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More Reasons to Question Loyalty Programs

TMCnet, Staff Writer

Tuesday, March 22, 2011

Yet I am deeply skeptical about customer loyalty programs to achieve that goal because the truest way to win and keep customers is by getting the fundamentals right. That is: consistently providing what customers want with high product/service quality and deliverability at the right price. Everything else is just a gimmick.

Loyalty programs are also too often to varying degrees a hassle to benefit from as it is not in the program managers’ best financial interests to issue these rewards. Kind of like insurance but without the criticality.

The only time where loyalty programs have any value are when products and services are so commoditized price-and-qualitywise that a few goodies here and there can make the difference in sales: like for gas, groceries and cheap hotels. And this holds true if only if the sellers’ places of business lie in the same general path as the customers. For example I have two loyalty cards: one from a grocery chain that is also honored in a nationwide gas reseller and the other from a well-known pharmacy outlet. I do business with both and their partners if they are in my immediate neighborhood and route. Their points are readily redeemable. Yet if I have to pay more or use more gas to reach them I will go to their competitors instead.

So when I read the findings from a recent retail loyalty survey conducted for ACI Worldwide I was not surprised. Among them:

* 62 percent of American consumers join retail loyalty programs to get discounts but only 36 percent have received a reward or promotion that made them come back to the store again. Moreover, 27 percent of consumers complain they have received a reward or promotion for something they would never buy. On top of that 22 percent received rewards that were too small take seriously

* 81 percent of loyalty members don’t understand the programs they are enrolled in, even the basics such as what benefits they are supposed to get

* 85 percent of members report that they haven’t heard a single word from a loyalty program since the day they signed up

* 44 percent consumers have had a negative experience from a loyalty program

“Loyalty programs have long been a logical way to leverage consumer satisfaction, but retailers are missing the mark when it comes to reaching out to consumers with information and offers that are relevant to them,” said Rob Seward, senior industry marketing manager at ACI Worldwide. “The end result is that memberships are becoming meaningless.”

ACI’s solution is its ACI Retail Commerce Server for Rewards Management that offers programs that can be easily marketed to consumers’ specific purchasing history. Offers can be delivered to the recipient prior to or during their purchase event, which maximizes exposure to the loyalty program when it matters most, says the company.

Here’s the rub. Such programs assume that past purchases are strong indicators of future purchases: which isn’t necessarily the case. If I had bought Brand X toilet paper that doesn’t mean I’m interested to getting offers on that item and from that store. I happened to be in that outlet because I needed few things and was passing by the strip mall it is located in, or I liked Brand Y but the store was out or because there was a sale on Brand X. Or because I have extended-stay house guests forcing me to buy lots of the stuff, and didn’t feel like treating them (because I’m hoping to get some favors out of them in return, like a stay at their beachside condo) to the newspaper recycling bin.

And as for higher-ticket/more complex items, like electronics, forget it. I, like most consumers, check out the social media sites.
The bottom line is this: loyalty in the social media age is only as good as what is being offered. Customers are savvier and are less likely to be drawn in by doodads than in the past.

If firms put more focus on getting it right than on such horn-sounding and gift-tossing then they will get the more profitable customer loyalty they are seeking.