Whats next for loyalty in 2013

What's my prediction for the big thing in loyalty in 2013? Two words...

User Experience

Increasingly the way we do things has changed.  Smartphones have enabled us to find "an app for that" and those apps are getting better and more easy to use with every release.

This is not just about design or how it looks - it's truly about the overall interaction.

Yahoo get this.  When recently hiring ex-Google team member Marissa Mayer, Yahoo! co-founder David Filo said

"Marissa is a well-known, visionary leader in user experience and product design and one of Silicon Valley's most exciting strategists in technology development" going on to say "[the appointment] signals a renewed focus on product innovation to drive user experience and advertising revenue for one of the world's largest consumer Internet brands"

Microsoft also get this with the recent release of their Metro interface across platforms for Windows 8 showing how user experience is now front and centre of their operating systems.

Although Apple is lauded for it's hardware design, any user of it's software knows that this design doesn't always flow through everything they do.  Indeed, Bill Flora, one of the designers on the early prototypes for the Microsoft Metro interface is quoted as saying:-

"I have found their hardware to be amazing and sophisticated, and I have found their software to be kind of old school"

Apple know this and with the recent shake-up, Jony Ive, the man behind the iMac, iPhone and IPad hardware will now also be looking after human interface design and you can bet that's going to give a real shake-up to the overall iOS user experience.

A designer working at apple is quoted as saying:-

"You can be sure that the next generation of iOS and OS X will have Jony’s industrial design aesthetic all over them"

User experience is important in all interactions, it's not just about online or digital experiences.  Take a look at the humble POS receipt below and how this has been reimagined both visually and for the enhancements it makes to the overall user experience:-

 

Created by design consultancy BERG, this is a great example of how an everyday customer interaction can be completely transformed.

Earlier in 2012, Kickstarter project Mail Pilot successfully secured their funding from over 1,600 backers for their redesign of email claiming "Email is in need of a fresh start.  A redesign from the ground up.. [Mail Pilot] intuitively works the way you've always wanted to use email"

This is the real essence of user experience design, creating interactions and user experiences based on what users and customers want to do and making that easier for them.

Within loyalty, when we talk about terms like gamification and how these are changing the face of loyalty, most commentary is about the mechanics.  However what gamification is really doing is improving the user experience.  It's making loyalty programmes more responsive, giving users feedback on what they've done, what other users like them have done and providing easy to interpret pointers about what to do next.

We increasingly rely on real-time feedback to understand when something has happened,  whether thats a button depressing when clicked or a screen moving when dragged.  If we didn't see things change in real-time with our actions and gestures we'd be unsure as to whether the application had interpreted our request and may try again.  Either way, if we didn't get feedback we'd eventually just give up.

The same is true within our marketing programmes.  Increasingly the user experience is what sets us apart from competitors.  Making things easy, engaging, responsive, fun and useful is critical.  

This is something i'd previously spoken about back in September when looking at how Pinterest was creating loyalty and longer engagement through immersive discovery and basically, a great user experience.  It's also something that we're increasingly seeing creep into B2B interactions as evidenced by CBA with their Pi payments solution.

One of the clear leaders in this area last year however has to be PayPal and their re-imagining of how customers interact with money and the development of a solution for the PayPal Digital Wallet that works the way customers think, not the way banks do. 

I think 2013 is when we'll see the real battle lines being drawn based on user experience and how this sets the leaders apart from the laggards.

Curiosity = Loyalty3

cu·ri·os·i·ty - noun
1. A strong desire to know or learn something.
2. A strange or unusual object or fact
3. An app that has hooked over 500k people

That last point is strongly linked to points 1 & 2 and also provides some interesting lessons for loyalty programme design.

In case you missed it, Curiosity is a new iOS and Android app in which people slowly destroy layers of a huge cube with the mission to reveal what's inside.  It's like a multi-player pass the parcel in which there can only be one winner.


The cube is apparently made up of 64 billion tiny blocks which users have to destroy one block at a time until a single layer is completely removed and then they begin on the next layer.

Thats it - In terms of gameplay, it could be argued that it's a little lacking.

However, if thats all you got from it - a Zen like feeling from destroying blocks and making patterns in them - then I can't imagine it would be anywhere near as popular as it is.  Instead, the game locks onto some powerful gaming mechanics employed by more complex ecosystems like Farmville to provide a rewarding and addictive experience.

