Loyalty Programs Losing Traction With Customers

Cyberspace quaked recently when Jupiter Communications, New York, revealed the results of research on online consumer loyalty.

In a survey of 1,200 online consumers, 75 percent of respondents said they belonged to some form of online loyalty program. That’s the good news. The bad news is that only 22 percent thought that programs they belonged to had any effect on their purchase behavior. The survey cited easy returns, customer service and product selection as having a higher priority to the online shopper than any reward or incentive program.

These findings should strike fear into the hearts of online loyalty purveyors. But the results are not surprising. Online loyalty programs are having great difficulty gaining real traction with customers. Sure, customers enroll. Why not? It’s easy and quick, and nobody wants to leave any freebies on the table.

Online loyalty currency sites such as MyPoints, Beenz and WebMiles excel at signing up new members as fast as their servers can process the data. But are MyPoints and Beenz really enough of an award to keep members active and loyal? And assuming customers are enticed by the award, to whom are they giving their loyalty — the online merchant that has paid to become a part of the network, or to MyPoints and Beenz?

The Jupiter survey reveals an important truth: Loyalty programs work best when they address both the rational and emotional components of loyalty’s reward and recognition. Recognition has been overlooked entirely by most online programs, and the reward aspect has been addressed superficially.

The compelling nature of an award has to do with its perceived value, which is a function of what you can get and how quickly you can get it. Online programs generally offer unimaginative rewards, often in the form of gift certificates. There is no perceived value leverage in a $10 gift certificate; it’s only worth $10. And most online shoppers earn rewards at a snail’s pace when compared with the offline world. Where do you do most of your shopping? Probably not online. How captivating is it for you to shop for weeks or months, only to earn a $20 Barnes & Noble gift certificate?

The top three items mentioned by survey respondents — returns, customer service and product selection — should give online companies a clue as to how woefully they have neglected recognizing their best customers. My loyalty to your brand depends not on how many MyPoints I earn by visiting and shopping on your site, nor on points I earn in your own proprietary program if I am always treated the same as any other shopper. If I buy into your brand with my wallet, then I expect exemplary customer service. I want speedier return privileges than the average Joe, and I want access to the newest products as quickly as possible.

Online merchants are at a disadvantage because of the lack of human contact in the cybershopping experience; most attempts at recognition come in the form of computer tricks: customized Web pages and personalized communications. These tricks are fine as far as they go, but they lack the human touch. Members-only customer service numbers, special return privileges and tailored product offerings — it’s way past time for online merchants to co-opt these recognition techniques from the offline world.

The final lesson we may learn from the Jupiter research is that it is dangerous for e-tailers to cop out with an easy fix rather than build their own programs. Loyalty programs, after all, are about the value exchange. You provide value in terms of recognition and reward, and your customers respond with larger and more frequent purchases.

There are a myriad of personalization opportunities and special benefits associated with customer relationship management technology. Your program must apply this technology to tap into the equity of your brand. Simply joining a program with lots of partners on someone else’s network will not change those survey numbers. Ultimate success, however, will come not from technology, but from strategies cunningly designed and flawlessly executed.

We are in the early phase of online loyalty. There is much more smoke than fire. For the most part, these online loyalty companies are playing the dot-com IPO game: tiny revenues (which means that millions of members are earning and redeeming very little), no profits, and lots of acquisitions and alliances. That game has lost a little luster.

Most of these companies are chasing the media models — they want eyeballs, and lots of them. But the Jupiter survey tells us that companies expecting to thrive will have to spend more time on the substance of loyalty and less on technology and public relations. The real online loyalty winners have not surfaced yet. Those companies currently at the forefront may be offering the marketing equivalent of fool’s gold.

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