With apologies to those readers who have a basic grasp of the English language, here’s a definition of the word loyalty:
‘The state or quality of being loyal. Faithfulness to commitments or obligations. Faithful adherence to a sovereign, government, leader, cause, etc’
So an example might be: ‘he was loyal to the airline because he chose it above all others'
And yet here’s a recent article in the much-respected Harvard Business Review:
‘For consumers juggling an array of loyalty programs, blockchain could provide instant redemption and exchange for multiple loyalty point currencies on a single platform. With only one “wallet” for points, consumers would not have to hunt for each program’s options, limitations, and redemption rules’
The idea of consumers juggling loyalty programmes is a valid insight. Anyone who’s seen George Clooney and Vera Farmiga in Up In The Air will recognise the idea of a savvy frequent-flyer who hoovers up points and benefits. But the idea that they are in any way loyal is crashingly wrong. The pile of cards on the table is testament to that fact.
In fact, these customers are instead caught up in the crossfire of an arms race of rewards. The perceived cost of falling behind the competition is just unthinkable, so the arsenal of every combatant is expanded to the point where it becomes impossible to remember why they got involved in the first place.
So in a way the article is right. Blockchain may well be a solution to help consumers make sense of their pile of loyalty cards. It may also be the answer to world peace and why men have nipples - we just don’t know. But it has as much to do with loyalty as ballet has with motorway construction.
It’s time to reclaim the word and the business concept of true loyalty. When we talk about cards, points, and schemes, we are talking about rewards. Reward programmes respond to past behaviour, hoping against hope, logic and evidence that doing so will somehow directly influence what we do in the future.
So let’s take a look at some evidence. A 2015 study of loyalty memberships* calculated the value of available points across 10 key issuing organisations, including Nectar, Tesco, BA and IHG. Over 73 million members (obviously with some duplication) held points worth £5.7 billion.
That’s a staggering sum - more so if accounting methodology treats the points as a liability. Points collection is clearly an appealing pastime, but does it track through to future behaviour?
Studies have been completed on the subject of ‘breakage’ - the amount of points which remain unredeemed. The broad consensus appears to be that around a third of points go unredeemed each year, and that around a fifth of members have never redeemed. So among our 73m ‘loyal’ customers above, nearly 15m have never redeemed a point.
Points do appear to have some value, although deeper analysis is needed to be wholly confident in them. We can be sure, however, that while they reflect what I did, they can’t ever perfectly track what I will do. It doesn’t sound rewarding, and it’s certainly not a measure of loyalty.
So, if it’s not points - what is loyalty?
Surely it’s simply a behaviour. The best way of measuring it will vary from business to business, but at its most basic, for most of us what we’re talking about is simple: a repeat purchase.
These happen anyway. If a product or service serves a need you have, chances are you’ll it buy again next time that need arises. Only two things can stop this happening. Firstly, someone else offers something equally good and a point of difference exists that makes it preferable. Secondly, the product or service becomes harder to obtain, or no longer meets the need. The former is a fact of life - competition exists. The latter is where investment in loyalty can make a difference.
For the action-oriented among you, here are five themes to consider if you want to look forward, not back:
Understand what you want loyalty to look like
Loyalty is a behaviour - but to make it a valuable contributor to your business, you have to be able to isolate it, quantify it, and measure it. And most importantly, accept that there are drivers of loyalty which don’t directly reflect a sale, but can be acceptable as ‘success’ in their own right. Increased levels of engagement and consideration, good reviews, contribution to content and conversation are all strong indicators of loyal behaviour, without having to be neutralised into a bank of points.
Walk in your customers’ shoes
A strong argument for a points programme is; ’people like to collect’. They certainly do, as the unburnt £5.7bn worth of points shows. Why are your customers failing to spend their points on the discounts, goods and services that are being made available for redemption? It might be because we’re not all the same. If you assume that travel customers will want airport parking simply because it’s part of the journey - you’ll miss the mark by miles.
Experience is everything
Your product or service is what makes people buy from you. If that’s not working, loyalty will be the least of your worries. But assuming the customer experience is a good one from consideration through to purchase, the role of loyalty activity is to improve and optimise your offer, to create a greater chance of your customers buying again. In fact, the brands with the most loyalty* are Netflix, Amazon and Apple. All driven by service, product and customer insight.
Technology is your slave, not the other way around
Let’s assume then that you’ve done your customer homework, you know why the relationship exists, what they value, and how you can give them the things they value; maybe even delight them. Now, and only now, are you ready to think about how that might look, how your loyalty proposition can be uniquely yours, and yes, what technology might be able to help you deliver and industrialise the process.
Reward isn’t its own reward
…but increased loyalty is! The most important driver of loyal behaviour is the product or service itself** - everything else is secondary. Special offers and discounts - whether as part of a scheme or offered ad hoc - are just a little over half as appealing as simply getting it right. And getting it right starts with finding unique and deeper ways to the make your customers’ lives better.
* Source: Brand Keys, 2015
** US Consumers’ Brand Loyalty Drivers, SAP/SE/Ipsos, November 2014.
“Broadly speaking, what is it that makes you loyal to a particular brand? The product or service itself: 75%, Special offers/discounts: 41%”