sales | August 28, 2013

Why Loyalty Programs Don't Work: Retail Speaker Douglas Stephens

"Any loyalty program you create probably won’t work." That's the hard-to-swallow argument retail speaker Douglas Stephens makes in his latest post on the Retail Prophet blog. With Gen Y mothers defining brand loyalty as a period of a mere 6-12 months, you would think the time would be ripe to secure consumer loyalty through rewards programs. Many companies are indeed trying to clinch a customer's patronage by offering them special perks and discounts. Turns out, however, that many of these programs don't work the way they're intended. And, as Stephens shows in his article, the difference between the actual brand loyalty of those who subscribe to a rewards program and those who don't is nearly inconsequential.

A new survey posted in Forbes confirmed Stephens' argument: Only 50 percent of consumers think it's worthwhile to sign up to a loyalty program. Pair that with the fact that "81% of loyalty program members don’t even understand what their rewards entitlement consist of or how they’re paid out...[because] the average consumer belongs to as many as 18 different loyalty programs," Stephens adds. If that's not enough to deter you from trying to promote loyalty by offering free coffee (after the purchase of 10 other cups) or cheaper gas when a certain spending quota is reached, Stephens breaks down why these kinds of programs don't do you, or the consumer, much good.

1) "Loyalty programs are transactional. Loyalty isn’t."
  • "The you do this and we’ll give you that, transactional nature of most loyalty programs is a shaky foundation for any consumer/brand relationship," Stephens explains. "The program trains customers to respond to points, rewards, or incentives but does nothing to foster true allegiance to the brand." This creates what some call "deal loyalty" but doesn't really promote loyalty to the brand itself.

2) "Loyalty programs generalize behaviors."
  • Companies with the most success earning and maintaining customer loyalty realize that the product itself is the loyalty program. Loyalty programs don't personalize their tier levels or their rewards, which essentially treats consumers all the same. When you personalize your products to cater to the specific needs of your consumer, you create loyalty organically and the need for a loyalty program becomes obsolete.

3) "Loyalty programs breed commoditization."
  • "I’d go so far as to argue that for these brands, loyalty programs become a potentially deadly distraction from the deeper issue of competitive parity they face," he explains. "Rather than spend meaningful effort to make their product or service unique, they simply play with the size of the carrot they dangle in front of customers, which makes for a fleeting degree of loyalty at best."
There are some customers who truly do benefit from a rewards system. The massive outcry from Shoppers Drug Mart shoppers when they feared the Optimum Card program would be disbanded is one example of customers who truly seem to value a loyalty program. More often than not though, it's more important to put an emphasis on customer experience and personalization rather than on gimmicks to lure them into your store."If your loyalty program doesn’t work, it most likely wouldn’t have helped you much anyway," Stephens concludes. "And If it does work, it probably means you didn’t need it in the first place."

To book Douglas Stephens, one of the world’s foremost retail industry futurists, advisors, and speakers and the author of the groundbreaking book The Retail Revival, for your next event, contact The Lavin Agency.

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