Reenvision Loyalty Series: Loyalty Unstuck
Note: This article was originally by Loyalty Science Lab’s here. Republished with permission.
Advice on revamping your loyalty strategy and mindset
Do you think loyalty is dead? Or are you trying to move beyond the same ol’ same ol’ loyalty strategy at your company? In the latest edition of the Reenvision Loyalty Series, our guest contributor Phil Rubin, a global leader in strategic customer marketing and loyalty, offers some deeply thoughtful answers.
Phil founded rDialogue, a leading independent customer loyalty firm that worked with blue-chip global clients, before it was acquired by Bond Loyalty. He is currently the founder and principal of Grey Space Matters, an innovation and growth advisory that works with emerging technology companies, investors and large enterprise clients in a variety of roles, all designed to drive profitable growth.
Having worked in loyalty marketing for more than 30 years, it’s clear to me that loyalty is stuck. While loyalty programs have become ubiquitous, the majority do nothing to differentiate the brand(s) that sponsor them. Most importantly, there are too many that are not driving profitable growth, though to be fair, loyalty programs in general are not properly measured.
Modern loyalty marketing is now more than 40 years old, having started when American Airlines introduced AAdvantage in 1981*. A week to the day later, United Airlines launched Mileage Plus, and the beginning of loyalty marketing being largely a sea of sameness began. This also began the notion that loyalty programs were synonymous with loyalty marketing. Today both of these widespread misconceptions and strategic blunders remain pervasive.
Loyalty program is not loyalty marketing!
Among the biggest mistakes business leaders and marketers make are both equating loyalty marketing with loyalty programs and also viewing loyalty marketing and loyalty itself, as transactional. This explains why, with over 3.5 billion memberships in the US alone, activation and engagement rates remain low and why a majority of consumers are unsatisfied with the level of personalization. Furthermore, a majority of members are also unsatisfied with loyalty programs making them feel recognized. When you consider loyalty a feeling, that’s a problem.
Considering the billions of dollars invested in customer loyalty, it’s a problem. One worth many more billions to solve.
These investments proved fruitless during the pandemic and while top-box satisfaction crashed during Covid’s onset, it “recovered” to where it’s been pegged for years, at around 45%, according to The Loyalty Report. That’s a sad number considering these are investments in customer loyalty. This is not to speak of the level of satisfaction that many c-level executives, especially CEO’s and CFO’s, have with the return generated from these loyalty initiatives.
All of which is to say that as it enters its fifth decade, loyalty is stuck. Many people are quick to opine that loyalty is dead. That is not the case, as primary research that we did back at rDialogue revealed that 83% of consumers consider themselves brand loyalists.
Loyalty is stuck, but it isn’t dead.
Loyalty Is Stuck
Loyalty is stuck and it’s been stuck for a while now. Upon examination, there are at least three fundamental reasons for this being so.
The first: misplaced priorities and accordingly, the wrong metrics.
The second follows the first but it’s not as obvious, and that is the misappropriation, misunderstanding, and lack of integration from the standpoint of technology and digital.
And finally, the ultimate reason loyalty is stuck is leadership — wrong thinking leadership — which ties directly to the first two.
The people leading companies and brands have priorities that don’t include the customer and manage businesses with metrics that aren’t denominated by the customer. They are chasing acquisition and other initiatives rather than focusing on existing customers and organic growth.
The Purpose of a Business
Peter Drucker wrote years ago, that “the purpose of a business is to create and keep a customer.” While many people today might not be familiar with Peter Drucker or his work, his point is obvious. Where does revenue come from and how do you grow revenue?
Customers haven’t been the priority for a majority of companies and brands; prospective customers have been the priority. CMOs have prioritized acquisition over existing customer growth and retention, and their budgets and investments have reflected that. Their metrics have been focused on cost per acquisition rather than customer lifetime value or customer profit. My friend Dan McCarthy at Emory University is well published in terms of how miserable companies can be in this regard.
Loyalty is Misunderstood
Over the last 10 to 15 years, the rush to digital and social media has crowded out spending on traditional media and CRM, contributing to the acquisition focus often at the expense, literally and figuratively, of investing in existing customers.
