Businesses are hurting. We’re just not spending at the levels we were before the recession started.
Companies large and small have tried luring new customers by offering deals on Groupon and other daily deal websites. These deals have succeeded in getting people in the door, but what they’ve found is that the deals attract mostly bargain hunters and cheapskates. These people come in once for a deal and never return.
Obviously that’s not what retailers want. We know it costs significantly more to attract new customers than to retain current ones. And studies have shown that current customers spend more than new ones. So from the retailer’s point of view, keeping current customers coming back is the gold standard.
This has led businesses to a promotional strategy that’s booming right now: loyalty programs. They come in all shapes and sizes. Among the more popular programs is also one that’s been around for a while: Amazon’s Prime, which offers unlimited free 2-day shipping on most products for $79 a year. Prime’s appeal is that it offers something we all want: free shipping. Amazon has positioned itself as the Walmart of the web with free shipping and good customer service to boot.
Another example is McDonald’s monopoly game. Who doesn’t love Monopoly, right? You go back time and time again, peeling off those little game pieces and filling out your game board. If you’re lucky you’ll win a free Big Mac along the way. I’m not even sure anybody’s ever won the big prize, but that’s beside the point. When businesses make loyalty fun we gladly come back for more.
A final example is the airlines’ frequent flier programs. Many of them have several tiers based on how much you spend each year. The more you spend, the greater your access to benefits like early boarding and plush airport lounges.
Large companies aren’t alone in the game. Over the coming weeks and months you’ll start to see mom-and-pop stores and independent restaurants offering simple loyalty programs to encourage return visits. As an example, a pizza shop might offer a free pizza after you buy seven. You could see spas offering free services after so many visits. These programs will be built to reward existing customers for coming back.
Compare these programs with other types of loyalty I talked about recently: loyalty based on habit or inertia. Your loyalty to a business should be based on how you’re treated and the value you receive.
Some companies actually penalize customers for their loyalty. Among them are cable and cell phone providers, banks, and most auto insurers. They routinely reward new customers with discounts while sticking it to their long-time customers. It’s funny (or sad?) that companies with horrible customer service reputations are most often guilty of this.
Ask yourself why you’re loyal to the companies you do business with. Are you getting a good deal or is inertia at work?
Loyalty programs are a good way for companies to reward repeat customers and maintain their customer base. You benefit too, but only if you’d buy the product or service anyway. If not you’re just throwing money away.
Bottom line: Don’t assume you’ll benefit from loyalty. Use these loyalty programs to sweeten the deal for things you already buy.
Photo by homemadeville.blogspot.com