Loyalty Doesn’t Come From a Program

Last time, I wrote about warring trends in customer self-service, and the need for human interaction to generate loyalty. Based on feedback I received, today I’ll explore that column’s central conceit, which mainly went unspoken: loyalty shouldn’t rely solely on a program. If it does, you’ve already lost the game.

Way back when, loyalty programs were a really good idea. They rewarded high-value customers and built loyalty among customer bases.

Then, everyone built one. Loyalty programs became synonymous with point systems, in the same way personalization was confused with collaborative filtering in the ’90s.

There are lots of problems with this. I’m (perpetually) writing a book called “The Unconscious Consumer,” which explores various forms of loyalty, including loyalty programs. One of the major research topics is reward schedules and their effects on consumers.

There are many kinds of reward schedules beyond the point program. SUBWAY, for instance, has a punch card that acts as a “buy X, get one free” card. Retail stores such as Barneys have special invitation-only sale days for high-value customers. Other retailers offer premium clubs that give members free shipping or a percentage off purchases.

Airlines and hotels use what’s technically called a “token economy.” Points are accrued like money and can be spent on various services. Token economies operate a bit differently from other reward programs. They have a variable nature, and points can be equated to dollars. Due to their prevalence, token economies have become a commodity in a way other reward systems haven’t.

Nearly every airline and hotel has a point reward system. The system itself is no longer a differentiator. I belong to every reward program known to humanity. So it doesn’t really matter where I stay or what airline I use. I accrue points all over the place. If I use one airline for a long time and accrue a lot of miles, my loyalty to that airline diminishes after I cash in the points. The playing field is again leveled against all other programs. Many hotels and airlines wish they could get out of point systems altogether.

Unfortunately, they can’t. Point systems have become a cost of doing business for those industries. Having one isn’t a differentiator, but not having one is a detractor. One thing’s for certain: they’re no longer the most effective loyalty builders.

I stay at the Fairmont Hotels because of their excellent customer service. Another hotel chain, Wyndham, doesn’t have a point system in its loyalty program (it does partner with airlines, though). Its program is based on customer service and tailoring your stay. The staff makes sure your refrigerator is stocked with your favorite foods, your favorite beverages are waiting in your room, and everything is just as you like it. This correctly instills loyalty based on premium customer service.

As point systems become a commodity (because everyone has one), companies must leverage the one thing that can’t be duplicated about their company: brand and customer service. W Hotels can charge whatever they want for their hotel rooms. No one can compete, because no one can duplicate their brand.

Mid-level companies can learn something valuable from these boutique hotels. If nothing differentiates mid-level hotels from one another because they all have the same price point, offer a reward program, and look and feel the same, who has a competitive advantage? No one.

Likewise with the major airlines. United, Delta, and US Airways feel the same and offer point programs. JetBlue, Virgin Atlantic, and Song compete on price and style. JetBlue’s brand, like Virgin Atlantic’s, can’t be easily copied. People fly on those airlines because the brand experience is unique.

Real Loyalty Comes From the Brand Experience

These loyalty programs cost a lot to maintain. They’ve become so common they’re just a cost of doing business, not a differentiator. Customer loyalty must revert back to the brand experience and the intrinsic desire we have to be loyal to a brand we like. That brand must somehow be differentiated so it sticks in our mind. Anyone who’s flown Virgin Atlantic or stayed at one of Ian Schrager’s hotels understands this. Mid-market brands (which don’t cater to the luxury set) must figure out how to make their brand proposition stand out among their competitors.

Brand is just as important online as off-. Companies such as hotels and airlines tend to have boring Web sites. Their brands are boring. Their design firms build traditional hotel or airline sites.

Even the most boring Web pages are spruced up by a strong brand. Registration pages, for instance, all look the same: boring and brandless. JetBlue, however, inserts its brand into its registration page:

Please enter your email address and a password that you’re likely to remember (Don’t worry, if you forget your password, we’ll help you find it. If you forget your email address, we’re both out of luck).

Loyalty programs are running amok. Companies are mired in point systems. Those that will prevail rely on their brand differentiation. Brand experience loyalty will prove more important than any reward schedule or token economy.

Agree or disagree? Let me know!

Until next time…


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