Opinion: Loyalty is more than points programs

As growth becomes elusive, retailers are hunkering down to hold onto the customers they have. An Aberdeen Group report released last week shows that "customer loyalty programs and similar relationship marketing initiatives are some of the most critical factors that are impacting retailers' sales and customer retention performance under these current difficult market conditions."

While some store-based retailers place a lot of emphasis on points-based systems, e-tailers and others seem to be taking a different path and are building a loyal following without the liability or the hassle of points-based systems. The trick is to make it so appealing to do business with a company that it is too hard or too much bother for customers to go elsewhere. By offering extraordinary service, convenience, quality, or value, these brands have found compelling ways to cement their relationship with their customers and overcome purely price-based competition.

Zappos is a great example. The e-tailer offers free shipping in both directions. That means they have eliminated the downside to buying shoes (or apparel) online — i.e., the fit issue. Zappos free return shipping policy means there is no downside to ordering multiple sizes of multiple styles, and returning the ones that don't fit. That's standard for everyone.

What earns Zappos rave reviews and WOM is the way it consistently surprises customers with free shipping upgrades so their shoes arrive sooner than expected. Our work with women shows that shoes are one the fastest ways to her heart, and this approach to delighting customers clearly pays Zappos dividends in the form of 75 percent of purchases come from returning customers, and repeat customers order more than 2.5 times every 12 months. Repeat customers also have higher average order sizes, and year-over-year revenue increased 30 percent.

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Amazon Prime is another great example of an e-tailer achieving loyalty without points or merchandise discounts. In fact, customers pay Amazon $79/year to enjoy unlimited "free" 2-day shipping, discounted upgrades to 1-day shipping and no minimum order size. We buy more from Amazon than any other ecommerce site, and Amazon Prime is the reason. That's loyalty!

Shutterfly is attempting to increase customer retention by capitalizing on recent decisions by competitors, land-based operators Snapfish and Kodak. Both have announced they will no longer store pictures for customers who have not purchased merchandise from their sites recently. Shutterfly's CEO, Jeffrey Housenbold, used those announcements as an opportunity to reach out to customers past and present with albums stored on the Shutterfly site and reassure us via email that there will be no forced deletion on his site. Our photos are safe, regardless of what or when we buy. Of course, the hope is that the convenience of having digital photos all in once place will lead to reliance on that site for prints, cards, etc.

Is it a coincidence that all of these examples are e-tailers? I don't think it is. The Aberdeen report points out that brick and mortar retailers are still worried about getting the plumbing right — only 37 percent of store-based retailers surveyed reported that customers can join their loyalty program via the POS system in stores. Meanwhile, e-tailers are free to innovate their business — and loyalty — models.