Loyalty programs don’t usually generate loyalty. Are they inherently a bad idea, or are most companies doing it wrong?
It depends on what you’re trying to achieve. Loyalty is built up over time, over numerous interactions with your company. People understand transactions as being a fair trade of value: Something costs me a certain amount of time, money or hassle, and I get some kind of practical or emotional value in return. There’s an assumed tension between what’s good for me, the customer, and what’s good for you, the company. But that’s not always the case. Breaking out of that zero-sum transaction is the way to achieve the deepest customer loyalty and positive business results.
Related: 6 Ways to Build Customer Loyalty
There’s a ladder of three kinds of loyalty, from easiest to cultivate to hardest. The hardest offers the most durable connection.
1. Transactional loyalty
Usually, when companies are aiming for basic customer loyalty, they are operating what should better be called “captivity” programs. They are punishing people for leaving, and paying them for their patronage in some hard-to-trade, hard-to-redeem reward. Customers might seem loyal in their behavior, but are actually resentful of an arrangement they think is coercive. Far from loyal, they are eager to switch to a better deal.
Transactional loyalty can be done right, however. It’s not necessarily a me-versus-you interaction. It requires a transparent and fair system, clear benefits, reciprocity and an understanding that my loyalty as a customer is based on you helping me do what I am trying to get done.
Captivity programs work when benefits to customers are so clear that you become the habitual choice, like in the case of Amazon Prime. Knowing that I can get something faster, at no cost, keeps me coming back. Amazon sweetened the deal for customers by adding, at no cost, access to streaming shows (which are built into the interface of the media device they sell).
Amazon’s short game was to drive repeat business, but they also succeeded at the long game, building an audience for their syndicated and now self-produced shows. They only earned the permission to be a media company by moving customers up the ladder to emotional loyalty.
Emotional loyalty trades on insider status, unique offerings and a gratifying sense of being personally understood. Luxury hotels can recognize frequent customers and adapt their SOPs to these customers’ quirks, like understanding that they want something for breakfast that’s not on the menu, and offering that as “your usual.”
Harley Davidson is a brand famous for connecting with customers on an emotional level. By creating a school that teaches Motorcycle Safety Foundation-certified courses on how to ride, Harley engages folks who previously felt “outside” the tribe and intimidated. They cheerfully pay to go to Riding School, which is rewarding emotionally and as a transaction. Practically, they learn to ride. Personally, they are now more affiliated with the culture. The fact that the courses drive sales of motorcycles, specifically a new bike targeted to a younger customer segment, is a benefit to Harley that provides a win-win benefit to customers.
Similarly, UnitedHealthcare (a client of my company, Continuum) wanted to deliver a better service to its members, who were frustrated by confusing billing statements and overwhelming amounts of paperwork. They launched the Advocate4Me program, which empowers call center employees to proactively call members to guide them through complicated administration.
UHC has seen tangible results. Customer satisfaction ratings are up 30 percent. Customer trust increased by 74 percent. And members have contacted their advisers without prompting to send thank you cards for the above-and-beyond service they received. Better health outcomes are a goal both of UHC and their members.
Both Harley Davidson and UnitedHealthcare are laddering their customers up to identity loyalty.
This kind of loyalty is irrational and durable. It’s most seen in fans of teams or bands. That’s a different kind of connection: Fans are very different from customers. Fans are passionate and dedicated, whereas customers are promiscuous. When customers can be be converted to fans, business wins the ultimate commitment.
Fans of sports teams forge a strong bond through bad seasons as well as good, and reward these organizations even when they fail. This kind of tribal identity is very hard to actively generate from scratch, but it can be nurtured by being effectively reciprocated.
Brands that can smartly execute experiential marketing campaigns will nurture identity loyalty. Red Bull focuses its message on the experiences consumers will have, with the product playing a supporting role.
Identity loyalty is a viable target for companies that can truly, and not just aspirationally, say that their brand is best expressed in their customers’ experiences, and whose customers are fanatics. Reciprocate and maximize their passion.
For others, there is still competitive advantage in building effective transactional loyalty and durable emotional loyalty. The cost of cultivating a repeat customer is almost always lower than the cost of attracting a new one. Start at the bottom of the ladder. Make sure nothing about your transactional exchanges with customers is wobbly before you reach for emotional loyalty. The higher up the ladder, the farther the fall. More than 30,000 people are injured each year falling off ladders. Climb safely.