Knowing the Difference Between Loyalty and Retention Programs

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In the middle of a brand crisis, Chipotle announced a massive program to induce customer purchasing. Customers could earn an escalating amount of food based on how much money the spent, a sort of edible pyramid scheme. The grand prize was a catered lunch for 20 people.

When we wrote about the campaign, industry watchers told us that it was not a loyalty program, but rather a retention program. The difference intrigued us so we wanted to explore it more.

The term loyalty has typically been used as a catchall to describe any program that customers can opt into to get some sort of rewards. The simplest of these programs is the famous punch card where ten purchases get you a discount or free purchase once completed.

“There are frequency programs or punch card-driven programs, but, to me, that's not really a loyalty program,” says John Bartold, Epsilon's practice leader of loyalty and customer experience.

“Loyalty has so many other components. Do you talk about the brand? Do you engage with the brand,” Bartold adds, adding a personal anecdote. “If I look at my daily relationships as merely transactional, I wouldn't have a lot of friends.”

While, yes, a punch card does lead to repeat purchases, loyalty is much more than transactional.  Are you using a punch card because you are budget conscious, or do you actually value the company or brand? Are you more or less likely to frequent them if you don't have the punch card? There's a lot unsaid when your only interaction with a customer is for a volume discount.

It's also somewhat of a blunt instrument. A simple punch card or other type of volume discount can feel like a chore; for example I have to buy six more sandwiches to get my benefit. It doesn't surprise and delight a customer the way a customized experience does.

“A retained customer is not necessarily a loyal customer,” says Erin Raese, SVP of Customer Loyalty, Aimia, a data-based marketing and loyalty analytics vendor, via email. 

Raese pointed out that customer retention programs are created to “provide an incentive, such as coupons and discounts, for customers to continue shopping with a particular brand or retailer.”

Retention also takes the form of an inducement to stay with the brand under unfavorable circumstances. If you call up your telecom or Internet provider to cancel, they will undoubtedly offer some deal to keep you. Even if you remain retained, you are not very loyal and even may be a negative brand influence on people in your social circle.

The success of retention programs is determined by retention rate, “which is essentially the percentage of a customer base that was active on some earlier date and is currently still considered to be active.”

Smart brands, Bartold says, will find a way to include both loyalty and retention aspects into any program.

“Marriott still has its mega bonus, which is really frequency based,” Bartold says. Marriott is an Epsilon client. “But they're also engaging members by asking questions and keeping them apprised of properties that they may be interested in.”

What does a smart loyalty program look like?  Well, for one, it knows a lot about you, the customer and can tailor experiences to your preferences.

“We see a lot of feedback [along the lines of people] wishing the brand knew me better and understood me,” Bartold says.

Raese agrees.

“Brands are beginning to realize that customers expect tailored and relevant experiences,” she says. Data from Aimia's "Loyalty Lens" research showed that at least 50% of consumers get annoyed if companies do not use customer information to offer a better tailored product or service.

Smart loyalty programs often hone in on “soft benefits” like “recognition, exclusive access to products and services, and tiered benefits,” Raese says.

Bartold adds that people are more knowledgeable about customer preference tracking, so they may say, “You know who am I – why am I getting this [undesired] offer?”

This new approach to loyalty has opened avenues for companies not used to such opportunities. Consider the car manufacturer or dealer. A car purchase is one that happens once every couple of years, potentially more than a decade. But, now, auto companies, for instance, are no longer just in the car business; they're in the mobility business. They're branching out from just selling cars to getting into the ride share game and are able to reach both car buyers and those who will never own a car through multiple touch points.

Bartold says that car companies used to track customers through vehicle identification numbers (VIN). But with developments in transportation like leasing  (“Some manufacturers are seeing that 30% of all cars are now leased”) and ride-sharing, auto companies are tracking customers on an individual level. And car companies obviously don't fit a punchcard model, so their loyalty programs center around services, like content and customized information about cars and transportation at large.

“Good loyalty programs start to play out the personalities of the brands,” Bartold says.

So what's next?

“The next era of reward design will increasingly feature customized and personalized reward experiences based on customer demographic, psychographic, and behavioral data,” Raese says. “We'll start to see more rewards recommendations for consumers and exclusives for top customers, for instance.”

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