Sunday, 30 September 2012

Do loyalty points kill the relationship?

Pizza beer

A recent blog article on Harvard Business Review discussing the concept of the "gift economy" provided a great example that stopped me dead in my tracks.  It said:-

"To understand a gift economy, consider the example of moving into a new apartment.  When friends help you move, you express your appreciation by providing pizza and beer — really good pizza and beer. When you hire professional movers, you pay with money. Offer your friends money instead of pizza and beer, and they are likely to be offended. Offer to pay the movers in pizza and beer, and they won't unload the truck. Your friends are operating in a gift economy; the movers in a market economy."

Take a moment to think about that example and then think about some of your favourite loyalty programmes.

Would your loyalty programme be operating in the gift economy or the market economy?

In the HBR article, author Mark Bonchek goes on to point out how in the market economy the focus is on transactions.  You receive a service or product and hand over money in exchange.  Market economies are normally between strangers and the trust lies within the currency. This is reinforced by the the latin term for money which is "specie", literally meaning "payment in kind".  

Gift economies in contrast are much more focused on relationships and are typically between friends or close communities.  It's not about the value of the gift or the expectation of return, as Mark points out the purpose is "not to execute a transaction, but to express a relationship".

Loyalty programmes  normally look to operate in this space, creating an emotional connection with members and typically stating that the desire is to develop a relationship which transcends the basic transaction.  Tesco for example state on their website that the Clubcard loyalty programme is "our way of saying thank you for shopping with us"

Yet despite this, many loyalty programmes simply reward a purchase with a set number of corresponding points; it's a transaction - a payment in kind.

While this works well and the customer understands the principle, it is essentially an exchange between strangers.

Using the example listed at the start, imagine if every time you called a friend it was to ask for something and you then responded to their help with a payment in money.  It's not difficult to see that this relationship would very quickly end or turn into a supplier/customer one; and this is exactly what we do within a basic loyalty programme.

This doesn't mean however that we throw away traditional points recognition - it serves a purpose in both helping to establish the initial relationship and keeping a focus between the member and the brand on the "value" of the relationship.  We do however need to recognise its limitations in that it is a transactional relationship and like all transactions, customers will be free to make the next one with your competitor.  Loyalty points help to simplify decision making (all things being equal, I'll use the store with invested points value), create goal directed behaviour and form part of the price comparison - but they don't build relationships.

To develop a relationship in part requires the programme to operate within the gift economy.  The programme needs to be able to express the relationship and demonstrate a different kind of value, a different kind of currency.  The gift economy operates on a Social Currency and can be expressed simply as:-

  • Things that help me belong
  • Things that help me feel significant

If when designing a loyalty programme, we build in components which align to these requirements, the programme will start to operate in both the market and the gift economies and move from being purely transactional to being emotional.  Whether it's providing benefits, surprise and delight, badges and achievements, access to information or membership of clubs, there are many ways to augment the basic loyalty design to create a social currency that is not directly linked to monetary value.

There is nothing wrong with points and indeed these form a crucial part of recognition.  We simply need to make sure that if the aim is to create a loyalty programme and not simply an incentive programme then moving the interaction from being transactional to being emotional is important.

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