There are two types loyalty programs that a brand can run:
- Bought Loyalty: All loyalty programs that rely on points and freebies against the points are trying buy loyalty through these freebies and lock-ins. For example, flight operators want to lock people in with their Frequent Flier Plans. This is the reason, that you find customers of these organizations complain about the service provided but at the same time continue to use their services. These kinds of programs are in reality not creating loyalty. All they are doing is dangling the carrot in front of the customer and thereby encouraging repeat behavior.
- Earned Loyalty: These are programs that are designed with the ultimate goal of making their customers relate to them emotionally. Most often, these encompass everything from product/service development, marketing and sales execution. Building this kind of loyalty is much more difficult, takes a lot of thought and time.
I would not argue that one is better than the other. However, it is important that as a brand we know what kind of loyalty programs we are running and act accordingly. In my opinion, the cost of running both kinds of programs work out to be similar in the long term.
If you are running a loyalty program of the 1st kind, it is important that you focus on the efficiency of the program and put in place processes that ensure flawless execution. The most important reason why a customer will move out of the program is if the execution starts to fall apart. That is when the lock-in seems to start hurting and customers start considering other options.
If you are running a loyalty program where you want to earn customer loyalty, you need to continuously work on improving employee engagement & empowerment, minute attention to details and flawless execution would be the areas to focus on.
If you want to develop customer loyalty as your competitive advantage, you need to be able to do both of these programs well. You will ensure that your customers are able to take the benefits of the freebies more often than any other similar programs offer; have products or services that they aspire for but do not generally buy by themselves in the freebies, etc. You have processes and systems in place that allow your employees (highly engaged employees) to delight your customers with their service levels. That is when, your customers will find that you are not only easy to do business with but are also a delight to do business with. This is when, you would have turned customer loyalty into a competitive advantage that your competitors will find very difficult to replicate/surpass.
Do understand your loyalty program and focus accordingly to make the maximum impact for your customers as well as your organization.
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PS: A tale of a Cab driver told by Shep Hyken
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