Thinking | Articles

Building A Better Rewards And Loyalty Program

How to develop a loyalty program that creates lifetime value rewards.

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Pete Maulik

Managing Partner, Chief Growth Officer | Managing Partner

Farenheit 212

I imagine somewhere in the hinterland of Papua New Guinea there’s a coffee cart that doesn’t have a rewards and loyalty program. Going further, I imagine the day Anthony Bourdain eventually stumbles upon it, he will celebrate the unfettered purity of the experience as much as the coffee’s magical ability to reduce his hangover. However, if current trends are any indicator, the celebration will be short-lived when our intrepid explorer discovers that the owner isn’t really an icon of simpler times – he’s just waiting for his solar-powered UPC scanner to clear customs so he can launch PapuaPointz.

Reward and loyalty programs are everywhere. It’s not a surprise when you consider the commercial impact: boosting retention by 5% can increase profit by as much as 80%. And when you add the benefits of upsell and frequency to the mix, launching a reward program seems like a wonderfully logical investment to increase your company’s revenues and boost profits.

Show customers respect from Day 1. Recognize their individuality and create a relationship that’s reciprocal.
 
There’s only one problem. Most loyalty programs today are flawed because there’s a big difference between loyalty and LoyaltyTM.

Loyalty
In a world defined by complexity, rapid change and reminders that we’re often on our own, people crave the benefits that spring from a loyal relationship: the consistency, safety and comfort of knowing someone has their back.

They appreciate that loyalty is based on a reciprocal relationship that builds over time. And as they go through the good times and bad, they know their commitment will be matched, and a real bond will be forged.

Interestingly, the dynamic is two-way. People don’t just want to be in a loyal relationship because they receive something from it; they actually get an emotional thrill out of being loyal. Visit any Manchester United, New York Yankees or New Zealand All Blacks game and you start to get a sense of the universal power of loyalty.

 

Starwood Loyalty Program
Read more about our loyalty research in our work with Starwood Hotels.
Loyalty vs LoyaltyTM
This power is a major reason CEOs from New York to New Guinea have rushed to create loyalty programs that forge stronger connections with their customers.

And yet, our research has shown that most have structured their “loyalty” programs in a manner that’s delivering the exact opposite of the relationship consumers seek.

Rather than giving consumers a mutually beneficial relationship that deepens over time, many loyalty programs have essentially morphed into a modern-day form of indentured servitude.

They dangle status, perks, and exciting experiences as the prize and then force consumers to make a solitary climb up the steep slope of earning respect – only to be knocked back down if they waver in their dedication.

It’s a system where a person’s emotional hunger for validation is met with a purely rational response: your worth is equal to the number of points you’ve accumulated. And if your points drop from one year to the next, you are dead to me.

Over time, the dichotomy between desire and payoff creates real friction. Consumers’ initial excitement gives way to skepticism, disillusionment and anger. They discover there’s no loyalty, no reciprocity, and no comfort of knowing they’re in a worthwhile relationship. There’s only work; work for which they’re paid in points rather than rewarded with a relationship.

Not surprisingly, they start to think about the program benefits in cold, calculating and largely self-serving terms. Since the “loyalty” programs don’t offer the type of loyalty that promises long-term benefit, their focus turns in a different direction: extracting as much value as humanly possible.

 
 

This Creates Two Real Problems
First, it reinforces the perception that the loyalty programs are commodities; so, there’s diminished ROI for companies using rewards for customer acquisition.

Second, it creates a dynamic where length of involvement actually fosters decreased loyalty. By forcing consumers to work like rented-mules to reach a level where they can extract significant value, and offering them little respect beyond the points they’ve accumulated, the companies give their best customers little incentive to be loyal after they’ve cashed out.

The customers reach the milestone, extract maximum value, relish in the fact they’ve beaten the system and then realize there’s little reason to stick around – to slog up the same hill to gain the respect from a “partner” who’s anything but.

As a consequence, at the moment they should be most loyal, many people are most susceptible to competitive offers.

This will be a big change. But by breaking with the belief that loyal behavior is a means to an end, we can shift the paradigm from a transactional battle of value-extraction to a relationship that delivers real value for the consumer and for the company looking to increase the lifetime value of its customers.

Deliver rewarding experiences throughout the journey rather than just when they reach the summit.
AR_BuildingLoyalty_950
The Good News: The Basis For Loyalty 2.0 Is Really Just Loyalty 1.0
The key to success is to design a program that reflects the drivers of true loyalty.
 


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About the author:

Pete Maulik

Pete Maulik is Managing Partner and Chief Growth Officer at Fahrenheit 212, where he is responsible for driving growth of the firm through strategic planning, establishing client relationships, cultivating business development and forging strategic partnerships. With over 20 years spent working with Fortune 500 companies and private equity firms on a wide range of growth […]

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