Article

Loyalty programs overrated?

In a session at the Retail Customer Experience Executive Summit a marketing CEO shares the key to retaining customers.

August 7, 2012

It may seem these days like loyalty programs are one of the "must-have" marketing tactics in the retail world, but before wasting thousands of dollars and hours of time creating them, retailers should take a step back, Zain Raj, CEO of Hyper Marketing Inc, said Wednesday during his session at the Retail Customer Experience Executive Summit in Chicago.

In fact, about 90 percent of the retailers developing a specific loyalty program are wasting their time, Raj said. Instead, the focus should be on changing people's behaviors, not just attitudes, and building bonded relationships with their core customers. Retailers who can become part of a consumer's ritual, not just a habit, will win every time.

Starbucks, for example, doesn't only focus on the taste of coffee. In fact, the retailer has created loyalty among consumers by ingraining itself into their lives, said Raj, using himself as an example. Each day he goes to Starbucks for a Pike Place coffee with four sugars; it's just part of his daily ritual.

Most retailers are great at attracting new customers, but they lose their chance to gain loyalty after that first purchase because they assume the most important job — attracting customers — is done. The most successful retailers, like Starbucks and Zappos, however, are always innovating their customer experience based on what their current customers want, not necessarily what would only grab a "new" customer.

"All a loyalty program should do is allow you to keep "customers" returning without you spending any more money on them," said Raj, who shared a couple tips to create customer loyalty that had nothing to do with creating a loyalty card program.

Attracting the right customers: Retailers used to solely market their products at the lowest possible price, but loyalty cannot be built with customers who will buy from anywhere offering the cheapest product. Instead, retailers must offer their products and services combined with a good customer experience that has added value. (This is one area where the loyalty platform could be useful, for example, but simply rolling out a buy-four-get-one-free club membership isn't going to cut it.) Making the customer desire your product or the experience around the product turns them into loyal customers, and those customers are willing to pay a little more for that experience, Raj said.

Magnifying interest and modifying attitudes: Once a retailer has grabbed a consumer, he must keep him interested enough to become a returning customer. One way to do that, Raj said, is to use digital means to communicate. For example, social media is no longer simply having a Facebook presence and hoping for "likes." It's now one of the best ways to communicate with customers. One company, Blendtec, did just that when its marketing manger filmed the CEO blending products like phones and forks. He posted it on YouTube, where it got more than 10,000,000 views, and businesses skyrocketed. The company won over customers because their videos were entertaining and funny, and people will keep going back to the brand because they associate it with that positive experience.

Whole Foods is another brand that has engaged its customer base so much so that there is a shared belief system among the retailer and shoppers. Whole Foods rarely has the cheapest products, but its customers shop there because they are passionate about the environment and health and wellness, two core values that the grocer supports.

Read more about the customer experience.

How do you create loyalty among your customers?