Carol Roth is a business strategist, deal maker and author of the new book “The Entrepreneur Equation.” She will be speaking at SOBCon 2011, which will be held in Chicago from April 29 to May 1.
“That will be $56.02,” said the woman behind the counter.
“Oh wait,” I replied. “I am a member of your VIP program.”
The woman rolled her eyes. “Do you have your card?” she grumbled impatiently.
I rummaged through my wallet, sifting through “buy nine and get the 10th free” punch cards in search of a white plastic rectangle.
I didn’t have it.
She asked me for my phone number. I gave my cell number. Nope. Then my home number. Not there either. Finally, the third time was the charm — the account was registered under my office phone number. The woman lodged my 56 points in the computer system and shoved my bag of cosmetics at me.
Ah, the portrait of an effective customer-loyalty program, don’t you think?
Hardly.
I didn’t feel like a VIP member — I felt more like a fool. Loyal customers are the holy grail for most businesses. With customers having so many different options for goods and services, developing long-term loyal customers is critical for brands and companies. Not only is it easier to sell more things to customers who already love you, but raving fans will tell other customers about your brand or company. When you factor in the expense of trying to reach new customers and the high lifetime value of each individual customer, loyalty needs to be a top priority for every business.
However, many companies have approached this effort in very much the wrong way and are stuck in old-school, ineffective loyalty approaches. It is critical for companies that want to develop long-lasting customers and raving fans to start coming around to what I call Loyalty 3.0.
With very few companies even coming near Loyalty 3.0, there are unprecedented opportunities for forward-thinking companies to become leaders in this movement and gain competitive advantages by forging rock-solid customer relationships.
The reality is that not only are most companies not at Loyalty 3.0 levels, many — like my example above — are still in primitive program mentalities, believing that having a paper or plastic card creates anything near loyalty.
Loyalty 1.0 is where companies believe that by rewarding the customers who spent the most with them, that they are creating loyalty. This comes in programs like points-per-dollar spent or “buy nine, get the 10th free” cards. This form of loyalty looks an awful lot like bribery.
There are several problems with 1.0:
- It creates loyalty to the program, not the brand or company; you are only as effective as your offer.
- It creates another form of price competition. Buy nine and get one free is akin to a 10% discount across the board.
- It only rewards the “spenders” — customers are only considered as important as their last set of purchases.
Additionally, as my example demonstrated above, it’s a farce. Why would a customer have to provide a card to be deemed important? It’s against all logic.
Loyalty 2.0 evolved in the form of social media. Brands realized that it was not just the spenders who were important, but also the influencers (aka the senders) who indirectly accounted for sales through brand advocacy. This was an important realization for companies and brands.
However, many companies approach 2.0 in the same way as 1.0. Once they identify the senders, they employ the same strategy and try to buy their attention and affection with swag. Yet this still doesn’t create loyalty.
Loyalty 3.0 is where we are headed. Some companies have been doing this for a long time, but they are definitely in the minority.
This is where companies and brands engage both the senders and the spenders by making them feel cared for and important. It is a holistic approach that can be led with product functionality (think Apple), customer service (think Nordstrom), creating an affinity group or lifestyle association (think Harley-Davidson), creating an experience (think Trader Joe’s) or even by creating a bridge to the customer with ancillary products, services, content or experiences that are important to the customer (think food companies with time-saving recipes).
True customer loyalty stems from making your customer feel important, but in whatever way resonates with him or her. This is tricky territory because not all customers have the same wants or needs.
- Do we know who our spenders and senders are?
- Are we listening to their dialogues to understand what is important to them and what easily fits into their lives? Are we demonstrating to them that they are important and that we care for them (as a brand or a company)?
- Are our employees our loyal fans?
Those questions need to be layered on the pillars of loyalty based on the type of company you are and the needs of your customer. It isn’t easy — if it were, everyone would be doing it already. However, it is incredibly worthwhile, as nothing is more important to your business than solid, loyal customer relationships.
