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How Valuable are Loyalty Programs?

It’s about enrichment, not entrapment.

This series revisits the basics of branding and marketing by answering questions marketers, entrepreneurs and small business owners face when growing their business. I hope this series provides you with knowledge to think smarter and a nudge to make stuff happen.


How Valuable are Loyalty Programs?

Most marketing activities from companies seeking to build customer loyalty are designed more to entrap customers than to enrich customers.

Loyalty cards from supermarkets entrap us into being labeled “loyal customers.” These customer loyalty schemes are based upon offering customers lower prices to gain greater loyalty.

But lasting loyalty isn’t earned by offering the lowest price. Businesses that gain sales solely by low prices are only as good as their latest, cheapest offer. As soon as a competitor can beat the price, all those “loyal” customers will chuck their loyalty cards and shop elsewhere.

Loyalty programs reverse the logic of great customer service: they ask customers to sign up for a card or buy a certain amount of product before they can enjoy the benefits of being part of the club. Do you really want to create two classes of customers? One that gets the “good stuff” at a good price, the other that gets a raw deal?

I’ve always viewed loyalty programs as either transaction-based or relationship-based.

Frequent flyer programs from airlines are an example of a transaction-based loyalty program. It’s designed to get you to buy a round-trip ticket in order to receive frequent flyer miles. However, it’s less about customer loyalty and more about customer entrapment.

The only reason I am loyal to an airline is because I’m trapped. I have too many miles on one airline not to use them. I use them not because I think they do a good job. I use them because I’m trapped.

However, I am a fan of loyalty programs that recognize customers with special attention more than reward customers with special discounts.

For example when the barista at your neighborhood espresso shop knows exactly how to make your drink, that’s is a relationship-based loyalty program. It’s the high-touch, low-tech way to developing customer loyalty because it requires a personal connection between the employee and the customer.

Customer loyalty works both ways. If you want customers to stay loyal to you, stay loyal to your customers—treat them as people, help them as individuals, offer them something extra, and they’ll come back for more.


REVISITING THE BASICS | archive

#01 | How Should a Brand be Defined?
#02 | What’s the Difference between Branding and Marketing?
#03 | Is there a Difference between a Company Name and a Brand Name?
#04 | Does every Brand need a Unique Selling Position?
#05 | Do Consumers Really Feel Emotional about Brands?
#06 | How should “Brand Personality” be Described?
#07 | Are Taglines Important? Why or Why Not?
#08 | Are Logos Important? Why or Why Not?
#09 | Can a Brand be Built without a Large Budget?
#10 | Why is a Brand Style Guide important?
#11 | What are Key Components to Include in a Brand Style Guide?
#12 | How Rigid Should a Brand Style Guide Be?
#13 | The Brand Style Guide is Built. Now What?
#14 | What Matters Most to Consumers: Brand, Price, or Convenience?
#15 | Does a Company’s Mission Statement Play a Role in Marketing the Brand?
#16 | How can Business Operations Support the Brand Promise?
#17 | How do you get Employees to “Live the Brand”?
#18 | Do all Marketing Activities need a Strong Call to Action?
#19 | Do Brands need to be Marketed Differently Depending on their Stage of Life?
#20 | What Role does Promotion Play in Effective Marketing?
#21 | How Connected should PR efforts be to Marketing efforts?
#22 | At the Retail Level, What do Effective In-Store Campaigns Look Like?
#23 | How Valuable are Loyalty Programs?

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