Most Americans are members of at least one loyalty program, if not several. Whether they carry around a R.E.I. dividend, a key chain tab for their grocery store, or a card for their airline, Americans love to get a little something extra for their patronage—and loyalty programs claim to give it to them. The American love for loyalty programs is strong, even in the recession. As loyalty research firm COLLOQUY’s Rick Ferguson put it, “Despite the recession, more consumers across all demographic segments are participating in rewards programs than ever before.” In fact, COLLOQUY found a 25% increase in American loyalty program memberships since 2006. So, reward programs are popular, but are they effective from a business perspective?
The effectiveness of loyalty programs may be defined in several ways, but we’ll look specifically at how loyalty programs affect Customer Engagement. Engaged customers have a positive emotional connection to a brand, they are loyal, passionate advocates for a company. Engaged customers will go out of their way to do business with you. We focus on customer engagement because we have found that Customer Engagement is a predictor of overall business success. Companies with more engaged customers see higher profit margins, more loyal customers, and even happier employees. For us, then, the real question is how loyalty programs impact customer engagement.
From a customer engagement perspective, rewards programs are not automatically successful. Many companies hope their loyalty programs will increase sales, help gather customer data, and entice customers into trying new products. However, none of these outcomes guarantee higher customer engagement.
This is because loyalty programs, in and of themselves, do not change the way a company does business. Doling out customer rewards for shopping with you won’t elevate the caliber of your service. Piling on loyalty points cannot change how customers feel about their interactions with your employees. Do your customers feel that their complaints, suggestions, and songs of praise are heard? Do they see evidence that their ideas are taken seriously? Do they see new products and procedures based on their ideas? These are the questions that determine whether or not your firm is actively listening to customers. This is what runs through your customers’ minds when they reflect on their emotional connection with your brand.
Competing loyalty programs operate much like lower prices—they may win a fair-weather customer, but they won’t guarantee lifetime patrons. Such loyalty programs can turn into a corporate version of “Keeping up with Joneses” when competitors attempt to woo customers with more extravagant rewards.
In the end, loyalty systems may have many business benefits, but without engagement companies will not create passionate lifetime customers. As Harvey Thompson, former IBM executive and author of Who Stole My Customer?, points out, “The key to effectively competing for loyalty is ensuring the quality of customer service, not the quantity of customer rewards.” The first step in improving the quality of your customer service—and increasing customer engagement—is researching what your customers actually want. You can’t buy loyalty—it must be earned.
~Monica Nolan, Account Manager
PeopleMetrics
Additional Resources
Customer Engagement Management resources
How to Use Customer Testimonials to Increase Engagement
What to Look for in Customer Engagement Feedback Tools
Tags: Consumer behaviour, customer loyalty, Loyalty business model, Loyalty program, loyalty systems, Relationship marketing
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