Customer Loyalty A Myth

COMPANIES that produce or market mass consumption items (including services, like airline flights) are constantly devising ways to retain their customers. This endeavour has spawned an entire new marketing idiom, which borrows heavily from the conjugal vocabulary. Terms such as infidelity, loyalty, fickleness are all used to describe the range of a consumer’s shopping behaviour. Companies also spend fortunes trying to map how consumers go about deciding what to buy. As part of this exercise, many companies – especially those with retail operations – have launched loyalty programmes as an attempt to retain customers.

Loyalty programmes are essentially sophisticated marketing devices that seek to reward a ‘loyal’ customer, thereby encouraging him with greater incentives to spend more on the same products in the future. It’s somewhat akin to buying fidelity through incentives. In today’s context, most loyalty programmes come in the form of points earned for every purchase, which can then be later redeemed against future purchases. Customers are issued cards or granted membership to a lumpy club of buyers.

These programmes have been around for many years (remember the stamps trading programme introduced many years ago?), but the modern form of loyalty programmes was probably born with the advent of the frequent flier programmes started by the US airline industry in the 1970s (American Airlines is probably credited with the first such plan). Interestingly, travel writer Pico Iyer mentioned in a book that most people now earned more frequent flyer miles on the ground (through hotel reservations, car hires) than in the air. 

But, if you look at it closely enough, most loyalty programmes are also attempts by companies to accumulate buyer data. Membership into most programmes requires the applicant to fill in a form that captures some essential demographic data. By collating data on the customer’s buying patterns, his income levels and his possessions, marketers hope to gain insights into what makes the buyer tick. Or, get a rough outline of his mental mapping. This rush for constructing a customer database is also known as the data-for-dollars madness – retailers willing to offer products at a discount in exchange for data on the consumer. 


But numerous surveys and studies have shown that most loyalty programmes are unable to achieve what they set out to do, that is retain ‘loyal’ customers. Mostly, these studies conclude, loyalty programmes do probably end up giving the customer satisfaction but are still miles away from ensuring loyalty. Take a prominent Indian private airline’s much-feted frequent flier programme, which recently won an international award. But, once low-cost carriers were introduced in the market, flyers deserted this airline (the high-flying airline’s eroding market share is well documented). If its programme was indeed robust (attempts to convert frequent flier miles on this airline is still an ordeal), would patrons walk out on it? As this example highlights, loyalty programmes cannot afford to give value the short shrift. Another example is credit cards. Try converting the points earned through purchases and the annual marathon looks like a stroll through the park. 

All this points to an insincerity among sellers. They seem to be only keen on either obtaining data or ensuring immediate sales, even if that means sacrificing long-term customer value. The customer ends up feeling having gained nothing. Cards issued by many retail outlets force customers to make purchases against their accumulated points within a stipulated time frame, giving rise to the creeping feeling among buyers that the retailer’s programme is only a subterfuge for short term expediency. Loyalty actually be damned. 


Many studies have also pointed out the ineffectiveness of a one-size-fits-all loyalty programme, since it targets everybody but appeals to nobody. According to a research paper written by two professors at Stanford Graduate School of Business (Wesley R Hartmann & V Brian Viard), programmes work only if a company’s heavy buyers are also its most price-sensitive customers. Segmenting heavy and light customers might make more sense for rewards programmes, suggest the two academics. Reason: the greatest beneficiaries of most programmes turn out to be those who do not need any persuading to part with their money in any case (example: business travellers whose airfare is paid by their companies). In such a case, is the company justified in investing money to reward this lot of buyers? Writing in a column recently in Business Week magazine, Steve McKee (president of McKee Wallwork Cleveland Advertising) posited that companies are better off investing their resources on gaining customer affection, rather than loyalty: “I think many companies have gone too far down the road of focusing on loyalty at the expense of equity… If you focus on share of heart, you will get share of wallet. The reverse may not always be true.” I’d drink to that!
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