During Facebook’s rise, it wasn’t uncommon for clients to describe their CRM efforts in terms of how many people liked or followed their brand. “Likes” and “follows” are not purchases, and whether they are considered “engagement” and likely leading to purchases is likewise (no pun intended) similarly questionable in terms of value. Yet many companies literally thought it was a good idea to outsource CRM to Mark Zuckerberg and Facebook.
Much of these marketing “investments” in paid digital and social were justified by their low CPMs, and scalability. Even despite what many calculated was a level of fraud that easily reached and often exceeded 30%.
As they were prioritized ahead of customer marketing and loyalty, programs were accordingly uninspired, “me too”, and managed as “set it and forget it”.
Companies and marketers invest considerable resources to define, differentiate and activate their brands, But when it comes to loyalty, they seem to mostly do the opposite, and it’s a sea of sameness. Which sets up the obvious: when everyone’s doing the same thing, it’s a bit like the definition of insanity.
Collectively this led to the sad combination of both ever dwindling value and a lack of integration.
Technology Is Also Misunderstood
It might be surprising, but it shouldn’t be, that technology is also a culprit in terms of loyalty being stuck. Many organizations’ technology is sold to them rather than being bought. When you consider that some of the best salespeople in the world are in software, it’s understandable. Much of the software in the marketplace to power and enable loyalty is built for programs and not for marketers or their customers. Much like hammers are built for nails.
Most loyalty software is designed for loyalty programs, especially traditional programs that are focused on spend and get points and rewards and, my least favorite expression, earn and burn. Hence, the sea of sameness in the market.
Finally with respect to technology, there are additional important factors like legacy systems, CTOs looking for a magical single stack solution, and the challenges of data centralization and integration. These factors lead to challenges in terms of actionable insights. And unfortunately, technology is sticky, which means switching costs are high, making companies reluctant to make the requisite changes.
Business Leaders Misunderstand Loyalty
The biggest reason for loyalty being stuck is that business leaders misunderstand loyalty. Transactional, programmatic, me-too loyalty approaches at best work in the short term. But they don’t create a sustainable point of difference.
Like marketing in general, loyalty is not a birth right.
Loyalty is complex, data-driven, technology enabled and requiring integration not only from technology and digital but from an enterprise standpoint. Business leaders and practitioners need a better education and understanding of loyalty, its best practices, and how to measure it.
It’s the fault of leadership when the customer and loyalty are not among the top strategic priorities, which is why there are more loyalty laggards and followers than leaders. Too many CMO’s don’t understand or are not comfortable with data-driven customer marketing, in spite of being increasingly accountable for driving organic growth. Hence CMO turnover and their average tenure of two years, often less.
If all this sounds negative or depressing, that’s good, because it is. Let’s shift to an optimistic outlook and identify all the positives at least in terms of opportunities that align with getting loyalty unstuck.
Getting Loyalty Unstuck
Getting loyalty unstuck requires understanding and thinking differently about it. Like the factors that contributed to loyalty being stuck in the first place, it will be a combination of people in leadership, technology and measurement that will collectively be the catalysts for what should be a coming renaissance for loyalty. This promises a better experience for customers, and more broadly, for stakeholders.
Loyalty is an emotional state and the outcome from a business strategy centered on the customer. It’s defined, in customer’s own words, as a stated preference, independent of product, price or accessibility. It includes a willingness to pay a premium or go out of your way to do business with such brand.
A loyalty program enables loyalty marketing, which can be defined as paying attention to customers and treating them accordingly. It reflects a business strategy where the brand is centered on the customer to a degree that the customer feels prioritized — and loyalty — from the company and brand.
With consumer privacy and data being increasingly regulated, the other purpose of a program is to enable legal compliance to collect customer data. This is a priority for smart companies in a cookie-less world that increasingly values zero- and first-party data. The regulation reflects changing societal expectations in terms of data ownership and management.
The effects of these societal changes on people — whether they’re customers, employees, partners, suppliers, or community members — are growing in significance. People have greater expectations that businesses and their brands are increasingly aligned with their social values. Much like loyalty is a platform for businesses and brands to better merchandise everything they do to create value, it is also increasingly important now for it to amplify their values.
