Rewards Programs' Bad Rap

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I have a request: Would the person who first called a rewards programs a “loyalty” program please raise your hand?

Thank you. Now could you come a little closer… I can whack you upside the head for causing so much unneeded debate and confusion.

There is no shortage of academic research addressing the question of whether or not loyalty programs actually create, drive, or lead to customer loyalty. Any number of studies prove both sides of the coin — that these programs do drive loyalty, and that they don’t drive loyalty.

Many of these studies conclude that rewards programs either do or don’t work. What they fail to grasp, however, is that rewards programs, in and of themselves, may not be good or bad. Instead, how any one firm implements a rewards program may be the true determinant of success.

But there’s no shortage of rewards programs skeptics, and their mantra is familiar: “You cannot buy customer loyalty, you must earn it.”

Before we move on, let me say right here and now that no one — and I mean no one — believes that mantra more than I do.

But had our newly-smacked-upside-the-head friend not started substituting the word loyalty for rewards, the marketing world might be a more peaceful place.

You see, I could care less if the studies show that rewards programs lead to loyalty or not. To simply focus on the loyalty criteria misses the point. It’s like saying that batters “fail” if they don’t hit a home run every time they’re at bat (I know — ugh, a sports analogy).

My take: Beyond the question of loyalty, there are a number of strategic benefits that firms that effectively implement rewards programs can reap. Rewards programs are tools for:

  • Targeting. Marketers spend a ton of money, time, and effort trying to figure out who to market to. Rewards program participation is like wearing a t-shirt with a bullseye on it. For any given product or service category, rewards program enrollment — and even more importantly, active participation — is often an indication of the emotional involvement a customer has with the product category, and maybe even the firm.
  • Engagement. Many firms struggle to find ways to interact with their customers beyond blatant sales pitches that ask them for more business. Just as it is with two people, developing a relationship between a customer and a firm requires some degree of engagement (if you didn’t like the sports analogy, there’s a crude dating analogy that I could make here, but I’ll spare you that pain). Rewards programs are (or I should say, can be) excellent tools to engage customers.
  • Selling. Forget whether or not rewards programs drive long-term, lasting loyalty. There’s plenty of evidence that rewards programs can increase sales. At the Loyalty Expo conference that was recently held in Orlando, Luc Bondar and a colleague from Carlson Marketing presented research they conducted that found higher rates of purchase among rewards plan members after they redeem rewards than other rewards program participants.

It’s time to put aside this silly argument of whether or not loyalty programs drive loyalty (and whether or not there are too many programs out there) and focus on the real issue at hand: How to design and implement rewards programs to improve marketing effectiveness and efficiency, and to better engage customers.

Technorati Tags: Marketing, Customer Loyalty, Loyalty Programs, Rewards Programs

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