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Do Customer Loyalty Programs Work?

Crystal Garrett
01 Mar, 2018

The idea behind most loyalty programs is generally that if you spend enough with a brand, they’ll “reward” you with something free or some form of discount. In other words, “If you spend more, we’ll reward you, and that will make your spending worth it”.

You know how it works. You’ve walked into a nearby restaurant where you’ve spent at least $100 over the past several weeks for your 10th visit. Finally, you’ve remembered to bring in your punch-card and you’re rewarded that “free” pastry. 

Or you’ve spent $500 in merchandise with your favorite fashion brand to earn a 5% discount on one item of choice (as long as it’s not from the clearance rack). Congrats, you’ve earned your “loyalty”!  

But is it the $.99 pastry or 5% discount that is drawing you back? Is that “reward” actually making all your previous purchases worth it? Or is it something else?

Worthix_Customer Loyalty

What Makes Customers Re-buy Is Probably Not Loyalty Programs 

According to Merriam-Webster, in its truest form, loyalty means a strong feeling of support or allegiance.

Most of us have been loyal to something or someone along the way. We know what it feels like to be attached to a significant other or to a brand. At the heart of true loyalty is trust.

Apple is known for having the most loyal customers. When your customers are willing to stand in line for hours, and in some cases, days, I’d say that’s a pretty strong feeling of support. In a Goldman Sachs consumer survey, 21% of iOS users said they wouldn’t switch no matter the price. For those owners of one Apple device, 88% said that it’s likely or highly likely that their next tablet or smartphone would be from Apple. And if they owned two devices already, 96% of them are likely or highly likely to stick with them. That’s true loyalty, my friend.

Nearly every Fortune 500 company has some sort of loyalty marketing program. They spend thousands on designing and implementing them. But guess who doesn’t have one? Apple!

So, how does Apple succeed at what most companies spend thousands trying to do, while swimming against the current? Two words. Customer centricity.

Apple consistently exceeds their customers’ expectations by remaining innovative and delivering exceptional customer experiences. They continually put in the work to earn their customers’ trust, which results in loyalty and financial gain.  

Apple isn’t running a charity. There is a clear financial motivation behind their efforts. They’ve simply applied one principle: Customer centricity is profitable and builds true customer loyalty.  

Create Loyalty By Knowing Your Customer 

In 2016, Subaru had a 67.7% loyalty index, the highest in the country. And despite low IQS (Initial Quality Score) ratings in 2017, brand sales are at an all-time high. The secret to this fierce loyalty on behalf of their consumers may be attributed to a deeply instilled trust in the manufacture, and in return, Subaru makes sure they know their customer persona, as well as knowing the experiences that matter most to them.

Company marketing over the years has followed this trend, focusing on this persona and their experiences. This customer centric culture comes all the way from the top, with CMO Tim Mahoney noting: “Customers are not buying things, but experiences”. 

The company knowing its persona so well over the years has allowed it to consistently deliver what their customer finds worth it. Thus, building true loyalty.

Create Your Own Customer Persona With This Easy Template ›

Is It Worth It to Keep Doing Loyalty Programs?

Smart companies should continue looking for ways to incentivize customers to buy and rebuy from them. However, more importantly, companies need to understand that the 5% discount, or the free pastry is not what will sway loyalty and repurchase. The heart of the matter is knowing what your customers consider worth it and delivering that on a consistent basis.

Now, if your customers expect you to deliver a loyalty program, there is a right way to do it, and it involves rewarding your customer accordingly.    

Take Amazon as a brilliant example of a company that takes a customer centric approach to loyalty programs. They are killing it with Prime, even though it isn’t profitable for them on the front end. Would you believe they actually lose more than $1 billion a year? But, they knew they would make up the difference through increased transaction frequency on the back end. And they do.  Customers buy even more.

So, while they may sacrifice short-term profits for the benefit of customer centricity, in the end, it all pays off for the retail giant.

Starbucks is also scoring big with their Starbucks Rewards. Their Gold Card, for frequent coffee consumers, is a $150 value after 300 points are earned within the year. For other customers, the app gives 2 reward points for every dollar spent and has a ton of other perks like a free birthday drink of choice, free refills on any coffee beverage at the same location, and 15% off on StarbucksStore.com

What both these programs have in common is that the rewards are aligned with value propositions that their customers consider worth it.

Companies That Are Doing It Right

Here are a couple more examples of customer centric companies that build true customer loyalty, with or without loyalty programs:

  • Give a worthy gift: Sephora’s Beauty Insider Card gets you free beauty classes, birthday gifts, and points that can be traded in for products.
  • Add moral value to your customers’ lives: Toms Shoes has a One for One program. For every product purchased, they help a person in need. It feels good to give to others.
  • Design a simple and easy program for customers: Delta Airlines Skymiles makes your reward redemption nearly effortless. Your miles don’t expire, there are no blackout dates, and you can rollover miles. It is easy to keep up with your total mileage.
  • Kill ‘em with kindness: When you hear, “My pleasure”, you think… Chick-fil-A. They give customers top service, which is why they generate more revenue per restaurant than any other fast-food chain in the U.S.  

What Can We Take Away From This? 

You can't buy loyalty. You must earn it. 

Earning customer loyalty requires that the entire company is customer centric at its core, and to be customer centric, you first have to know who your customer is. Although becoming customer centric may require a change in company culture, which can be a monumental task for some and an expensive undertaking, it will pay off in the form of true loyalty from your customers. 

To read more about the importance of being customer centric and delivering great customer experiences to motivate customer loyalty, click here.

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