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Great article!!!! Spenders and senders. Love it!
I appreciate the information. Thanks for sharing the article
Your loyalty card experience is exactly what I just wrote about in my blog. It's why I am afraid to try new retail apps and gadgets in stores. I wanted to try the app shopkick, but I assumed I would be looked at like a crazy person when I asked about it in the store… and I was. I hope more brands can get to loyalty 3.0.
I don't even really know what to do but applaud. Fabulous post getting just below the standard tip of the iceberg for what it means to BE social, not just DO social. The entire landscape is changing, not just the way we record said "loyalty points."
It's interesting that you consider your first two incarnations "loyalty" at all! Maybe you don't, but even giving them a "version" number is probably saying too much for those kinds of business/customer relationships. Maybe we're talking semantics here, but you said it yourself – in Loyalty 1.0, we have a customer whose brand allegiance is measured by a sales discount – and a company whose loyalty seems a little anemic… so really, Loyalty 1.0 seems like a lack of loyalty… a relationship purely based on opportunity for material gain.
Loyalty 2.0 isn't really even an "evolved" form of 1.0… it just takes place on a different plane of interaction.
Also, I think it would be slightly problematic to attempt to measure customer loyalty based solely on our attempts to provide a better experience. We also need to take into account how the customer treats the brand when not in direct interaction WITH the brand. How do they talk about the brand to their friends? Do they defend the brand when it comes under fire? Do they stay with the brand in the face of a rival brand's attempt to steal away that customer? How do we measure these things? When we can measure these things, and answer yes to the questions presented… then we'll have a more holistic idea of the success of our Customer Loyalty strategies.
There is a huge difference between creating a habit vs. nurturing genuine loyalty. It is definitely worth understanding what truly constitutes loyalty because there is nothing more valuable to a business.
Sites like groupon/living social are fostering a culture of coupon groupies. A.k.a. unloyal consumers. So you are dead on about businesses needing to improve.
Tying emplyee incentives to cust. loyalty may help the poor service you mentioned. Do you know of any good benchmarks for grading loyalty programs/metrics? Any good use cases with the numbers. Would be great to validate your tiered grading system.
This is a fabulous post Carol. Are you able to give some insight into how you are implementing Loyalty 3.0 into your business?
Great content, summarizes where we are and where we need to get to with loyalty programs quite well.
Great post on loyalty programmes, thanks! Many loyalty programmes today are born out of necessity it seems like, a kind of "me too" approach from competitors. They also are more like incentives or promotions in stead of building customer loyalty like you say. A loyalty programme is like creating a community people want to belong to and can benefit from not only in their wallet (like to buy 9 get 10 example).
I do however miss one part about loyalty programmes and that is the adoption of the programme internally. You can develop a great programme but if your employees do not know what it is about, how to position and promote it is will not be as successful as it can be. In your example it would have made a different already if the woman behind the counter would have asked if you were a VIP member instead of just not asking.
Just like Paul I'm interested in your insight into how you are implementing loyalty 3.0 into a business.
Hi Carol!
I totally agree with you. Loyalty of customers is what a company should not take for granted. It is about making them feel that we value their business. In my current job, we equate loyalty of customers to customer retention. It is about giving our customers the best quality experience they will have given the fact that we work online. Once you become an expert of customer retention, then it's more likely that you get to keep your customers because they like how you make business with them and do it like no other.
Right on Carol –
I remember the first time I went to a store where I knew I had a loyalty card and started fumbling around for it in my purse and they said, "Oh, you don't have to do that — we have it in our system." Win!!
Anybody who's still handing out cards customers need to keep track of should take it to the next level already…we're all kind of overwhelmed keeping track of codes, passwords, and little loyalty punchcards.
There are hands-free loyalty programs out there that also integrate with your social media and encourage your network of friends, family or co-workers to duplicate what you yourself purchase and are involved in. The days of plastic cards and definitely punch cards is over!
