Although we all love discounts and rewards, a rewards program doesn’t necessarily foster
repeat business. Here are some reasons why:
SHOP ONLINE AND YOU’RE AUTOMATICALLY "REGISTERED." In the past, loyalty programs required explicit sign up in order to get these discounts and rewards. However, in today’s economy, and with the price transparency that customers now have via the Internet, consumers are offered discounts and freebies just for opening an email. When you make a purchase online, the etailer site has access to a lot of vital information—most conveniently, your email address. Discount offers and other rewards can easily be sent to anyone who ever purchased anything on the site. I get a real kick out of sites that I shopped at once, several years ago, that send me emails that start, "As a loyal customer…" Loyalty is not a single or even occasional purchases; loyalty is demonstrated by repeat business and a relationship with the brand.
LOW PRICES ARE COMMODITY ITEMS. When your rewards program is based on offering discounts on merchandise, you are basically entering into pricing wars. I know that I have received a discount offer for a particular item, and then I have Googled the Web to see if I can find a better price. If the site with the coupon offers the best price (and you have to include the shipping price), I buy it there. If I can find it cheaper, I go elsewhere. This isn’t loyalty; this is bargain shopping.
WORKING TO REACH A SPECIFIC REWARD. The prototypical example of this is hotel points and airline credit card mileage programs, where you are only loyal until you achieve your next reward. Once you’ve reached your reward threshold, a lot of people are out of there, having gotten what they want. I signed up for a CitiCard with American Airlines frequent flyer miles. The annual fee of $85 was waived for the first year, and I received enough sign up miles to get a free flight. I just had to use the card and pay up once to get the reward, which I did, and then I called to cancel.
(Interestingly, when I called, the CSR "saved" my account by offering me another 10,000 miles just for keeping the card and using it again. Since it was still a few months before the annual fee kicked in, I accepted the offer, made a quick purchase, paid it off, and then cancelled the card when the fee became due.)
EVERY VENDOR HAS A REWARDS PROGRAM. Whether an airline, a supermarket, a pharmacy, or a brand of gasoline, every vendor offers some sort of rewards. These are no longer differentiators, but are part of doing business.
Besides swiping a loyalty card at checkout, you will often get special reward offers in an attempt to win business. For example, the in-store pharmacy at one of the supermarkets I frequent (and at which I have a loyalty card hanging off my keychain) sent me an offer for a free $25 gift card for groceries for bringing in a new prescription. I had a one-time prescription to fill, so I went for it, got my gift card, and continued to fill my regular prescriptions at the online pharmacy associated with my health plan. I am still relatively loyal to the supermarket (as one of my two primary grocery stores), but the effort to make me switch pharmacies didn’t work.
Rewards Program Become Expected and Undervalued. In fact, because "everyone" offers rewards, companies that don’t are often seen as offering higher value simply because nothing is on sale. Jordan’s Furniture, a leading furniture chain in New England, brags that nothing is on sale—the prices are excellent all the time! The reason people keep shopping there is the excellent customer service. Sure, they do seasonal promotions, but not for lower prices. Last year, the vendor offered a refund of the purchase price on any merchandise bought on a certain day if the Red Sox swept the pennant race, and a lot of people ended up with free furniture. (Jordan’s had an insurance policy for the event, so it was the insurance provider who suffered.)
Another example, one supermarket chain in Massachusetts, Roche Brothers, doesn’t have a loyalty card, unlike the major chains Shaw’s and Stop and Shop. I’ve talked to a number of Roche Brothers shoppers who say that the weekly specials there are a lot better than the rewards card discounts offered at other places. And the perceived quality of Roche Brothers’ own branded products is very high.