A Day at Works

The idea of loyalty program is good. The firm identify loyal customer, rewards them based on their personal needs captured by firm’s dB through data mining activities.

The problem is that the programs have already become generic. The rewards is similar, the system is mechanistic – thus although customer is greet personally, we know that the system actually do it. “We are bits of data not a person”, customer said. As the result the program fail to develop true loyalty of customers, even worse customers getting loyal to the one giving the more rewards or loyal to the rewards NOT the firm who provide it. Customer would go shopping at Metro when Metro Dept Store giving more points and discount than Matahari. As program become commodity, the programs becoming the cost of doing business for those industry, i.e. as an entry barrier. As an escape, firms back to customer service and brand (precisely branded experience) – the two, that are could not be copied easily.

The second problem is that, as program could not cover all customer need, then program becoming segmented and educate customer to loyal in certain ways or behavior. For instance take a look HSBC Credit Card. This Credit Card attracts certain customer, that is a group of customer who travel a lot. All benefit provided by HSBC tend to cover on traveling, thus customers will use HSBC Card when they are on a traveling or vacation. For food (restaurant, café, etc.), customers now using Mega Visa and for car related need they use AstraWorld Credit Card (co-branding with BCA, and BII).

So actually we educate customers to loyal to certain program (for this example are programs linkage to credit cards), related to certain behavior or partial loyalty. A young dynamic individual who drive a Yaris, would use AstraWorld Credit Card when having a transaction at workshop, but when he wants to see a firm at 21 Cineplex, he would use BCA Visa, and when he has a dining with friend he will use Mega Visa.

So what’s the solution?

A: When we want a clan, create for them a common culture which then create a community (~ having something in common). You can do it by establishing value, communicate and express the value throughout verbal and non verbal ways, and creating unique artifacts.

Recently I have read “Loyalty Myths”. I think this is a B+ grade book in loyalty marketing. Find it at bookstore…. but before it I’ll share some myths….

Customer Satisfaction brings Customer Loyalty (Myth 45)

Merely satisfied customer not necessarily loyal, only delighted customer tends to loyal because relationship of satisfaction and loyalty is not linear. Besides satisfaction, brand imagery determines loyalty.

Spending on Customer Service increases Customer Loyalty (Myth 41)

Spending on the core of what customer value at will create customer delight then in turn loyalty. The important thing is that many businesses are not driven by services, but product. Think about consumer package goods (Coca Cola for instance), and automotive in which customer is more driven by brand and functional value of the product.Spending on additional and non-core service, such as a Birthday Greeting Card toward automotive customer would not automatically turn them to loyal.

Frequent Contact increases Loyalty (Myth 32)

This is a chicken-and-egg conundrum. Loyal customer tends to purchase frequently, and not otherwise. Delighted customer tend to be loyal customer, loyal customer tends to cognitive, affective and behaviorally committed.

Loyalty Rewards Programs will Solve Customer Attrition Problems (Myth 34)

Loyalty Programs can’t save bad product/ service. If an airline consistently cancelled your flight, would frequent flier miles really matter? The truth is consumer ranked Frequent Flier Programs at the bottom, just a head of airline food.Loyalty Programs which is not providing real value to customer will not contribute to customer delight. The programs otherwise educate customer to delay purchase, at certain periodic promotional events.

Firms should Emphasize Retention rather than Acquisition (Myth 2)

This Myth broke Product Life Cycle and Company Life Cycle Concepts. Retention is a sound strategy when the product/ company stay in maturity or decline stage. On introduction stage, the key is brand awareness, while of growth stage is customer acquisition / market share. Observe Apple which to soon focus on retention strategy before enough share to accumulate. Apple’s growth is steadily small compared to un-sophisticated Microsoft. Retention also rational when firms already satisfied to profitability of current customer portfolio and acquisition of new customer is relatively expensive. On some situation like after product launching, the firm needs to shape profitability of their customer portfolio since majority of customers enjoy special discount facilities. In other case acquisition is cheap, such acquiring walk-in customer to our Restaurant located at high traffic mall.

Customer wants to be Loyal and Interested in having a Monogamous Relationship (Myth 18, 19)

Customers nowadays want simplicity, they refuse unnecessary involvement. So relationship won’t work well in low-risk item or when customers generally buy the product on impulse or triggered by the need of variety. Even in B2B, customers want to reduce cost of purchase: time, risk and relationship. If customers involved in the purchase, they always have a back-up if possible to minimize risk. Customers more safely have a polygamous relationship.

Loyalty can’t be bough; it has to be earned (Myth 31)

Firm can’t bribe customers to earn their TRUE loyalty, but as loyalty reward program flourish customers learn to buy product/ service solely to get financial rewards or exploit the system. The extreme example of loyalty program hacker is David Philips who spent $ 3,140 on pudding cups at Healthy Choice to get $ 1.25 million American Airline frequent flier miles (worth 48 free domestic airline tickets and 12,000 desserts). If they won’t exploit the system, customers have well understood when to make a purchase – the promotional season. That’s why sales increase during promotion and decline after it. As loyalty reward program tend to establish exit barrier, customers focus their transaction to how much they already accumulated, not to awards they can win.