Wednesday, November 7, 2007

You Call That a Loyalty Program?

I just can't stand it anymore. If I read one more blog or news release about a loyalty program that is nothing more than a discount program I will go kick a tree. I wonder who the dimwit was that decided that a discount program (a loyalty program that does nothing more than give the customer a discount for additional purchases) should be called a "loyalty program." It seems to me that the company that initiates a "loyalty program" that is characterized by offering points which lead to future discounts is really telling the customer that their products, services and personal attention are not sufficient to draw the customer back. THAT IS NOT A LOYALTY PROGRAM!!!

There is another aspect to this discount program that seems to be overlooked; and that is that the discount program has two very important negatives. The first negative is that the discount program directly reduces profit margin both in the discount as well as in the administration of the program. The second negative is that it is susceptible to competitive discount programs. For example, I think we can see a number of credit card companies offering dicounts and paybacks for using their cards. The discounts offered are themselves facing competition between different banks. So, following this logic, the "loyalty program" is only as good as its performance against other "loyalty programs.

My question is: WHY NOT SPEND THE MONEY ALLOTED TO THE "LOYALTY PROGRAM" ON IMPROVING YOUR PRODUCTS, SERVICES AND CUSTOMER RELATIONSHIPS?

In my simple definition a loyalty program is one that aims to develop and then provide product, service and customer relationships that are sufficiently enticing that the customer has no inclination to seek other alternatives. These are the three legs of loyalty that I keep espousing as the real foundation of customer loyalty.

My message to those companies that think their "loyalty program" is really creating customer loyalty - YOU ARE WRONG. SO STOP IT.

I will now get down off my soap box.

1 comment:

John Burton said...

Dr B,

Your comments above (and your blog in general) are brilliant, and spot on! I really wish I had read your thouhts above before I wrote my most recent rant about Customer Loyalty Programs:

http://johnburton.typepad.com/freerange_organic_blogs/2007/10/does-computer-c.html.

If you are willing, I would love to interview you and get your thoughts for a book I am in the process of writing. It is a somewhat technical, vendor specific book about the SAP CRM Interaction Center application (i.e., Call Center / Contact Center). However, to supplement the more technical material, I would also like to discuss customer relationship management and customer loyalty at a business level as well. Ideally, if you are interested perhaps you would even consider writing a preface or forward for my book?

At any rate, I just wanted to let you know how much I am enjoying your blog. I'm so happy that I stumbled across it while wandering through the Internet.

Warm regards,
John

 

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