With all of the changes, mostly negative, taking place in the world of customer loyalty programming - growth in private-label credit cards, finding the right mix of hard and soft benefits, building an extensive (and often expensive) multi-channel communication program, fixing value of loyalty rewards in customers' minds, dealing with difficulty in redeeming rewards, changes in qualification for rewards, ability to reward best customers, and on and on - I'm more inclined than ever to believe that the best loyalty programs are no loyalty programs at all. Not that suppliers aren't, and shouldn't be, focused on creating the highest levels of customer advocacy behavior possible, it's just that loyalty programs may not be the best vehicle for achieving that goal. In fact, because these programs are typically built to drive more frequent purchasing, rather than create a stronger and deeper emotional and relationship bond with the supplier on an individual customer basis, they can even be counterproductive as a strategic device. Loyalty programs ought not be used as a crutch or surrogate for creating stronger connections with customers, and they too often are just that.
Although there are successful loyalty programs, to be sure, the most effective ways of creating the highest customer lifetime value are a) effective, continuously improved customer-related processes, including messaging and experience management, b) leveraging methods for assuring stakeholder engagement, continuity and productivity, especially among customer-touching employees, c) creating a customer-driven culture, building customer centricity into the DNA of the organization, and d) having a customer information system and database that is as detailed, real-time and actionable as possible, down to the specific customer and experience (i.e., divisible) level.
Paradigm case in point is Ritz-Carlton, as high-end as hotel chains get. No loyalty program, but the best customer database, best trained and most customer-focused staff in lodging.
See also: Getting loyalty programs right.
This was first published in December 2004