Are You Loyal to Loyalty Programs?

NEW YORK (MainStreet)—Gone are the days when a loyalty program meant awarding a free sandwich for every six you bought. In this world where we have an abundance of choices, the idea and definition of "loyalty" is rapidly changing. Nearly every store we visit offers a loyalty perk of some kind. In fact, in the U.S. alone, there are more than two billion loyalty program memberships – that's 18 different loyalty programs for every American household.

But are we loyal to loyalty programs? Not so much. Of the 18 loyalty programs we carry with us in our wallets or on our key chains, each household uses less than half within a year. Loyalty can no longer be "solved" by merely issuing a key fob and doling out points. So what does it take to win loyal consumers? Innovative companies must seek out the pockets of emerging and latent consumer demand – the gaps between sales and demand – and ensure their programs are helping to resolve undesirable tradeoffs, eliminate nuisances and deliver new benefits.

The challenge for marketers is that very different consumer experiences manifest in a singular behavior – a sale – making it easy to mistake sales for actual consumer demand. This gap between the two attracts upstart innovators, which sneak in when established leaders are preoccupied with their current rivals. For example, if larger breweries are in competition over the best beer for watching the big game, their preoccupation makes it easier for smaller upstarts to become the best beer for dinner. Consumers really need little prodding to embrace compelling solutions.

The Loyalty Litmus Test

Successful loyalty programs – those that give us a reason to keep coming back again and again – are built on healthy relationships between consumers and brands; they create value for both. Shared value, a product of meaningful innovation, is created when consumers reward brands for performing important jobs in their lives. In some cases, we choose brands because they perform an important job particularly well. In others, consumers select brands simply because they are better than available alternatives.