Friday, November 18, 2005

True loyalty does not require bribery

Companies should strive for monogamy, not polygamy

One day, just for grins, I decided to do a test. I wanted to know how many “loyalty cards” I had in my wallet. Here is what I discovered: I had 19. Now, if all of these cards were for different categories of products, I’d be telling you a different story. However, they aren’t. I had cards for five different restaurants, five different airlines, three different hotel chains, two different driving ranges and a few miscellaneous ones. In the world of “loyalty”, I am more of a philanderer than a loyal monogamist.

What is loyalty anyway?

To be loyal is to feel a devotion, duty or attachment to somebody or something. Yet, with 19 cards in my pocket, how “loyal” am I? When I fly to Atlanta, I am likely to use my Delta card. Yet, when I fly to Boston, I fly JetBlue. Am I loyal? I don’t think so. Would the industry describe me as loyal? Again, I don’t think so. Then, why do we insist on calling the card in my wallet a loyalty card if it doesn’t make me loyal? I think the better term would be to call it a bribery card because that is how it is perceived and used. The airline provides an incentive, a bribe, that if I buy from them, they will give me some undeserved benefit – such as a free ticket. I willingly accept this incentive. However, I am not sure it materially changed my mind as to which airline I would fly. I fly enough that I can get tickets on multiple airlines.

Why does corporate monogamy matter?

Many industries are zero-sum games where any gain in sales is 100% at the expense of another brand. Every time a company can win a sale, they win twice. First, they gain the profits from that transaction. Second, they keep the competitor from having the profits from that transaction. In flat markets, growth is always at the expense of the competition. Also, monogamy is a sign that customers truly value the services you provide more than they do the competition. When value is high, customers are more likely to share their positive opinions with others, lowering sales and marketing costs and improving overall marketing effectiveness. It acts as a virtuous cycle.

Conditioning the customer

These so-called loyalty cards are a very negative tool for most businesses as they tend to de-value, not build corporate value. An analogous example would be the use of coupons. After decades of using coupons to drive sales, P&G, the giant consumer package goods company realized that couponing was hurting the brand and devaluing the products. Therefore, they moved away from using this technique. They realized it was merely a price discounting tool. The couponing conditioned the customer to wait for the special. The same is true with loyalty cards. We are conditioning the customer to expect some reward simply for buying their service. This builds costs into the system and doesn’t build as much brand loyalty as would be expected. It is merely a price discounting method.

Where does true loyalty come from?

We are loyal when we feel connected to a brand, a service, a product or a company. When we value what they do or stand for. Yet most companies don’t know how to engender this connectedness. We build value when customers experience a result, a level of service, etc. that exceeds their expectations. Therefore, in order to exceed expectations, we need to uncover what they are first. Once we know the customer’s expectations, we need to shape them in a way that makes it possible for us to exceed them.

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