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 with 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. There are multiple cases that illustrate the point, which invariably trot out the all-too-common 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, “Seventy-nine per cent of decision-makers say consumers will dismiss them if they don’t receive value in their first interaction”. Another typical report is that the majority of executives believe that customer expectations are evolving too fast for their company to adapt to.

There’s no evidence of that.

But the creative number spinning is all too common, like the notorious, “77% of consumers say inefficient customer experiences detract from their quality of life”.

Their quality of life! Such is the hyperbole on the subject. 

These all lead to the inevitable 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, all seemingly oblivious to the actual research, by actual researchers, over decades. 

But how do these companies, who sell loyalty related software or consulting services, arrive at these numbers and these findings in general?

Well, almost without exception, they simply run a set of surveys, in which they ask executives about market patterns and customer economics -  demonstrating a lack of methodological know-how when it comes to research. Loyalty is not a topic that can be reduced to mere, uneducated points of view, though that’s precisely what many popular narratives - or sales messaging - attempts to do.

For the avoidance of doubt: We don’t inspect economic patterns by eliciting opinion.  

Consumers can’t self-report this kind of thing, and on such matters, it simply does not matter what people (consumers) believe. It matters what they do. This is where the real data comes from. 

Actuals.

Nevertheless, 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’re 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 behaviour and decision making. We’ve written about ‘agenda-based research’ elsewhere in these articles.

But it’s not just vested interests with convenient beliefs and sales narratives. Large parts of the digital, martech, and CX fraternity will tell you that loyalty is primarily 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 its more accurate definitions are not widely understood. 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 adequately 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 (and unwisely) entrenched points programs that it has become part of the macro buying ritual. This makes it almost impossible to disband because any industry-level remedy would likely necessitate highly illegal collusion.

Of course, many loyalty evangelists claim that these programs are much more about generating rich first and zero party data. The problem with that argument, is that a properly constituted customer management program does that better, and without the weighty financial impositions.

Indeed, arguments 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 purchase 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. Secondly, it’s affected by the mix of light versus heavy buyer attributes, which for the most part, doesn’t vary much by company.

Thereafter, for companies with properly trained customer leaders, there are relevant systems of control in respect to service interactions, followed by any target experiential treatments. The former aims to avoid unnatural attrition, while the latter is an investment in lifespan. However, brand and penetration are their 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.