketing a range of products, a company should offer a range of facilities which deliver these unique bundles.

For example, if I go shopping why do I only have one facility – a shop which I have to travel to? Why can’t I browse the range online and buy in-store if I want? Or browse in-store, and buy on-line if the mood takes me? These different facilities are not for different segments, but for the same users in different moods, such as “I’m in a hurry” or “I want a leisurely browse”.

Seeing marketers as facility providers and consumers as users does three things. First, it recognises that themes such as channel, customer service, and different levels of information exchange are not after-thoughts but integral parts of any offer.

Second, it makes it clear who’s in the driving seat – the user, who searches out facilities when and where they’re wanted (as opposed to suppliers demanding relationships). And third, in stark contrast to the over-blown rhetoric of loyalty, it recognises the fundamentally instrumental nature of most transactions: something which fits modern consumer psychology much closer.

That doesn’t count out loyalty schemes. Some brands, in some categories, really do have the opportunity to build relationships and turn their users into customers. Obviously they should seize it. The returns are potentially so high “it’s a worth a crack”, comments Tyrrell.

Last week, for example, American Express revealed that its Membership Rewards scheme has prompted a 40 per cent increase in members’ spend. In addition, scheme members look like staying with Amex three times longer than non-members.

But, if Tyrrell is right, for every Amex there will be dozens of marketers investing in loyalty schemes for whom the returns are negligible. “The reality may be that most people will simply remain users,” he suggests. “A lot of people are putting a lot of money behind the loyalty model. And it’s leading to a massive misallocation of marketing resources.” Just like the Eighties, in fact.

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