Oh Carol, I'm right there with you! Boy, I hate feeling like a fool when the cashier or clerk treats me like I"m such an inconvenience.
I feel like that's really the core of the problem. Customer service is sooo important! As a social media manager, I can get customers INTO the restaurant or shop, but if the employees are not trained to provide excellent customer service, then my efforts are wasted. What a shame…
Thanks for bringing light to the subject!
Arlina Allen
My recent post Social Media Restaurant Marketing
Funny, but your Loyalty 3.0 looks exactly like the good, old-fashioned "customer service" provided for centuries by companies who care about and understand their customers. New tools to do it are just new tools. Thanks for a great post!
The criticisms of 1.0 and 2.0 are all right on point, but there is no meaningful recommendation delivered for 3.0. You basically just say some people are doing it but it is hard.
I have to agree with Victor. You give great "what not to do examples" but you never really clarify the "Ok what can we do to get to 3.0?"
I would say that all this hinges on knowing who your customers are. For instance, both Burger King and Pepsi engaged in social media campaigns that were intended to go beyond bribery and into the things they felt their consumers would engage in. The funny thing was, there was quite a bit of engagement via social media.. however none of it translated into traditional ROI (sales).
I think we need to stop fooling ourselves into thinking that there are shortcuts to business success. I'm not insinuating that you're saying this, I just feel that overall that is the prevalent attitude of many business people.
In closing I will say that companies like Apple and Nordstrom succeed because they give people a great product which is then supported by great marketing and service.
Burger King and Pepsi… we already know about their products.
Lad Makinde
Social Media Strategist
Gate6.com
I agree, that this post is good, but ends without examples of where we should be going with 3.0?
As for your example of the snooty salesclerk – this points at the employees not being engaged by the company – loyalty starts internally first with employees then employees can embrace. Otherwise it is seen as 'just another pain the butt thing I have to do". I was recently at Borders and the salesclerk was amazing – and I am from Canada! She insisted I get a Rewards card and all needed is an email address. And if I forget card – email address and phone number will find my account. (Yes we do have to remember which phone # we use, same as passwords – maybe need an app for this?) How about 3.0 being an APP that tracks all reward accounts??? simply pull up at counter and use rewards or add to?
Loyalty 3.0! This is great. I've been witnessing and engaging in this phenomenon of human business over the past couple years and you're right.. even though an appreciable amount of people understand how this works, a hugely significant chunk don't.
Definitely something for anyone to take advantage of that will both.. make you freaking feel better (important) and help cultivate "actual" connections, other than the traditional transactional ones.
Great post.
I like the post conceptually. This makes a sound case for 3.0, but it does not cover much in 3.0. I get what you are getting at through the brands used in explaining 3.0, but does not sound complete they way you get in 1.0 and 2.0.
Good attempt none the less to get the concept off the ground.
[...] **By Carol Roth Article [...]
The break down of your post and the information you presented was great. For the most part, customer loyalty programs could definitely do with some revamping. More companies need to include their marketing departments when creating customer loyalty programs. First, they know which customers to target, they know the statistics when it comes to spenders and senders. They’ll be able to provide great knowledge on how to effectively create a program that appeals to and actually benefits loyal customers creating an even bigger following.
Carol, thanks for sharing your views on building customer loyalty. I totally agree that companies should not be focusing on loyalty programs, cards and incentives to secure repeat business, but just as you said make the customer feel important. Making customers feel important, welcomed and appreciated on every transaction with help in building a connection. And, connections are a critical component of loyalty. Lastly, companies need to understand that loyalty starts with the first interaction. If the customer is not engaged when they first approach your business, whether in person, via the telephone or even during an e-commerce interaction, they may never consider returning to give the business a second chance. Richard Shapiro, The Center For Client Retention
Wow! Great post. So well written and helpful. Thanks for sharing.