Loyalty Cards or Frequency Cards?

Reprinted from CSP Magazine

In last month’s issue of CSP you saw an article on the industry moving more to stored-value cards. While prepaid card are nice and beneficial to the customer retailers should not confuse turning them into loyalty cards. The confusion all lies in the word “loyalty”. Several other industries have these so called loyalty cards in fact many of us are probably carrying them in our wallet or have them dangling off our key chain. From the bookstores, grocery stores, drug stores to the airline and hotel industry everyone is trying to capture our loyalty. But I think it’s important to first clearly understand the word loyalty especially as it pertains to customer relationships.

All of the cards above really should be classified as “frequency” cards and not loyalty cards. I may use the store more frequently because of the cards and the features and benefits they offer but that does not make me loyal at all to that particular store. It only makes me loyal to the discounts or incentives they offer. And the minute a competitor offers a better discount or incentive I’m enticed to leave and probably will. Or the minute you stop offering the discount or incentive I have no reason to continue to do business with you. You’ve trapped yourself and the customer based on “price” or a discount around price. It really only draws the customers attention closer to the subject of price and detracts from any other value you may have to offer.

These so called “loyalty” cards are behavior driven and based on the extrinsic rewards offered. The customer appears to be loyal because they continue to do business with you but that may mask the reality. These programs do little to reinforce the value derived from dealing with a particular company and do little do gain loyalty.

And, if you happen to be the only game in town and think you have good customer retention that should not be confused with loyalty as well. What you really want is “voluntary retention”. That protects you when competition does open up a state of the art facility across the street from you. Think about it, how many of you are loyal to your local electric company that provides the electricity in your home? I suspect not many, simply because we usually don’t have a choice. In fact we probably don’t even think about doing business with them they just send us a bill. Even though you’ve used them for the past 10 years doesn’t make you loyal. So be careful not to assume your customers are loyal, they may not have a choice or many choices.

So, what is true loyalty? Loyalty is when a customer has choices and really wants to do business with you and not because you offer a discount or incentive. Having good products at a competitive price is the price of entry in this industry. They do not give you a competitive advantage. But having customers that are loyal and want to do business with you, now that’s a competitive advantage.

Now that we know what loyalty is, how do we get our customers to become loyal? Customers that are loyal with a business feel they have a relationship with that company and the people that work there. And genuine customer loyalty cannot exist without an emotional connection. This might sound crazy but it’s true. And it all reverts back for the most part to the “people” element of your business. The creation of positive emotions between your staff and your customers is an essential component in building customer loyalty that leads to long-term relationships.

I’ll discuss further next month what companies and their staff can do to begin building genuine customer loyalty.