These can be summarised as:-

• Social - Everyone taking part - like a shared experience.  Connect it with your Facebook account and you can see how your friends are doing.
• Reward - There is something to aim for even though no one knows what that something is.
• Gamified - There is skill involved and you can "level up" to get a perceived advantage.  Destroying more blocks earns coins and these in turn can be traded for tools to destroy even more blocks.

It's these 3 points combined that make Curiosity both an interesting take of gameplay as well as a great model for Social Loyalty.

People will download and play with the app for different reasons, either because they've heard about it and are curious (social element) or are intrigued by the possibility of the final prize (reward).

Whichever path brings them into the app, both then play a part in retaining them.

The "gamified" element though is also very important in keeping people playing - essentially keeping them loyal.  Users will very quickly tire of simply destroying blocks one at a time.  Instead, by recognising their activity and rewarding this with coins that in turn can be used to purchase tools to increase their activity, Curiosity is looking to maintain "flow" in the gameplay.  Keeping users somewhere between boredom and anxiety.

This is enhanced further, as these additional tools give users an advantage over others, something expressed within the social element by being able to compare your stats to friends.  Solo gameplay is rarely as rewarding as that played against others.

Just using these 3 simple mechanics, Curiosity shows us in a stripped back, minimalist way how to engage and harness peoples attention.  There's no fields to plough, crops to plant or farms to build - it's as basic as it gets, and yet it still works.

The lesson for us in loyalty is that it's not about how complex your programme is or how many rewards it has - it's all about the design and how this too can engage and harness the customers attention.

Many loyalty programmes today are one dimensional - simply using rewards as the mechanic to drive people forward.  Increasingly though Social Loyalty programmes look to harness the power of social currency as expressed and magnified through a gamified experience to add depth to the programme and turn into into a more rounded, 3-dimensional experience.

It's Loyalty³.

Pinterest taps into the active lurker

Another week, another social network explodes onto the scene. Barely 2 years old and picture collecting social network Pinterest is growing rapidly and making headlines.

Despite being a simple concept - you essentially pin or bookmark pictures onto one or more boards - it is strangely satisfying. I'm by no means an avid user but there is something slightly voyeuristic about browsing image after image to see what takes your fancy. Whether its architecture, fashion, food, travel or technology, there is something for everyone.

I also think it taps into some basic needs in this current financial climate. While there is less money to go round and less desire to be seen flaunting it, people still like beautiful things. Pinterest taps into this, letting you like it, collect it and show it. Friends can still marvel at your good taste and ability to find something unique - just without the need to actually buy it. You're also able to "own" a collection of things that form part of your wish-list, even if most of those wishes have no chance of coming true.

What's makes Pinterest really appealing though is how it engages the active lurker.

Within social marketing we're aware of the 90-9-1 principle which states that typically 1% of people actually create new content, 9% of people curate this content (adding value/re-posting) and 90% simply read/consume it. A recent blog post however from enterprise social network provider Yammer commented on how this 90% might not be quite so passive. Discussing a research study from MIT Sloan, the blog pointed out how upto 50% of these lurkers may actually be active. This may not be directly within the community in terms of posting, but instead are active in terms of how they use and pass on the information.

Within Pinterest though, they seem to use a number of techniques to lower the hurdle for engaging these lurkers directly within the community.

Firstly they have an invite only acquisition process which is something I wrote about in a previous blog. This is becoming increasingly common for these start-ups and social networks as not only does it help them control acquisition (and the associated traffic), but it also helps build up demand and create social currency. As existing members can invite friends, this invite only mechanism helps bestow value on the membership and members are then more likely to recommend it to friends and/or brag about being part of it.

The second interesting feature within Pinterest that looks to create more engagement is how they use "endowed progress". Giving people value up front in the form of a welcome bonus is nothing new within loyalty programmes, however Pinterest takes a different angle on this endowed progress. Rather than a points currency, their currency is measured in friends and so on joining, they automatically link you to people you might want to follow. You're obviously free to unlink from them at any time, but this "instant network" based on your stated interests ensures you see content immediately and don't start with an empty profile. It's a simple idea that really helps you to feel engaged and a part of something straight away - it also helps to power with the final feature, re-sharing.

Pinterest makes the process of collecting very easy, lowering the hurdle to taking part.

