All brand owners want it, but what does it mean?
If there was one buzz word which defined 1997 for marketers, it was loyalty. No marketing director was content until he had launched a loyalty scheme. We all learned that it is much cheaper to keep an existing customer than to acquire a new one, and we read Don Peppers until our eyes ached.
Maybe the new year is a good time to step back and think about whether the headlong rush into loyalty schemes has gone too far. In our enthusiasm to embrace the idea of 'customer loyalty' with cards, points and prizes, are we not in danger of forgetting that loyalty can't be bought that it has to be earned?
As late as November, at Marketing '97, loyalty was the main theme of many of the conference papers. One of them contained a pithy definition of just what a loyalty scheme is. According to professor Steve Worthington of Staffordshire University: "A true loyalty programme is a card-based scheme that links a consumer and an organisation in a long-term, mutually beneficial relationship based on an exchange of information and rewards."
Interestingly enough, in a survey which Marketing commissioned from NOP, we discovered that 59% of Britons have at least one of these cards. I have plenty myself - I am the Viscount Althorp of the supermarket aisles - and that's true of many users of loyalty cards. We pick them up, we may even use them, but we're not loyal in any true sense of the word. In fact, that same survey suggested that only 26% of those who have loyalty cards for stores visit them more often.
So I'm at odds with professor Worthington. True customer loyalty has nothing whatsoever to do with plastic cards. Let's forget all that marketing stuff for a second and think about what real loyalty means.
To do that, we need to forget marketing for a moment and go back to an age when our culture's ideas about loyalty were being formed.
In the tenth century, a small band of Saxons fought a pitched battle against Viking raiders at Maldon in Essex, just half a mile from where Marketing is printed. They were local men, called out in defence of their homes by their lord. He was killed early in the battle, and from that moment, every Saxon on the field was doomed to die, because it was the greatest disgrace to return alive if your lord was killed.
One of the oldest warriors, Byrhtwold, gave us the lines of Old English poetry that summed up the idea of loyalty which prevailed in Britain until the advent of the plastic loyalty card. In the poem written about the fight, The Battle of Maldon, he is quoted as calling out, while his comrades died around him: "Courage must be the firmer, hearts the bolder, spirit the greater, as we grow fewer."
Great words. Now which of us would willingly die for our grocer? The fact is that loyalty has become a debased currency.
Loyal customers are only 'loyal' as long as you deliver the goods. That isn't to say that some sort of loyalty does not exist among regular purchasers of a product or service, but it certainly isn't the unquestioning loyalty that some marketers would like to believe is possible.
Stand by your brand
Loyalty in the marketing sense may not mean giving up your life, but it surely must mean sticking with a brand you trust even when it's more convenient or cheaper to go elsewhere.
I drive past a Sainsbury's store to get to my nearest Tesco. My decision to do that isn't based on convenience, or price - I have loyalty cards for both stores - but on a perception that the experience of shopping at Tesco is more pleasant that it is at Sainsbury's. The points I collect are an added bonus, but they're not the deciding factor.
A card only works if this sort of loyalty (with a small 'l') has been built up first. And you can't buy that with discounts - you have to earn it. How?
Anglo-Saxon Poetry is not what you would usually expect to read in Marketing, so let's come right down to earth with a shiny new acronym: KERF. It may not be as good as SMERSH or SPECTRE, but it's short, and it does at least encapsulate the loyalty process.
First, you need to build up a customer's Knowledge. You can't expect people to become loyal to a brand about which they know little, so that is where good old-fashioned marketing communications comes in - everything from TV ads to direct mail, to customer magazines. Does the customer know enough about the brand to choose it over others?
Second is Experience. Is the experience of using the brand pleasurable enough to make you want to return? All the plastic cards in the world aren't going help if the reality is tatty carpets and a spotty 17-year-old behind an armoured-glass screen. But if, once a customer knows what benefits your retail brand brings, his first visit or use of the brand is good, you're halfway there.
Third comes Relationship. Is the contact between the brand and customer frequent and powerful enough to constitute a relationship? You cannot be loyal to someone you do not feel connected to. Here is where the card comes in. At its best, a loyalty card is a terrific way of building a relationship through regular mailings and the two-way exchange of information and benefits.
