Some thoughts on Loyalty

Cornell University has School of Hotel Administration which is world renown. They do some wonderful research in the area of customer loyalty. (You might expect that hotel management would be interested in customer loyalty - nothing like a good repeat customer.) Michael McCall of Cornell made an excellent point recently when he noted that an effective loyalty program should decrease a customer's price sensitivity. He notes that many loyalty programs focus on discounts or other related concessions. These programs have the opposite of the desired effect since it directs the customer's attention toward pricing.

McCall suggests that loyalty program should focus on ways to give special treatment to top customers. Since most companies have a distinct group of customers who are responsible for much of the company's profits, they should be given elite status. These customers should be given different treatment than other customers. He suggests that loyalty programs should have the following elements:
1. Avoid provoking customers' price sensitivity
2. Manage program tiers carefully because it is easy to give rewards but painful to take them away.
3. Think carefully about customer values.
4. Reward customer engagement.
5. Separate true effects of a loyalty program from artifacts by choosing appropriate data.
6. Bridge the gap between academics and practice.

The goal of any loyalty program should be profitability to the company and repeated patronage from the customer. As noted by McCall the key is to find customers who will provide the best future profits (not just revenue).

The bottom line is that loyalty programs should stay away from prices. I think the most important point made in this presentation is that companies must get away from talking prices with respect to their loyalty programs. Loyalty programs should focus on how the relationship with the customer is a win-win for the company and the customer. Not many loyalty programs can attest to doing this.