The Flaws in Loyalty Programs

Consider an age-old joke: a mother promises her daughter ten dollars for completing her homework within an hour. The daughter returns after two hours claiming she deserves twenty dollars for her effort. This anecdote exemplifies a significant flaw in loyalty programs: when customers are incentivized to be loyal, their intrinsic motivation can diminish.

Daniel Pink, in his book Drive: The Surprising Truth About What Motivates Us, discusses a pivotal study by researchers Mark Lepper, David Greene, and Richard Nisbett involving preschoolers who enjoyed drawing. They divided the children into three groups—one promised a reward, another surprised with a reward, and the third received no reward at all. The results were revealing: the children expecting a reward lost interest in drawing, while those in the other groups maintained their enthusiasm. This suggests that rewarding customers for loyalty can erode their genuine connection to a brand.

When customers receive incentives like discounts or bonuses for loyalty, they often become dissatisfied when these benefits are removed. This was evident when Delta Airlines changed its loyalty program; many passengers declared they would no longer fly with the airline.

The Uniformity of Loyalty Programs

I carry several loyalty cards from different grocery stores, each promoting the same idea: spend more to save more. While each store has unique offerings—be it fresh fish, specialty cheeses, or a wide product range—my wife and I choose where to shop based on our needs rather than loyalty incentives. The reality is that these businesses reward us for behavior we would engage in regardless, benefiting us but not themselves.

Do You Really Need a Loyalty Program?

Why do most retail stores in your area have loyalty programs while companies like Apple do not? The answer lies in necessity. Apple's latest iPhone release may not be groundbreaking, yet the brand does not rely on loyalty programs for success. Industry giants like Apple, Tesla, Netflix, and Samsung thrive without such initiatives, even amidst fierce competition. They focus on brand loyalty, which stems from consumer love for their products rather than discounts.

If a customer chooses a brand based on genuine affection, that’s loyalty. In contrast, if they select a service solely for the bonuses it offers, it reflects a transactional relationship, not loyalty.

The Loyalty Dilemma

The concept of loyalty programs emerged in the 20th century when companies viewed customers merely as sources of income. While these programs still attract consumers eager to save money or gain special access, they can mislead business leaders into believing they possess a loyal customer base. When these 'loyal' customers leave due to changes in policy or price increases, businesses are often left perplexed.

Ultimately, loyalty should not be expected from customers; instead, companies should demonstrate loyalty to their clients. This means creating innovative products, soliciting feedback, and genuinely addressing customer needs.

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