Stakeholder Capitalism suggests that loyalty itself now needs to extend beyond customers.
Fred Reichheld, in his outstanding book, “The Loyalty Effect”, provides more than ample evidence of the correlation between employee loyalty and customer loyalty. The idea of Stakeholder Loyalty in an era of Stakeholder Capitalism should be obvious.
The great poet Maya Angelou said that “people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” The same is true for brands.
Leadership Matters
There are a number of great examples of leadership seeing customers, customer relationships, and yes, loyalty, as a business priority, and ultimately, as a strategic competitive advantage.
Amazon is illustrative of a company that had the customer at the center of its business from “Day One”. American Express and Delta Air Lines have also built their brands and their businesses centered around customers following a strategy that aligns the business and its customers. Customer-centricity, often overused, is a cultural norm for these organizations, resulting from it being prioritized by corporate leadership.
Another great example is Adidas, which despite its recent challenges is explicit in having the consumer at the center of its business strategy. Again, there is no such thing as loyalty whether it’s customers employees or anyone else without leadership committed to such.
More than 10 years ago Jim Stengel summed it up, stating “what we really need is a mindset shift that will make us relevant to today’s consumers, a mindset shift from ‘telling and selling’ to building relationships.” That need continues today for most leaders.
Technology Too
As much as technology is a sticking point for loyalty, it’s also a fundamental solution for getting loyalty unstuck. The rise of composable commerce and capabilities that extend beyond “cut and paste” traditional points-based loyalty unlock broader strategies, including a single view of customers along with corresponding and actionable insights. Aligning these capabilities with the business strategy and operations allows for better management not just for customers but increasingly, for all stakeholders.
“You manage what you measure.”
— Louis Lowenstein, Columbia University
Early in my career I worked with a CEO well known as an astute investor. In one of our discussions, he responded that “if the answer is not money, rephrase the question.” While there’s a clear struggle to quantify the ROI of brand and advertising investments, customer marketing and loyalty are inherently measurable.
The most valuable customer metrics are not NPS but come from behavioral data that allow you to create a loyalty P&L. They include customer trending that drives business performance, allowing you to optimize profitability, especially when the loyalty strategy is aligned with the business.
An Unstuck Future
Transactional loyalty is not going away for many brands, but it needs to expand beyond points and rewards, discounts and promotion into a relevant customer experience that reflects a brand being loyal to its customers and stakeholders. Loyalty currencies are continually devalued, brands copy other brands and customers are smart recognize this and revolt. Just look at Dunkin ending up on NBC News.
There are better solutions, and those include committing to innovation over emulation and business leaders thinking about people — customers and stakeholders — first.
It is surprising, sad, and frustrating to see loyalty stuck. Value propositions need to better reflect loyalty to customers and expand beyond rewards, discounts and promotion. Otherwise, most loyalty programs simply erode margin.
The mindset of “how do we incentivize and reward repeat business with a loyalty program” needs to shift to a mindset of “how do we create deep connections with a loyalty strategy that reflects a brand showing customers love so that they reciprocate?”
Loyalty from brands to customers is not always best expressed as a program. There are many successful brands with clear loyalty strategies yet no program. Just spend four minutes listening to Trader Joe’s explain its loyalty strategy.
Loyalty comes from better, more relevant and differentiated experiences, not just for platinum or other “precious metal” customers, but for every customer.
Unless corporate leaders, marketers and loyalty managers see loyalty as more than a promotional program designed to drive transactions, loyalty will remain stuck and ultimately, do nothing more than reduce the friction to defect. What’s needed is understanding loyalty as an outcome from strategies integrated into the product, its delivery and as a service itself.
Finally, loyalty strategies need to extend beyond customers, to encompass all the stakeholders of the enterprise, including customers, employees, partners, suppliers, and communities. The march of stakeholder capitalism is inexorable and brand leaders can lead that march by getting loyalty unstuck.
[*Note: Technically, Texas International launched a frequent flyer program two years earlier, in 1979. However, the airline went out of business, hence American generally gets the credit for being “first”.
Special thanks to Tres Tronvold and Jill Goldworn for their review and feedback.]