The great loyalty swindle

Internet Retailing

10th Jan 2019

For as long as I can remember, we have been told that loyal customers is what it is all about. I confess, I believed it and even preached it from the podium. Just like every other consultant.

It’s all lies.

Customer loyalty has become an industry – complete with evangelists and technology and best practice bibles.

And it is the biggest swindle since P.T. Barnum sold snake oil.

Customer’s don’t want or need loyalty

Customers are not loyal. They may be somewhat habituated regulars, but they are not loyal. People like diversity too, and they will go where their whims take them without a second thought to loyalty. The so-called loyal customer has a wallet full of loyalty cards, which by definition smacks of promiscuity, not loyalty.

Why should customers want to be loyal? Why would people limit their range and options voluntarily? Unlike your pet, they have all the power anyway, so why should they give that up?

The average (demanding) customer can extract as much value from a retailer as a loyal customer, so there is not much benefit in being loyal anyway. The accumulation of benefits via points systems is massively stacked in favour of the retailer anyway, and customers now better understand the cost of giving away their personal data and shopping habits and know they are giving something away without the concomitant reward.

If loyalty systems worked, retailers wouldn’t need to resort to being ‘on sale’ so often. The prevalence of discounting is proof that customers respond to price to a much greater extent than loyalty.

Retailers don’t want or need loyalty

Loyal customers are demanding customers. They have expectations and entitlements way beyond the value of their repeat patronage. Loyal customers are the ones who want to change the menu and expect custom meals. The Qantas Club member is the one who whines about the service on LinkedIn, not the average punter who is simply happy to get free food and drink.

Loyal customers are the ones who always want to tell you how to run your business.

The average keynoter/consultant is fond of quoting made-up statistics about the cost of customer acquisition vs customer retention. We’ve all heard that it costs eight times more to acquire a new customer than it does to keep an old one, but this is utter rubbish, since it doesn’t factor in the cost (in monetary and lost productivity terms) of satisfying the demands of those exsiting customers customers. Also, the calculation of acquisition cost only includes customers directly acquired through various marketing means. The fact is, most customers are walk-ups or come to the business indirectly. If the acquisition cost were to include these indirect customers, it would be much lower.

There are indeed tangible benefits to gathering data on customers’ shopping behaviours. But none of the little guys are equipped to extract the data, not to mention even think about using it smartly. I suspect the two big supermarkets have the capacity and may see some benefit, but then again, when a rapidly growing, successful international brand like Aldi pokes fun at those loyalty schemes, I suspect that Flybuys et al hang around because of legacy issues rather than outright monetary benefit.

Loyalty is an appealing strategy for marketers because the numbers offer a halo of credibility to their dark arts. But the fact is, even if a repeat customer is ‘cheaper’ than a newly acquired one, you can/should never stop spending on acquisition. Every loyal customer was once an acquired customer.

Finally, to argue that it is cheaper to retain than acquire is a spurious argument, since are not binary (either/or) options.

What customers really want

Customers are people. They want respect, recognition, a bit of love. They want fairness, decency, not to be take for granted and all those good things.

Of course, they also want unreasonable demands met at the lowest price – and a host of terrible things too. Because they are people.

But what customers don’t expect is unconditional, excessive rewards either. By giving a customer freebies, you effectively induce reciprocity, and anyone who has been accosted by the Hare Krishna on street corners with a flower thrust upon you will know that people don’t like the feeling of obligation that is induced by reciprocity.

What retailers really want

A reliable stream of customers who engage reasonably and accept the offer the way it is made. A loyal customer spending $10 and another customer spending $10 is no different. An entitled customer spending $10, receiving $2 in benefits and demanding more is an unprofitable customer, no matter how often they buy. (Buying more often makes it worse, right?)

In fact, the old adage of familiarity breeds contempt is evident to any practitioner, even if consultants don’t see it:

Loyalty is not realistically possible.
Loyalty is not practical and is rarely actually offered.
Loyalty is not desirable, given unintended consequences and hidden costs.
Loyalty should not be confused with repeat visitation.
Instead of pursuing the chimera of customer loyalty, retailers should focus on building a sustainable funnel that attracts and converts a steady stream of prospects into customers. And those who visit repeatedly, without cost and without entitlement is a bonus.

Now, how do I get rid of the coffee card without annoying all those who expect something for nothing?

Dennis Price is a shopping centre, retail, marketing & strategy all-rounder with over 30 years’ experience, across a portfolio career.