Redesigning Loyalty Programs to Last Beyond the Next Purchase

Goal Should Be Not Just Short-Term Behavior but Long-Term Relationship Management

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Kimberly Whitler
Kimberly Whitler
Mike Lewis
Mike Lewis

The pressure to deliver growth has increased as the technology revolution has enabled marketers to link programs to real-time profit generation. As a result, CMOs are often forced to shift resources toward programs that deliver identifiable, immediate revenue. One of the core tools used: the loyalty program.

Certainly, these programs may drive short-term results. But if not designed correctly, they can actually undermine the long-term health of the brand.

Loyalty programs are mainly psychological in nature, with little true interaction between the brand and the consumer. Still, they can go a long way toward making relationships concrete, as there is a back and forth between the consumer and the brand. The typical loyalty program enables consumers to earn points that can be redeemed for rewards. When consumers' purchases are motivated by such promotions, we term that "behavioral loyalty." A form of loyalty exists because the consumer engages in repeat purchasing, but it's not clear whether it's because of the incentive or because they are really loyal to the brand. Loyalty programs can shift what may have been a warm, emotional relationship into a cold, contractual relationship where consumers feel they are "owed" rewards.

A more valuable kind of loyalty
There does exist a more valuable type of loyalty: attitudinal loyalty, defined as when the customer has a strong emotional connection to and preference for the brand. Behavioral loyalty might be described as consumers doing what you want them to do, while attitudinal loyalty involves consumers believing what you want them to. While attitudinal loyalty is a driver of behavioral loyalty, the converse may not be true. As a result, loyalty programs that provide only economic benefits may be appropriate in some instances but may actually conflict with brand-building efforts that ultimately attempt to create attitudinal loyalty.

This type of conflict can be seen in the airline industry's marketing efforts. Airlines have used slogans such as "Fly the friendly skies" and "Something special in the air" that try to establish the brands as friendly or luxurious. In contrast, the airline loyalty programs require that customers fly a great deal to get access to the improved, "friendlier" or more "special" service levels. The airlines are left with two segments of customers. The first is those who feel they have "earned" and are therefore "owed" enhanced service, and although they demonstrate repeat buying behaviors, they're unlikely to have a true emotional attachment to the carrier and in the long run may easily move to a competitive brand. The second segment is those who have not "earned" anything, and are treated as second-class customers, so they are likely have neither behavioral nor attitudinal loyalty.

So what does it all mean? When designing a loyalty program, marketers need to move beyond focusing on just purchasing behavior and look at the impact of the program on overall brand health. While rewarding the right behaviors can lead to short-term revenue growth, designing loyalty programs so they also strengthen the brand perception can help lead to long-term brand equity.

Kimberly Whitler is a senior marketing executive who has worked at leading consumer-package-goods companies such as Procter & Gamble and retailers such as PetSmart. Most recently she was CMO for David's Bridal.
Mike Lewis is an assistant professor of marketing at Washington University. He received his Ph.D. in marketing from Northwestern University and is a highly published authority on customer-relationship management.

Beyond the next purchase cycle
If every element of a loyalty program goes through a filter that evaluates it from the perspective of whether it will strengthen the consumer-brand relationship, the result will be a revenue-enhancing program that lasts longer than the next purchase cycle. If an airline stands for superior care of the customer, can the loyalty program be designed to reward spending but also take care of the consumer and strengthen the brand? One answer might be to use a combination of fixed and flexible rewards. For example, the airline can keep the points-based program but also add customer benefits that are not explicitly mentioned. Unexpected rewards can have significant value as consumers view them as gestures on the part of the brand rather than payments that are owed.

Rewarding the right behavior means developing a structure that encourages the customer to shop more and spend more. This is obvious, and most programs are designed to effectively incent this in the short term. However, it's equally important to look at behavior on the margin and ensure that you don't accidentally "punish" a loyal customer. In the current economy, with consumer spending down, it's very possible that many customers will not maintain the status they had in a specific program but will maintain or even grow their share of wallet with a specific retailer. Most programs would punish those consumers for not maintaining their dollar spending even though they had maintained their share of wallet spending. Design for the best-case scenario, but make sure to design for alternative scenarios as well.

As stewards of not just the loyalty program but of the entire brand's health, CMOs have to rethink the design of these programs. Inciting short-term behavior is table stakes. The bigger challenge is moving beyond short-term efforts to design on-brand programs that can last beyond the immediate pressure. It may be a little harder to do, but it's the right thing to do.

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