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Unrequited loyalty: How brands must start valuing their faithful customers

DigitasLBi

David Atkins

Unrequited loyalty: How brands must start valuing their faithful customers

Loyalty mechanics are usually built around incentivisation, members are rewarded for gaming the system, which only acts to erode margin. To deal with this the pendulum has swung the opposite way, where many businesses now only ‘care’ about the most valuable members in simplistic revenue terms.

In this guest post, David Atkins argues that brands which often ignore, and even penalise their most loyal customers, must start viewing loyalty as a profit centre rather than a cost centre. 

For my sins I do a lot of flying. Not the sexy, long haul, arrive in New York for keynote speech refreshed after sleeping ten hours on a flat bed sort of flying. No, I do the biweekly, inevitably delayed, cattle-class, short haul sort of flying.

 

I don’t really mind though. As I dig into my Whopper Meal in the Shanghai arrival hall, I muster the courage to join the never-ending taxi queue and console myself that I’ll soon have enough miles to treat my wife and I to a first class trip to the Maldives.

Imagine the disappointment when I login into my account to see my miles status bar impotently far from full. I’m faithful to a fault, yet I’m one of loyalty’s losers.

 

In Asia my story is all too common. The frantic loyalty arms race has led to the unfortunate situation in which customers are ignored or even penalised by the brands to which they are loyal.

If we’re to cure this ailment we must first understand what has caused it.

 

The first culprit is short-term thinking and the temptation to isolate undeserving members. We know that the best loyalty programmes are built on a value exchange – a win-win outcome for the business and the member.

However, because loyalty mechanics are usually built around incentivisation, members are rewarded for gaming the system, which only acts to erode margin. To deal with this the pendulum has swung the opposite way, where many businesses now only ‘care’ about the most valuable members in simplistic revenue terms.

 

For example, it’s now likely that the commuter passenger who flies weekly with a single airline is considered less loyal than a person who flies to New York business class once a year. This short-term focus of rewarding a very specific existing behaviour (a high margin sale) rather than cultivating desired long-term behaviour diminishes the power of CRM to develop real incremental profit.

 

Secondly, the bean counters have moved in.

When each mile flown by your customers represents a balance sheet liability (Colloquy recently found that loyalty members have a collective $48b worth of rewards!) there is bound to be increased scrutiny. Unfortunately, increased scrutiny has resulted in the real terms devaluing of rewards.

 

This is only going to end one way – disappointment, disenchantment and eventually disengagement of members.

But don’t take my word for it, sentiment and intent for Starbucks plummeted recently as they tightened rewards and moved towards a more financially accountable spend-based model.

 

Finally, as programmes have inexorably grown and taken on a life of their own, they have been decoupled from the brands they were designed to support. This separation of loyalty and marketing has led to the brand story and loyalty mechanics becoming detached. Left to their own devices loyalty marketers have engaged in a destructive race to the bottom with ill-informed gamified mechanics their focus.

All of this has resulted in a widening gap between consumer and brand’s perception of what constitutes loyalty.

So, how do we overcome these challenges and make loyalty mean something again?

 

First of all, we must stop treating loyalty as a cost-centre and start treating it as a profit-centre. This means doing what we marketers do best; understand and empathise with our audience to deliver interesting ideas, but doing so with attribution in mind.

 

An example of this is Sephora who understand the value of the rewards they deliver. Even if customers purchase make-up too infrequently to gain enough points for a free lip balm, Sephora Beauty Insider members still get access to beauty classes, personalised recommendations, great content and exclusive access to new products.

 

This content isn’t created as a cost but because they can accurately attribute value to it based on future purchases. In short what they give for loyalty at every level delivers them with a return.

Secondly, to tackle our erroneous evaluation of loyalty we must stop judging it on a single dimension. Our ability to track the minutiae of online behaviour, social engagement and even real world experiences means we can establish who our most loyal customers really are – we can separate the emotionally loyal from the functionally loyal. We can therefore approach loyalty, less with a proverbial stick and more with an experiential carrot.

 

Which brings me onto my final point; we must combat the separation of marketing and loyalty by leveraging CRM to deliver a brand promise at every stage of the customer journey.

Compare a typical airline experience to that of a weekly grocery shop at the British grocery store Waitrose.

 

As a myWaitrose member you receive personalised recipe inspiration and grocery recommendations before you shop, select your own offers when you shop and receive a free cup of coffee and newspaper after you’ve shopped. Engagement happens when you map the entire customer eco-system and establish where data-drive value can be delivered.

 

If my opening tirade sounds like a bitter personal vendetta, it is. And that’s the point. After all these years we still tend to look at the contents of loyalty databases as facts and figures.

We need to remember that they are in fact real human beings.

 

David Atkins is Lead Strategist at DigitasLBi Hong Kong