If all those are in place, we can move on to the final phase: Faith. Based on all of the above, does your customers' knowledge of, and relationship with the brand engender the faith that future product offerings will be excellent, and that mistakes will be put right?
If you have reached this stage, you can even afford to make a major mistake, like Persil Power or Classic Coke, because if you put it right your customers will forgive you. They may even become more loyal because of the way you handled the problem. Once you are here, you don't need to blush when you say you have loyal customers.
When a customer has passed all these stages, they will continue to buy from your company. This is the time when that plastic card really starts to deliver, as you use it to help build up a relationship in which you reward those loyal customers, communicate with them and receive their comments and advice.
A weak hand
The card itself cannot make people loyal. What it does is let you profit from the loyalty that already exists. Loyalty card poker is an expensive game to play, and that's what you end up doing if the card is your means of keeping customers.
If you are relying on rewards to keep customers, and a rival raises his offer of points or prizes, you raise yours or lose customers. But if your customers are loyal because of the excellence of your core offering, they're not going to move unless the offer from your rival is so generous as to cut his margins to the bone.
It comes down to what is at the heart of all marketing: quality, value and service. If you do not offer these, all the cards in the world will not get you out of trouble.
'Loyalty' and 'scheme' simply are not words which should be coupled together. Think of loyalty as something you earn, and a scheme as something you put in place to reap the benefits of what you have already developed.
Let's break out of the loyalty card gridlock and think creatively about engendering real loyalty, not the plastic kind.
But just in case we get too carried away with the subject, forget the poetry and remember the words of Alan Sugar: "Marks & Spencer loves you. Securicor cares. IBM says the customer is king. At Amstrad, we just want your money."
RELATED ARTICLE: The future's still in the cards by Terry Hunt
No, loyalty's not all about cards - it never has been. And the maligned professor Worthington never said it was. He said that loyalty in a commercial sense - and let's run through it again - is "a long-term, mutually beneficial relationship based on an exchange of information and rewards". That doesn't sound too daft, does it?
Loyalty is not one-way. Whether it is between a noble thane and his grizzled serfs, or a supermarket and its fragrant regulars, there has to be some sort of mutual advantage in a loyal relationship (unless of course you're a Burnley supporter).
A customer demonstrates loyalty to a company by buying lots of stuff, lots of times. The company reciprocates by recognising the customer as an individual and treating them better than before.
It's worth the customer's while consolidating their spend; it's worth it to the company to protect its sales. The customer gets a reward, the company gets data, and so on.
In fact, it is the "mutually beneficial" bit that the critics of loyalty marketing seem to forget.
A loyalty scheme (dread phrase, but still handy) is not only about a customer showing loyalty to a company, it is also about the company showing loyalty to a customer. And that's where the card comes in.
Because, at least until someone invents something better, a unique, numbered, electronically recognisable plastic card is by far the best way for a big company with millions of customers, and many more millions of transactions, to fulfil its part of the loyalty bargain.
To hijack Mike's own felicitous acronym, KERF, a loyalty card, linked to a customer database, enables the company to build Knowledge, Experience, Relationship and Faith in its customers.
Just by asking for a name and address when the customer joins the scheme, a company achieves heights of customer knowledge that most mass marketers had never dreamt of before.
Heavens, they now know where their customers live! And they've got a simple way to recognise and remember them in the future!
Then there is the extraordinary insight that you get when you experience a customer's behaviour over time by analysing pure transactional data recorded on the card - rather than that thin, filtered stuff you get from traditional market research.
You can hardly have a relationship with someone you know nothing about (well, you can but you know what I mean). And when you know who your most committed customers are - who plays the field occasionally, and who is promiscuous - you can be a lot less naive about who you put your faith in.
Nobody ever said that the loyalty between a customer and a favoured company was all about cards. It is just that without those humble bits of plastic most big companies would not be able to come close to any sort of long-term, personal relationship with individual customers.
Terry Hunt is executive creative director of direct marketing agency Evans Hunt Scott…