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.
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.
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.