Tuesday, November 20, 2018

The Customer Experience Difference: Are Customers Loyal to Your Brand or Your Loyalty Program?

Photo by rawpixel on Unsplash
Brands do not (and should not) improve customer experience (CX) simply because it feels right to have happier customers. The reason to invest in CX is to deliver more loyal customers—customers who spend more, churn less, are less costly to serve, inclined to recommend or refer others, and more likely to consider and purchase a broader selection of your products. Strong CX delivers more customer satisfaction, and that results in greater customer loyalty, drives up the lifetime value of your customers, and makes your bosses and shareholders happy.

Brands that struggle to meaningfully differentiate their CX often turn to other tactics to produce something akin to loyalty. So-called loyalty programs reward repeat customers with points, rewards or discounts—and they’ve gotten very popular (at least among marketers). Today, the US’s 300 million consumers represent 3.8 billion loyalty program memberships, and more than half are inactive.

The problem with many loyalty programs is that they don’t actually deliver loyalty. They deliver repeat purchases, and repeat purchases may look a lot like loyalty, but you cannot know what is driving preference and purchases unless you listen to and understand customer perception. A good loyalty program can produce ROI by delivering incremental revenue in excess of program costs, but brands must never mistake loyalty to their points and incentives with genuine loyalty to their brand.

A truly loyal customer is willing to pay more for your brand, while a points-loyal customer needs an inducement to purchase. A brand-loyal customer is less interested in competitive products, while a points-loyal customer is willing to make a switch for the right mix of price, discounts, and rewards. And an authentic brand loyalist will seek your brand out, engage more, and tell others, while a points loyal customer is more interested in the value they can extract than in having a relationship with your brand.

In short, points loyalty is transactional while true loyalty is emotional. Your airline has a loyalty program, and chances are you feel so little loyalty to that brand that if it was gone tomorrow and replaced with another carrier flying your favorite routes, you might not care if it weren’t for lost points and status. Meanwhile, Apple doesn’t have a rewards program, and it engenders some of the greatest loyalty of any brand in the world. As a result, Apple generates enormous margins—in one recent quarter, Apple captured 87% of smartphone industry profits despite accounting for only about 18% of the total units sold in the period.

To learn more about true loyalty from brands that earn the most customer loyalty, please continue reading my blog post on the Gartner blog.