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Loyalty in Peril: 5 Traps to Avoid

$html.esc($author.firstName) Zichermann By Gabe Zichermann on March 10, 2015

Loyalty is a sensitive dynamic increasingly threatened by the very programs that seek to foster it, writes gamification expert Gabe Zichermann. No matter how hard we try, if we keep falling into these five traps our loyalty efforts will be further undermined.


Most loyalty marketing is about fostering and growing loyalty and engagement with customers. With increasing frequency, however, loyalty marketers find themselves in the position of having to “break” loyalty with customers. This is often because of business requirements that tighten benefits, a change in strategy that affects the brand promise or even bad (or “killer”) customers who need to be divorced.

As a gamification expert, I understand some of the processes and thinking behind these changes in loyalty structures. Regardless of the reasons, loyalty is a precious relationship condition that is increasingly being destroyed by the very programs that seek to foster it. No matter how hard we try, if we keep falling into these five traps our loyalty efforts will just be further undermined.

Take, take, take

A classic mistake of loyalty marketing is revealing too much of the program too soon. If there is no mystery and nothing to discover, people often get bored of the “game” earlier than they might otherwise.

Another side effect is that when the organization does have to reduce benefits, members will feel cheated and angry. One of the inevitable strategic realities of loyalty today is that most established programs are in benefit contraction mode, but nothing is being done to effectively soften the blow. The theory has always been to make changes suddenly to prevent hoarding, but in today’s reality where programs are well understood, obfuscation may be the best technique. Hide redemption tables and values, as Delta has recently done, to make changes easier to implement without creating a major fallout. For those programs just getting started, avoid being super transparent about earn-and-redemption levers up front, and meld that with some surprise and delight. This will prevent disappointment later, if it’s even necessary in the first place.

Rethinking the economics

A central economic fallacy of most loyalty programs is that the cost of delivering a unit of loyalty should decline over time. That is, programs are expected to do more with less, delivering greater benefit per user without significant cost increases.

However, this thinking – while CFO appropriate – is entirely illogical if taken out of the loyalty program context. Loyalty should actually cost more over time as consumers face ever-increasing choices for their attention and focus. When a program thinks that a reduction in direct competition lowers the marginal cost of loyalty, it misses the big picture: engagement and attention are the key success metrics of a loyalty program, not room nights or dollars spent.

As the world gets noisier, it will cost more to keep people’s engagement and attention, even as purchasing decisions might get easier to influence. Hotels won’t lose room-nights to hotel competition, they will lose them to House of Cards on Netflix because their customers will travel less. Instead of going out to eat, a consumer will play a video game for 18 hours. Marketers must think about how to create engagement to combat this shift in fundamental economics.

Failing on brand promise

The most obvious challenge for keeping loyalty is the maintenance of brand promise. Whatever those values, if the core product or service doesn’t deliver on them, the loyalty investment will suffer. While this may seem to be outside of the loyalty marketer’s scope, consider how important this issue is for the success of a rewards program. If one of your benefits is “best available room upgrades,” all the asterisks in the world aren’t going to matter if your company isn’t able to deliver more than 40% of those upgrades. The fundamental tension between what it takes to get someone to sign up and what it takes to get someone to stay loyal is never more critical than at this point. Don’t overpromise and under-deliver. A loyalty executive’s role is to be chief customer advocate among the operating units. The more real the customer interaction, the better the program will perform – loyalty is not inseparable from the product.

Customer service collapse

When customers run into issues, the solution to those problems often falls to a customer service division with its own metrics. But customer service for a loyalty program and customer service for a product or service should not be separated. Every bad interaction with the core business is a notch against the loyalty program, and unless customer service workers understand the relationship between the user’s affect and loyalty, they will be unable to manage this issue appropriately.

Ask yourself: How do you measure the performance of customer service against your customer loyalty and interactions? If loyal customers are not receiving good customer service, their conclusion over time will be that the program itself is not worth the investment – and their public disavowal (on Twitter, Facebook or their blogs) will be extra costly to viral engagement.

Game-rule mismatch

Probably the biggest challenge facing loyalty today is a change in the rules and how loyalty programs have failed to adapt to that change.

As many companies shift from recognizing frequency to spending (or a combination of both), the expectation from consumers is that they can buy their way out of the need to be loyal. Companies encourage this by unbundling many services that used to be perks of loyalty or by reminding customers that their perks are subject to the whims of the company, program or provider.

Over time, if people believe they have to pay for everything that was once a perk, a dangerous expectation mismatch will result. That is, that one-time-a-year, first-class customer expects platinum-level service during and after that one interaction. If she is paying for the full experience, but you treat her like a plebe when it comes to systemic interactions (e.g. phone wait times, lounge access, irregular handling), she will take her business elsewhere. This dynamic is one that many companies miss, but new entrants – especially the ME3 carriers in the aviation business – understand very well. Pay to play must cut both ways, or high-yielding customers will defect to wherever they receive the best on-demand service.

Overall, the loyalty “game” has become a lot less fun for consumers. The constant barrage of bad news in the form of program cutbacks, major changes and lack of innovation in the core design of programs has diminished appetites for engagement and loyalty. Similarly, as companies fail to fulfill their brand promises and maintain program investments, consumers bear the brunt of those changes. And, as priorities shift from incremental, long-term loyalty and engagement to fee-for-service, consumers expect the same benefits loyal customers might get, but organizations aren’t up to the task of delivering these “micro-loyal” experiences.

It’s taken more than 30 years to develop loyalty programs with the heft, sophistication and mechanics that are required to foster engagement in diverse industries like travel, finance, entertainment and retail. It will take much less than that to dismantle engaged loyalty if organizations don’t adjust to this new reality soon. Much, much less.

 

 

Meet The Author

Gabe Zichermann

Gabe Zichermann is CEO and founder of Gamification.Co, a clearing-house for news, insights and research on gamification, and EQ magazine. He chairs the GSummit, where top gamification experts share knowledge about customer and employee loyalty.

Gabe also is co-founder of strategic consultancy and product lab Dopamine (dopa.mn) where he works with leading brands and start-ups to bring engagement to every corner of their enterprise.

A highly rated public speaker and author, Gabe's books include "The Gamification Revolution" (2013), "Gamification by Design" (2011) and "Game-Based Marketing" (2010). Gabe resides in New York City, where he is co-director of start-up accelerator The Founder Institute, and a board member of StartOut.org.

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