Loyalty Programs Need to Put Customers' Needs First

People Don't Want to Spend Just to Earn Points, They Relish Personal Attention

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Loyalty programs have become all about earn and burn: customers spend money, earn points and then redeem them. It's time to rethink this concept.

From the customer's perspective, there's something not quite right about loyalty to a brand being equated with rewards and aligned with programs. That's what we heard from customers in designing an approach for a major international hotel chain. To these customers, loyalty defines a relationship and feeling of mutual trust that is built over time. It's not something tangible that can be bought with points.

And studies show that customers don't believe their loyalty is being much rewarded or recognized in any case. An ACI Worldwide survey found some 27 percent ranked the rewards as something they didn't want; 22 percent, as too small to take seriously. And with 85 percent having heard nothing from their programs since they signed up, it's no surprise they also feel underappreciated.

These programs encourage one-way, transactional relationships, when, in fact, they'd be far more effective as two-way constructs built on the human connection to the brand. The most effective way to forge that connection is by providing and emphasizing experiences as a means of engaging customers and solidifying their loyalty to the brand over the long haul.

Here's how five businesses have gone about it.

  • French cosmetics retailer Sephora collects information and extracts insights about customers to offer a loyalty program with curated choices, known as the Beauty Insider program. The program offers members customized special products, exclusive information on sales and an all-access pass to personalized beauty. The company also sends members personalized gifts on important occasions, such as birthdays.

  • The American Express invitation-only Centurion Card confers a level of service reserved for a carefully selected set of individuals. While American Express doesn't publicly release a list of services these members receive, we know that it includes rare travel, food and entertainment offerings, such as driving experiences in Formula One race cars, personal shoppers at luxury retailers or access to posh Centurion airport lounges -- ll handled by a dedicated concierge. The key to the ultimate exclusive set of experiences is a member's "black card."

  • GrubHub uses an innovative rewards system through gamification. Every third time a customer orders food delivery through GrubHub's website, he gets the chance to play an online game to win prizes ranging from a GrubHub credit to free food for a year.

  • Nordstrom's Fashion Rewards program builds strong relationships with customers. Loyalty-program members receive tangible benefits catered toward their needs -- through private shopping parties, style experiences and a holiday shopping party for members and their friends.

  • Patagonia's Common Threads program allows loyal customers to recycle clothing and reduce environmental footprint. Customers who identify with this value stick with Patagonia, as they receive not just a functional, but strong emotional benefit from Patagonia products.

To follow the paths of these companies, marketers should reframe their thinking. Here are some suggestions:

First, stop thinking "programs." Think experiences instead. That will help you with the second imperative: go beyond the transaction to find the emotional hook with your customers. Customers want to be recognized, not necessarily rewarded. Third, make sure your loyalty approach is tied to the brand. Too many are not positioned or communicated in a way that aligns with the brand and its positioning, blunting their effectiveness. Fourth, while there are business frameworks for loyalty programs, don't let their use confine your thinking as to how yours should be designed. Innovate! Get as much feedback from customers and practices of other businesses that are setting new standards. Learn what people think about what drives loyalty, and use those findings to help guide new ways to engage with customers' hearts and minds. And look outside of your category to get these ideas.

Finally, understand that the loyalty program represents a rich set of customers who are theoretically most faithful to you -- a great laboratory for creating innovative new experiences that will make them and others like them more loyal and valuable advocates over the long haul. Make them part of enhancing the way you recognize them. Because that's the kind of customer who should be the goal to attract and recognize to begin with, isn't it?

Chiaki Nishino is senior partner of Prophet.
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