Fast Company

Where's the Loyalty?

If only I had a dollar for every time a cashier asked whether I had one of those loyalty cards ... and another buck for every time I answered, "No." Hey -- give me 50 cents more each time I'm asked if I want one of their blasted cards (no, again), and two smackers if they ask me for my ZIP code. My phone number? They couldn't afford it.

When I laid that attitude on Spence Hapoienu, CEO of Insight Out Of Chaos, I expected a bloody nose. Spence is in the loyalty card business. But instead of an emergency rhinoplasty I got an excellent metaphor: "A loyalty card," says Spence, "is a piece of plastic. Most loyalty programs are plastic. They do nothing more than replace traditional paper coupons with electronic coupons. Why would that generate loyalty?"

Why, indeed? Spence says that when a loyalty program is done right, it transforms a business by using data to target offers to customers based on what's relevant to each individual. Spence counts True Value, Pueblo Supermarkets, and Tesco among the few loyalty marketers who get it -- who understand that they can't expect consumers to be loyal to them unless they are loyal to their consumers.

Soriana seems to be another retailer whose definition of loyalty is anything but plastic. Soriana has a loyalty card program, sure. But by itself, the card does not appear to be the reason Soriana has vaulted past its better-known rivals in Mexico, to the number two spot behind Wal-Mart. As Jose-Manuel Sanchez, the store's commercial director, explains in Forbes magazine, "When a woman consumer goes to the market, she wants to have an experience like what she had in the old markets -- tasting the fruit, bargaining with the shopkeeper, enjoying a social moment."

A similar "social moment" is driving loyalty for a tiny telecom called World Discount Telecommunications, which serves mostly Polish immigrants in the United States. WDT's loyalty strategy is personified by about two dozen chatty operators who converse with customers in their native languages. The operators will talk about whatever is on a customer's mind -- the weather, directions -- how to program a VCR. The result, according to The Wall Street Journal, is some 80,000 die-hard customers across America.

Notably, both Soriana and WDT are niche players. Occupying a niche is also a loyalty-marketing key for Saucony, a $136 million running-shoe company, run by a fellow named John Fischer. Saucony cultivates loyalty and survives against Nike by specializing in "specialty" running-shoes -- as well as by doing nice things for their customers.

In an interview with USA Today, John Fischer comments, "If we were to go into a specialty running shop and say we're going to run a $50 million ad campaign for a new shoe, they would say, 'That's nice, but are you going to have a clinic Tuesday when the Happy Valley Road Runners are coming to my store?'"

Of course, when it comes to catering to its customers and finding niches within niches, Nike is no slouch, either. You've no doubt heard of the Nike iD program, where you can design your own shoe online, mixing and matching styles, colors and materials to your heart's delight. Polo, similarly, has found that its create-your-own shirt program has become the most popular feature on its Web site. Then there's Mini Cooper, which reports that 80% of its customers customize their cars.

Anna Schyver of Land's End says the connection between customization and loyalty is clear: "Reorder rates for Lands' End custom-clothing buyers are 34% higher than for buyers of its standard-sized clothing," she told Fortune magazine. "Customers who customize," says Anna, "are more loyal."

That may be true, but it sure seems like a lot of trouble to build a little loyalty, doesn't it? Some marketers have taken a far less complicated route. JetBlue just put a television on every headrest. Holiday Inn Express simply offered breakfasts of hot, gourmet cinnamon buns to its business guests. Saab put its ignition switch between the front seats. Don't laugh -- it's habit-forming.

Some brands turn "doing good" into their loyalty hook. However, Tom Indoe, COO of Newman's Own, told Reveries that the success of his boss's products is not just because 100% of profits go to charity. Right, loyalty again. "The focus groups we've done with our own consumers say that people buy the products because they trust and like Paul Newman," he says.

Rob Gross, CEO of Monro Muffler Brake also reasoned that loyalty is largely a matter of trust. One of his key moves was to build loyalty on both sides of the counter by giving his employees higher pay and better benefits than did his competitors. As he explained in an interview in USA Today. "Our customers like to see the same manager in the store when they come back because they trust them," he says. "If they see John behind the counter and they saw him last year, they'll keep coming to see him next year."

It's what you might call the face of loyalty. "A brand is more than a virtual symbol in the marketplace," observes John Fleming of the Gallup Organization in a New York Times article. "It has the face of the people who interact in the marketplace … who create, or fail to create, the emotional connections that lead to brand loyalty."

Mr. Fleming tested that concept in a study of 16 Japanese women that was designed to gain insight into why they were loyal (or not) to a particular upscale department store. It was one of those newfangled neuromarketing studies, where the brain is scanned to track whether various stimuli light up the amygdala, the part of the brain associated with emotional matters, such as loyalty. Yes, indeed, the amygdala lit up all over the place among the women who described themselves as passionately loyal to the store.

Frederick F. Reichheld, author of The Loyalty Effect, says this goes straight to the bottom line. "If a company could turn 5% more of its customers into loyalists, with hooks into their amygdalas, profits would increase 25-100% a customer," he says.

OK, so maybe this whole neuromarketing thing is a little bit creepy. Point is, if scientists can link consumer emotions to profitability, maybe there's hope for marketing after all. Hal Varian, a New York Times columnist, says the price of loyalty can indeed be measured. When Amazon raises prices by 1%, he reports, its sales drop by about a half a percent. However, if Barnes & Noble raises prices a percent, its sales decline 4% -- eight times as much.

The difference, says Hal, is loyalty. The reason is that because Amazon has invested relatively more in the building blocks of loyalty (e.g., service and reliability) it attracts shoppers who are interested in something more than just the lowest possible price and who will suffer price hikes gladly.

The only problem is that sometimes the price of loyalty is just too high. Werner Reinartz and Viswanathan Kumar argued in the Harvard Business Review that loyal customers tend to cost more because companies often give them more services as well as greater discounts.

And were the favors returned? Not necessarily. Interviews with "loyal" customers of a European grocery chain found they did not necessarily recommend the stores to others.

Ah, consumers. A fickle bunch, we are.


Got something to say? Join the discussion.

Add New Comment

0 Comments