Loyalty Programs Shoot Selves in Foot

I have for some years now followed a UK newsletter called the Wise Marketer, which does a pretty thorough job (or so it seems to me) of covering the world of loyalty programs. 

Loyalty programs are generally thought of as having been invented in the 1970s by the airlines (particularly American Airlines, I believe—someone confirm?). They have always had a dual purpose: to reward and encourage exclusive buying behavior, and to provide a source of data about buying behavior.

They have also generated a new approach to marketing, one aimed at tapping a latent desire for status among many consumers. An anthropologist would be fascinated by the psychology and behaviors of, say, management consultants around the airport gates and airline clubs. Certainly companies have spent a great deal of money on these programs, trying to make their program distinct in their ability to confer status and prestige.

So this paragraph in the most recent newsletter made me raise my eyebrows:

Clearly, the loyalty market has reached a state of maturity in the airline, hotel and car rental industries, with very few such loyalty programmes today being able to claim genuine competitive differentiation. Simply matching the proposition offered by the competition is not enough to create lasting customer loyalty. When all programmes within a sector are basically the same (e.g. they all have online enrolment, an award chart, a welcome bonus, double miles promotions, and so on), customers tend to react with indifference. 

This isn’t really new; I remember hearing ‘customer loyalty in the airline business is about 20 minutes,’ 15 years ago. But it’s jarring nonetheless, because if one of the primary purposes of a marketing program is to differentiate the company, and the net result of several decades of that program is to eliminate differentiation among the companies—well, that’s a marketing poster child case for foot-shooting, isn’t it?

Michael Porter pointed out something similar years ago: the tendency to seek out industry ‘best practices’ is anti-strategic. That’s because even if the practice is ‘best,’ if everyone does it—then no one is strategically different. And part of the essence of strategy is to be distinct.

I’m a little bemused by all this, because the term ‘loyalty’ has long been abused in business. ‘Loyalty’ implies an intensely personal relationship, and what ‘loyalty programs’ have devolved to is anything but personal.

Ironically, the one thing in today’s business world that truly is differentiable is also that which is truly personal. You can copy someone else’s programs, policies and procedures—but you can’t copy their relationships. Those are sui generis, unique. 

Back in the early 1990s one of the truly prescient business books of our time was published: The One to One Future, by Don Peppers and Martha Rogers. It made the very sound observation that technology would allow us to combine scale and customization, at the individual human level. Market segmentation would max out—at a one-to-one level.

I remember being very excited to hear that insight. This was around the same time that Loyalty was being talked about by Fred Reichheld and people at Harvard Business School. Connecting the dots back then would have suggested that the way to successful companies would be to create great relationships, which then resulted in loyal feelings, behavior, etc.

What’s happened, of course, is not that at all. We have succeeded instead in publicizing the private, trivializing the profound, and pretty much turning the potential of one-to-one relationships into a cacophony of mechanical, status-climbing must-haves. Think platinum cards, ring-tones, ‘how’m-I’-doing’ online CSR surveys. 

The irony is: at a time when every loyalty program looks alike, when ‘personal’ service is mechanized, and when everyone is a VIP—that’s the very time at which truly personal, one-to-one relationships really stand out. They are even more differentiable than ever, because most companies have forgotten what that really means.

Dare to be real. You might be shocked to find out how much your customers like it.