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Customer Love for Sale
Loyalty programs: The worst marketing idea
Some startups resort to loyalty programs for their customers to retain them — which may help long-term but may backfire in the future.
“Delta Air Lines Just Rolled Out the Most Significant Change to Its Loyalty Program in 42 Years.” This is one of the headlines you could have stumbled upon in September 2023.
Delta’s decision disappointed many frequent flyers. Snide remarks flooded social media. However, the idea of a loyalty program is a bankrupt marketing concept in itself.
There are several apparent reasons for this and one that’s less obvious.
What’s wrong with loyalty programs?
There was an old joke. A mom tells her schoolgirl daughter: ‘If you do your homework within an hour I will give you ten dollars.’ The daughter retires to her room for some time, then comes back and says: ‘I did my homework in two hours, so you owe me twenty dollars.’
Daniel Pink wrote in his book Drive: The Surprising Truth About What Motivates Us:
“In the 1970s, Mark Lepper, David Greene, and Richard Nisbett conducted a classic study on preschoolers who liked to draw. They divided the kids into three groups.
The first group of kids was told that they’d get a reward — a nice blue ribbon with their name on it — if they continued to draw.
The second group wasn’t told about the rewards but was given a blue ribbon after drawing. (This was the “unexpected reward” condition.)
Finally, the third group was the “no award” condition. They weren’t even told about the blue ribbons.
After two weeks of reinforcement, the scientists observed the preschoolers during a typical period of free play. Here’s where the results get interesting: The kids in the “no award” and “unexpected award” conditions kept on drawing with the same enthusiasm as before. Their behavior was unchanged. In contrast, the preschoolers in the “award” group now showed much less interest in the activity. Instead of drawing, they played with blocks, or took a nap, or went outside.
The reason was that their intrinsic motivation to draw had been contaminated by blue ribbons; the extrinsic reward had diminished the pleasure of playing with crayons and paper.”
If you once offered your children a reward for what they must do for free — their daily routines, for instance — you’ll have a lot of trouble when you try to make them do it without an incentive.
‘What do we get in return?’ they will ask.
If your clients get some perks — bonuses, privileges, discounts — for being loyal to your company or brand, they will feel disappointed when they lose this option for whatever reason. And, most likely, they will stop buying from you.
When Delta Airlines rolled out the changes to its loyalty programs, numerous passengers commented, ‘I’ll never fly with Delta again.’
If you propose a reward to your customers for being your customers, it quickly becomes the only reason people choose your product.
All the loyalty programs are the same
I have several loyalty cards from the local grocery chains in my wallet and smartphone. Their programs are a bit different, but the idea behind all of them is the same — buy more and save money.
I know that one of the supermarkets offers a large selection of fresh fish. Another one sells the sort of cheese that I like. The third one has the widest product range.
So, when my wife and I are about to go shopping, we choose a supermarket regardless of the loyalty programs. We make our choices based on the task we have. But we always have their bonus cards with us.
These businesses pay us for what we’d do anyway. It’s good for us, but not for them.
Do you need a loyalty program?
Why are retail stores in your city highly likely to have loyalty programs, but Apple doesn’t have one?
Because Apple doesn’t need it, at least for now.
The iPhone 15 was recently released (as of the time of writing this article). And though it isn’t a revolutionary new device — there were also many snide comments about it — I don’t worry much about its sales.
As of today, Apple, Tesla, Netflix, Samsung, Xiaomi, and many other businesses don’t need loyalty programs, even though they work in the ‘red oceans’ of severe competition.
A retail chain wants you to visit their stores several times a week. An airline wants you to fly with it many times per year. Apple, Samsung, or Xiaomi also want you to buy their smartphones several times in a decade.
But the latter prefer to invest in their brands.
If a consumer chooses a smartphone because they love the brand, one can call it loyalty.
But if they choose a gadget, a supermarket, or a hairdresser only because they expect to receive a bonus or a discount, it has nothing to do with loyalty. It merely means that a company ‘bought’ their next purchase.
Who must be loyal to whom?
Using loyalty programs is a vicious practice that emerged in the 20th century. At the time, businesspeople believed a customer was nothing more than a walking wallet. They viewed business as a high-stakes race, where the first to reach the customer and take the cash out of their wallet took the trophy.
Though loyalty programs still work. People will never miss a chance to save a few dollars or feel special (for instance, by getting access to a business lounge). This is a part of human nature, and marketers take advantage of it.
But it biases business leaders’ strategic thinking.
Looking at the growing numbers of their ‘loyal’ customers, they come to believe that they have an army of raving fans.
And when the ‘fans’ go away as soon as they change their loyalty policy or increase the prices for their products, it leaves them completely baffled.
Customers shouldn’t be loyal to a company. A company must be loyal to consumers — by creating new products, gathering feedback, listening to the customers, and trying to identify and fulfill their needs.
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