Does Loyalty Programs and Cards Create True Customer Loyalty?

By Paul Aas, Loyalty Group

As a loyalty professional, potential clients often tell me that "we're in control of our Customers and their Loyalty; - we have a program for that!" They couldn't be more off!

True Loyalty can't be bought; - it must be earned!

Loyalty cardsWe've all been there; - filling up our wallets with Club/Store/Loyalty cards and joining in Customer Programs. Historically the airline and hotel industry have been the most clever in tying up Customers to "secure" future business. However, today you find these types of programs in everything from your local hairdresser and grocery store to entertainment and mobile companies. In average, every American is a member of at least ten of these programs, and even in Europe they are popping up everywhere.

As a loyalty professional, potential clients often tell me that "we're in control of our Customers and their Loyalty; - we have a program for that!" They couldn't be more off!
Studies show have shown that Loyalty programs often attracts the "wrong" type of Customer. In other words "bargain hunters" and spenders that only chase the more cost-effective deal. Therefore, their loyalty doesn't go further than the occurrence of the Bigger, Better Deal - from you or from a competitor!

Many customers feel that the value of being a member isn't really beneficial enough over time - and not only defined in Euros and Cents, but the ability to keep them engaged and interested.

More facts:

  • Only 45% of a Customer base choose to be part of a Loyalty program, and only 35% of these actually redeem their earned value.
  • Max 20% of customers describes a Loyalty Program as "very influential", when choosing where to shop.
  • There's no statistical connection between being member of a Loyalty program and actual Customer Loyalty. 
  • A study of supermarkets in Norway has shown that the shops without any form of Loyalty program actually had the most Loyal Customers.
  • Airlines that have been rather successful with their Miles programs are being victims of member speculation in chase of the better deal.

So what's missing in today's Loyalty Programs - and what makes it impossible to use these "technical" tools to create true Loyal Customers?

The key is defining Loyalty

Loyalty is an emotional attachment. If you consider whom in your life you are Loyal to, it will likely be your friends and family. We are loyal to our friends and family, because we have a bond with them. We may not appreciate everything that they bring to the table all the time, but we stand by them, because we have that bond. This is what defines the term "Loyalty".

Focusing and relying on a technical interaction and approach to Customers that Loyalty Programs are, doesn't lead to true Customer Loyalty and it's a mistake to think that it can. Through these programs the company will constantly have to prove its worth to ensure the customer's future spending. The matter of the fact is, that the bond between people isn't personal through a plastic card. In one way or another, business is between people; and it's only people, who truly can build trust, give confidence, exceed expectations and create happiness. When a Customer experiences these emotional factors, he or she is then more likely to become a loyal customer - Not through a plastic card and generated points that the customer might not even feel like using after all.

That being said, the so-called Loyalty programs are not without any purpose. They can work as a marketing tool to tie customers up to your company, and it's naturally an invaluable source to collecting and using customer data. However, a Reward Program would be a more appropriate name for it, because one thing is for sure: It doesn't create Customer Loyalty.

(Sources: TABS Group. Deloitte, Forrester, Colloquy, Loyalty Group)