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Buying customer loyalty: Does it ever work?

April 6, 2011 by Dale Furtwengler — President, Furtwengler & Associates, P.C.

Can we really buy customer loyalty? If not, what are we really buying?

To answer these questions we need to define loyalty. Loyal customers:

• Pay a premium to get what you have to offer in good times and bad.
• Stay with you even when you make a mistake (assuming you remedy it).
• Regularly refer you to others.
• Offer you insights into how you can serve them more effectively.
• Provide candid feedback on your performance when asked.

Think about the vendors you use. Which of them would consider you a loyal customer? More importantly, to which of them do you feel loyal?

Now let's assume that one of these companies offers you a loyalty/rewards program. What's your reaction? Are you grateful or do you begin to question whether you've overvalued your prior experiences? Maybe you were offended at the idea that your loyalty could be bought.

For me, the reaction is a combination of:

• Just what I need – another rewards card to aggravate my sciatica (I carry my wallet in my hip pocket).
• Are they nuts? I was happy to pay their price.
• I wonder how the experience is going to be affected by the rewards program?

Customers of companies offering rewards programs often experience:

• Less service.
• Smaller quantities.
• … or more frequent price increases.

Why? Because the reality is that the rewards/loyalty discounts don't increase your or my demand for the offering. I'm only going to eat Italian, Chinese or Thai food so often during the month. My clothing doesn't wear out more quickly. So exactly what is it that these rewards programs buy? The same real estate that you purchased previously.

That's right. You've just given back the revenues and profits you generated while WOWing. Now you're trying to recoup those losses by buying back the real estate you just gave up. How?

You're likely to:

• Cut back on service.
• Reduce quantities.
• … or raise your prices more frequently moving forward.

It's counter-intuitive, but loyalty/rewards programs often destroy the WOW effect that won your customers' loyalty. Don't risk your brand reputation. If you've established a loyal customer base, keep doing what you're doing. You and your customers will both be better off.

About Dale Furtwengler

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