Customers for Life
One of my colleagues said that using a rewards program to get "a customer for life" is just bull! Customers are human, subject to enticements from others, the seduction of promised rewards, and have a short attention span—it’s easy to get bored when you frequent the same stores, restaurants, hotel chains, etc. Variety is the spice of life in most situations. So even if you are happy with your provider, you often find a reason to try someone else.
Customer Retention versus Customer Acquisition
One very annoying aspect of discounts and rewards is penalizing loyal customers in favor of new customers. In her article "Lollipop Loyalty," posted on DestinationCRM.com in January 2008, Jessica Tsai relayed a story told to her by Phil Sugar, CEO of the loyalty and rewards platform Smart Button, that truly epitomizes this phenomenon:
"Companies are often conflicted between customer acquisition and customer retention. Sugar describes his own experience with wireless Internet service: An early adopter, Sugar had a wireless connection seven years ago, before most of his neighbors even knew what wireless was. He recently discovered his neighbor had signed onto the service—and had received a free Wi-Fi router, a free digital camera, and six months of half-price Internet. When Sugar called to complain that he deserved to be treated at least that well—over the seven years, he says, he'd referred 25 people to the company—he was told that he wasn't eligible because he wasn't a new customer. "So I said, 'Well, I'll be eligible when I go to a competing wireless provider].'" For most industries, the full extent of customer value comes from the relationship long after the purchase. Once you get them through the door, you need to keep them."
Remember, loyalty is about repeat business and making each customer more valuable (e.g., each customer ultimately spends more with you), not one-off sales.
The Power of Gratitude
An interesting article in "The New York Times" on June 21, 2009 by Rob Walker talks about how treating people well leads to gratitude, which leads to loyalty:
"In the days ahead, managers and employees of the Hyatt hotel chain will be doing favors for some of their customers. Maybe they always did them, but these favors will be different: they will be what Hyatt Hotels' C.E.O., Mark Hoplamazian, has called 'random acts of generosity,' like unexpectedly picking up the tab for your hotel-bar drinks or hotel-spa massage…the idea is that the unexpected nature of the gifts will leave the customer not just pleased but also grateful. Gratitude is a powerful, and potentially quite profitable, emotion to inspire.
A coming paper in the Journal of Marketing addresses that very subject. Building on past research on the role of gratitude in human relationships, it argues that a customer who is made to feel grateful most likely becomes enduringly loyal as a result. Gratitude, as the paper bluntly puts it, can 'increase purchase intentions, sales growth and share of wallet.'"
However, Walker also talks about the potential downside to these random acts of generosity:
"What if a Hyatt guest reads this column and wonders why he didn’t get any free drinks? [Robert] Palmatier [associate professor of marketing at the University of Washington] summarizes the potential response: "If there’s a program out there that I know about and I’m not getting it, that’s not fair." Perceived unfairness can throw reciprocity instincts into reverse: instead of being disproportionately grateful, you might feel disproportionately spiteful—and take your business, and your loyalty, elsewhere."
This speaks to my former complaint about the different investment levels necessary to obtain premiere status at Bank of America—even though you garner the most loyalty by treating everyone as individuals, you need to be equitable across all customer segments.
Still, the Hyatt approach is very interesting!
Training Customers to Be Less Profitable
Loyalty rewards programs based solely on discounts teach customers to play the discount coupon game. Just this past month, I received several different discount offers (for being a great customer) from OneShopPlus, a women’s’ clothing consolidator. On, say, a Tuesday, the coupon was for "buy one, get a second for 99 cents." On Wednesday, I received a coupon for "25% off entire purchase and free shipping." Now, I really needed some things and had planned to buy at least three items on Tuesday, but when I got the second offer on Wednesday, I decided to cash in both. I bought just two items—one at regular price, and the second for 99 cents, first. Then, once that transaction was completed, I went back to the site and purchased three more desired items for the discount and free shipping. I felt like I had "gamed the system" and won! And my feeling about the vendor? Dumb mistake! They had to spend a lot more to get my orders because of the multiple offers. And I didn’t feel any more loyal, just happy I had saved some money.