Thinking Twice About Loyalty Programs

| Contact Center/CRM Views and Analysis

Thinking Twice About Loyalty Programs

Developing customer loyalty through card/membership programs is a good idea, in theory and for the meantime in practice. Yet is this a short-term gig, about as effective cash/gifts/other goodies-based performance incentives, with the same inherent flaw?

Canadians (yes I'm one) especially are big on loyalty cards. You can't go into a store or gas bar or most any other business and not be asked for one here. I have two in my wallet; I used to have four.

The key reasons for loyalty program popularity in 'our home and native land' is that we Canadians, perhaps because of the Scots ancestry of many of us or the tough (except for southwestern British Columbia) survival-oriented climate, for whatever reason are cheap and love bargains. Our unofficial currency is 'Canadian Tire money': the scrip handed back when buying at an omnipresent (like Tim Hortons) Canadian Tire store.

Yet an excellent story on Yahoo via Bankrate Canada, written by Peter Diekmeyer, the Montreal Gazette's management columnist calls into question the long-range value of such loyalty programs regardless of country.

He points out that the costs of being loyal to one business in many cases appear to outweigh the benefits. "For example, Indigo's [a leading Canadian bookselling chain, similar to Barnes and Noble in the U.S. ] iREWARDS card costs $20 a year and provides a discount of 10 per cent on book purchases. That's not bad, but it's hardly a savings that would justify a 30-minute trip across town if there is some place closer you can find what you're after."

Also, "More and more loyalty programs also have fees attached to them, which make them less attractive to consumers. One Aeroplan [Air Canada's frequent flyer program] -affiliated credit card, for example, charges $120 a year. That doesn't sound like much, but if you hang onto the card for five years while racking up points, your supposedly free plane trip will actually have cost you $600."

Mr. Diekmeyer is dead on. The stores I have loyalty cards for are ones I would shop at anyway. Would I go out of my way for any of them? No. The added time and gas isn't worth it. When the weather is exceptionally lousy I'll go to two other competing stores that are even closer to me even though the prices are sometimes higher.

There's also another issue with loyalty programs in the case of frequent-fliers, one which could doom them and that is "substantial evidence that the vast majority of frequent-flyer tickets issued are not declared as employment income, which means the government is cheated out of millions of dollars."

Well we know in this era of revenue-short governments attempting to fund job-creating stimulus programs where this one is heading...

Good riddance, for frequent-flier programs have the appearances of a scam what with all the hassles entailed in using the points. Moreover the story points out that it benefits those who can afford to fly business class and above, not the hoi-polloi who endure airborne steerage. Or as the article says the "general public is, in effect, subsidizing the vacations of the rich."

I am jealous of our cat that had recently travelled on an airline whose name will not be mentioned; they're all sinking to a common denominator of mediocrity. She had a warm comfy protected compartment to herself with no one's knees in their backs or tray tables in their guts, and a much easier time through security...

Employee loyalty programs have been criticized with some justification because they focus on the carrots and getting staff to chase them like other animals in a cage rather than on doing fine work and being rewarded by that ultimate incentive: encouraging words from their supervisors. Consumer loyalty programs fall into the same trap by aiming at the goodies rather on quality products and services.

If companies spent more time and resources on the latter--delivering solid items and experiences--reinforced by quality customer care including easy-to-navigate web sites and IVR menus and well-trained and attentive contact center and in-person i.e. retail, ticket counter, checkin staff--at the right price than on gimmicks like the cards, cutting out the programs' expenses and the profits to the middlepeople--they may amaze themselves in seeing how loyal customers can be.

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