Rewards Programs’ Bad Rap

I have a request: Would the person who first called a rewards programs a “loyalty” program please raise your hand?

Thank you. Now could you come a little closer… I can whack you upside the head for causing so much unneeded debate and confusion.

There is no shortage of academic research addressing the question of whether or not loyalty programs actually create, drive, or lead to customer loyalty. Any number of studies prove both sides of the coin — that these programs do drive loyalty, and that they don’t drive loyalty.

Many of these studies conclude that rewards programs either do or don’t work. What they fail to grasp, however, is that rewards programs, in and of themselves, may not be good or bad. Instead, how any one firm implements a rewards program may be the true determinant of success.

But there’s no shortage of rewards programs skeptics, and their mantra is familiar: “You cannot buy customer loyalty, you must earn it.”

Before we move on, let me say right here and now that no one — and I mean no one — believes that mantra more than I do.

But had our newly-smacked-upside-the-head friend not started substituting the word loyalty for rewards, the marketing world might be a more peaceful place.

You see, I could care less if the studies show that rewards programs lead to loyalty or not. To simply focus on the loyalty criteria misses the point. It’s like saying that batters “fail” if they don’t hit a home run every time they’re at bat (I know — ugh, a sports analogy).

My take: Beyond the question of loyalty, there are a number of strategic benefits that firms that effectively implement rewards programs can reap. Rewards programs are tools for:

  • Targeting. Marketers spend a ton of money, time, and effort trying to figure out who to market to. Rewards program participation is like wearing a t-shirt with a bullseye on it. For any given product or service category, rewards program enrollment — and even more importantly, active participation — is often an indication of the emotional involvement a customer has with the product category, and maybe even the firm.
  • Engagement. Many firms struggle to find ways to interact with their customers beyond blatant sales pitches that ask them for more business. Just as it is with two people, developing a relationship between a customer and a firm requires some degree of engagement (if you didn’t like the sports analogy, there’s a crude dating analogy that I could make here, but I’ll spare you that pain). Rewards programs are (or I should say, can be) excellent tools to engage customers.
  • Selling. Forget whether or not rewards programs drive long-term, lasting loyalty. There’s plenty of evidence that rewards programs can increase sales. At the Loyalty Expo conference that was recently held in Orlando, Luc Bondar and a colleague from Carlson Marketing presented research they conducted that found higher rates of purchase among rewards plan members after they redeem rewards than other rewards program participants.

It’s time to put aside this silly argument of whether or not loyalty programs drive loyalty (and whether or not there are too many programs out there) and focus on the real issue at hand: How to design and implement rewards programs to improve marketing effectiveness and efficiency, and to better engage customers.

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8 thoughts on “Rewards Programs’ Bad Rap

  1. Completely agreed, calling rewards programs “loyalty programs” is a disservice to rewards and loyalty programs…

    But why do marketers call the two the same? Do we fail to understand what drives loyalty? Is calling rewards “loyalty” the easy way out? (“buy” rather than “earn”)

    One note: rewards programs also make it easier for a company to succeed with untargeted efforts; with the right rewards programs in place, marketers don’t need to know exactly what customers want: just create the right basket and let people select for themselves.

    There is a lot of opportunity to make rewards schemes easier to understand and use (both earn and burn schemes) and much more personalized. There’s a greater opportunity for rewards schemes to morph from incenting spending to incenting non-spending activities, especially given the low customer confidence and trust ratings for banks (the consumer attitude that banks exist to suck money out of people).

    But with rewards programs a near commodity now, are rewards programs the area for innovation efforts?

  2. @Taylor: I hope those were rhetorical questions (books have been written claiming to understand what drives loyalty). But the last question — about being an area for innovation — I would address. And my answer would be “yes”. Think about it: When you “innovate on a commodity” you make it less of a commodity. Great timing on your question, btw: Aite Group is publishing a report tomorrow that I wrote called “Credit Card Rewards: Why Issuers Should Compete On Service” which basically argues, that, yes, rewards programs should be an area for innovation efforts.

  3. Rhetorical, yes: but sometimes I feel we haven’t paid attention to the research.

    I’ll be interested in the report… I believe there is room for innovation, but not the ways most credit card companies are pursuing.

  4. Ron,

    You hit strongly on a topic of debate that is as much an annoyance to loyalty marketing practitioners as it is confusing for program sponsors and consumers.

    A few years ago, I attended a Loyalty Marketing conference at Oxford University at Templeton. Towards the end of 2 days of meetings, the same debate arose. “Should we change what we call ourselves” is my recollection of the question”.

    After a few minutes of debate, there were two camps: those that suggested that we rename the business as “Customer Management”, or return to something fundamental like “Relationship Management” and those that said “leave it alone”.

    In the end, I think the die is cast and these programs, no matter what their objectives and limitations, will always be known as “loyalty” programs. It’s up to those of us in the business to explain the distinctions to our customers.

    Maybe the worst penalty we suffer is that clients and consumers equate loyalty with points and miles. That is cause for even more loyatly frustration, and also why I’ve taken the tack of referring to “Customer Strategy” as an umbrella term for what we do.

    Thanks for your post.

    Bill Hanifin

  5. @Bill: Thanks for commenting. Getting into the “name game” is a losing proposition, and, I think, a waste of time. The challenge is simple (uh, to define, not deliver on): Figure out what value metrics the program should produce and design the program to deliver on those benefits. “Loyalty” does not have to be one of the metrics.

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  7. Hi,

    Webloyalty, a leading provider of technology-based, online marketing services, has more than two million memberships in its reward, discount and protection programs, including Reservation Rewards and Shopper Discounts & Rewards. Thanks for sharing your ideas.


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