I’ve had to do a lot of thinking about customer loyalty lately both for my book and more recently for client engagements. What’s interesting to me is how chaotic this market is and how many people are writing about it with very little data. There isn’t even strong agreement on the similarities and differences between rewards programs and loyalty. Are they the same? Different? How?
We’re all familiar with rewards programs like frequent flier miles offers that most airlines have. You collect miles for your trips and eventually cash in the miles for free travel and upgrades. The vendor derives loyalty from this because the programs are high walled gardens and the miles are typically only good on that vendor’s network. This fulfills the basic requirements of a loyalty program by keeping customers coming back.
Even better than a conventional rewards program is addiction. Whoa! Addiction? Really? Well consider it this way. We know that the Surgeon General warns about the health risks of smoking but despite this people still smoke even if they’d like to quit. They’re addicted to the chemicals in the smoke, such as nicotine. So cigarettes are a kind of product and loyalty program all in one. It doesn’t stop there of course. For some fascinating reading check out the Opium Wars of the mid 19th century and the Boxer Rebellion.
Ok, so if you can’t addict customers to keep them coming back then high walls are a good substitute. But is this loyalty? If it is we can stop this discussion but I think loyalty is more these days.
Conventional rewards programs are transactions enacted for past good behavior but they don’t do much to promote future loyalty if you take just a slightly larger perspective. Loyal customers are those who are loyal even if they aren’t in purchase mode; they are the ones likely to recommend a vendor to a friend. Look at all the unhappy frequent fliers slavishly committed to a vendor just for the points and you will understand.
So what is loyalty and how do you promote it? Are rewards programs passé? These are tough questions. Rewards programs still work and the airline and credit card miles programs are examples. Nonetheless, in our society, where subscriptions are increasingly common, conventional rewards programs have tougher challenges. Subscribers know they can leave at the end of a subscription and take their business elsewhere and at the same time, subscription vendors know that there isn’t enough margin in their products and services to offer elaborate reward-style loyalty programs. Ironically though, loyalty is more vital to the subscription vendor than to the conventional vendor.
These realities are causing a shakeup in the loyalty world. Whereas rewards programs can be transactional, in subscriptions they need to be fluid processes. For a subscription vendor, winning renewal is a 24/7 job. So we’re seeing the evolution of new loyalty models focused on bonding customers to brands so that they will advocate for the brand even if they aren’t in position to make an additional purchase.
For these vendors and their customers, loyalty is far more involved than providing points. It typically involves gathering and analyzing customer data and providing specific responses when customers surface a need. I’d call this understanding your customers’ moments of truth and being there.
Often being in customers’ moments of truth is not flashy and might not bring them all the way to delight. But more importantly, you might not need to delight them. According to Patrick Spenner and Karen Freeman in a Harvard Business Review blog post, keeping the customer’s journey simple and efficient might be all you need to ensure their loyalty. Perhaps it’s a little scary, thinking that all you need to do to develop customer loyalty is to provide a competent product and service. But customers (all of us) have lots of balls in the air and keeping the drama to a minimum these days is valued. Besides, competency has worked before and it’s not exactly out of style.
Will it always work? Does anything always work? No. But the recent experience of what makes a subscription company successful i.e. retaining loyal customers, suggests that we might be turning a corner away from simple rewards programs and towards a more nuanced approach to loyalty and customer engagement.
(Cross-posted @ Beagle Research Group)