A Load of Loyalty Bunkum

If you work in or around the marketing and customering fields, you’ll no doubt have been accosted with all kinds of hot takes on loyalty. Almost always, they come from someone trying to sell you something, or someone who is part of a group that has strong “beliefs”. 

Invariably, they’ll attempt to wrap their narrative under the guise of “research”. It’s not of course, it’s product (or service) marketing, but you’re not supposed to notice. Case in point, a recent report from a consultancy practice, trotted out the same very familiar claims about loyalty that you’ve no doubt become accustomed to over the years.

They start with the usual fear and doubt tropes, like, “70% of executives say customer expectations are evolving faster than their company can adapt”. There’s no evidence of that. And then a range of creative number spinning, like the notorious, “77% of consumers say inefficient customer experiences detract from their quality of life”.

Their quality of life! 

That leads to the sales set-up… “77% of consumers say they are likely to stay with a brand that has a loyalty program”.

There are lots of them. “Two-thirds of companies compete on customer experience”. “80% of customers say they are more likely to do business with a company if it offers personalized experiences”.  “96% say that customer experience is a key differentiator.” On and on it goes, all of it oblivious to the actual research, by actual researchers, over decades.

But back to the report in question. One commentator said:

‍“Nine out of ten executives believe customer loyalty has grown in recent years. The problem? Only four in ten consumers feel the same way”.  Another wrote that this is a, “50 ppt gap” and: “That’s not just a perception gap. It’s a blind spot with a direct line to lost revenue”.

Except – it’s not real. None of it.

Had the consultants who conducted the study been formally trained and expert in the field, they wouldn’t have run it in the first place. For a start they would have understood that we don’t illicit opinion to inspect economic pattens. Consumers can’t self-report on stuff like this, and besides, it doesn’t matter what people believe, it matters what they do. That’s where the real data comes from.

Actuals.

They would also have known that customer management didn’t seriously feature in 20^th century higher education, and still doesn’t in the main, and so it’s not likely that the company managers they surveyed would have been across any of the literature, full of empirical data, on loyalty. 

This is not a topic that can be reduced down to mere, uneducated opinion, though that’s precisely what that “research” and what is many other narratives on loyalty, attempt to do.

‍Tall Tales

Now, you might be wondering how these companies magically come up with the same broad outcomes every time they trot this stuff out, and, whether that might mean that there is a degree of corroboration, suggesting these are, in fact, true? 

The answer is no.

The reason the results don’t vary too much, even between certain parties, sometimes even competitive parties, is because the agenda is a shared one. 

We’ve written about ‘agenda-based research’ elsewhere in these articles. Many such reports ask us to believe that consumers are not only aware of nascent industry topics, but that they have opinions about them!  We are asked to accept that as people go about their busy lives, they think about brands, channels, chatbots, loyalty programs, the cloud, “experiences”, and their own patterns of consumption behavior and decision making. We’re also asked to accept these surveys as a definitive source of credible data, on equal or superior footing to empirical research. 

But it’s not just vested interests with convenient beliefs and off-base narratives. Large parts of the digital, martech, and CX fraternity will tell you that loyalty is about “emotion” and “customer connection” etc.  They too are wrong.

There are few topics so routinely accosted by misinformation than loyalty, so we’ll give you the broad-brush strokes of the subject.

‍Actual Loyalty

First of all, one of the reasons that there is so much bunkum out there on this subject, is because it lacks for a more widely understood definition. Given the prevalence of points and rewards systems that are called “loyalty programs”, that’s what many presume loyalty to be.

We should start then, by explaining that the evidence on those programs is quite clear. They do almost nothing for growth (i.e. increased market penetration) and are negative to customer profitability. This is because:

1. They don’t attract new customers.
2. Many are little more than discount engines in disguise, the fastest way to erode profit
3. The don’t adequality increase sales volume if at all, to offset the increased cost to serve
4. Brand preference comes first, membership second (it’s not the other way around)

There are some categories – aviation being an obvious one – where an industry has so effectively entrenched points programs that it has become part of the macro buying ritual. It’s almost impossible to disband. An industry level remedy would likely necessitate highly illegal collusion, and so those points programs are here to stay, one would think.

This is where many will jump in and claim that such programs are much more about generating rich 1^st and zero party data. The problem with that argument is that a properly constituted customer management program does that better, and without the financial impositions.

In truth, argument like this suggest that “loyalty programs” are a proxy for effective customer management, in the same way that others attempt to claim that feedback is. These are unnecessary, ineffective, and costly corporate shortcuts that do not land at the destination their proponents envision.

So, if common ‘loyalty programs’ - ala points, rewards, and sales hacks – aren’t loyalty, what is? 

Well, put simply, it is the relative security of custom among a customer cohort. That’s really all there is to it. It’s relative because frequency of custom is defined by the customer – not by marketing activities – and the degree to which a company shares in that frequency is the variable. 

That variable is firstly a derivative of the level of market penetration that a brand has, then of the mix of light versus heavy buyer attributes, and only thereafter the system of control on service interactions, followed by any target experiential treatments. 

The former aims to avoid unnatural attrition, while the latter is an investment in lifespan, but brand and penetration are the foundation. There is much, much more to this subject – and you’ll find it all in the Mini MBA in Customering.

In the meantime, your summary is this. 

Loyalty, being the relative security of custom, is defined by brand, market penetration, and only then, by key controls in the customer program.

The rest, as they say, is just noise.