You don't have to be the 10% of curators/creators who go out seeking new content to pin from across the web. Instead you can simply browse what others are posting and just pin whatever takes your fancy. This is something that is really interesting and not dissimilar to the Facebook "Like" activity. The difference however with Pinterest re-sharing is the curation part of it - your likes are essentially built up into a collection which you maintain and continue to share with friends. Amazon does something similar with it's Listmania service - but you'd be hard-pressed to find it given it's buried at the bottom of the page.

Pinterest have shown however how to bring this functionality front and centre and really engage members around it. They are obviously doing something right given they are the fastest growing social media site in history and have already got a presence on almost 10% of the top 300 online retailers.

With an increased desire to both share and consume information, the opportunity here for brands is how to engage this 90% of lurkers in an active way - and Pinterest certainly provides some interesting ideas.

The art of collecting

I was never a big sports fan, but for some reason collecting Panini football stickers was a big part of my childhood. I couldn't really care less about the teams or the players - most of whom I'd never have recognised - it was just the collecting itself which was exciting. Being able to swap with friends and if you were really lucky, getting the silver ones with the club badges on.

It seems nothing has changed - Panini are still pushing out sticker books and kids are still collecting them.

It's not just kids though - many people like to collect - whether it's shoes or stamps.

I'm not talking about pathological collectors -those who feel a need to collect things so that it affects their ordinary life. Like the guy from California (why is it always California) who just had to recently sell his banana themed collection.

I'm also not talking about those who's desire to collect something first drives them to extraordinary lengths. For example, the 15 year old Parker Liautaud who was first to collect the FourSquare Last Degree Badge by checking in at the North Pole.

What I'm talking about is those more normal people who just feel compelled to make that next purchase or seek out that next item.

Given that collecting is such as powerful force within frequency marketing programmes - whether its people collecting points or the sales promotions at the local petrol station where you collect glasses - understanding how people start collecting is important to get a loyalty programme up and running.

At a simple level the act of collecting is essentially one behaviour that is linked to a previous one - to be a collector you must by definition have started.

In the famous article on The Endowed Progress Effect by Nunes & Drèze, they showed how you can kick start people into collecting by simply making them feel they have already started. By awarding people with points upfront, the members were more likely to continue collecting and would actually collect faster - showing increased engagement or desire to collect. They described the reasons for this saying:-

[Previous research] demonstrated that interrupted or uncompleted actions engender a strong motivation to complete the action and psychologists agree that once a person accepts a task, for whatever reason, he or she tends to stay on that course until the goal is achieved

So part of getting people to collect is to get them to feel their collection is both incomplete - so there is more to do - and that they have already started collecting and so feel compelled to continue.

It's one thing to get people started however, but how do you keep the behaviour going. How do you get them from one behaviour to the next, and more importantly, how do you get them making increasingly larger commitments - giving you a greater share of wallet or opening up a new category they haven't purchased in before.

In the book Yes! 50 Secrets from the Science of Persuasionthey discussed ways of getting one large behaviour change by essentially "softening" people up in the first instance. Linking one action to another by starting with something small and seemingly insignificant to then get them to do something bigger which they wouldn't ordinarily have accepted.

The example given was an experiment that asked home owners in a posh neighbourhood to display a large sign on their lawn (6' x 3') saying "DRIVE CAREFULLLY". When asked first off for this, only 17% complied. However when they were asked two weeks before to display a small sign in their window saying "BE A CAREFUL DRIVER", the compliance rate shot up to 76% for the larger sign.

The book goes on to explain why this happened saying:-

"The evidence suggests that after agreeing to the request, the residents came to see themselves as committed to worthy causes such as safe driving. When [..] approached a couple of weeks later, they were motivated to act consistently with this perception of themselves."

This softening or "Priming" as it's described in the book Nudge: Improving Decisions About Health, Wealth and Happinessworks by aligning peoples thinking - for example, simply asking people who they might vote for makes them more likely to actually go out and vote.

This becomes key within loyalty through ongoing communications. We know for example that communications sent across multiple channels increase overall response rates within a campaign and this is probably in part because the first communication "primes" for the subsequent one. Combining this with some form of low risk call to action suggests that subsequent messages for a larger commitment would get a far greater response rate.

Members of a loyalty programme have traditionally been called collectors. To get the best out of a programme though it is probably also worth treating them as collectors and building in specific mechanisms which encourage both the initial behaviour to get them started in their collection as well as helping to direct them ongoing to maximise it.

Pay peanuts, get monkeys. Pay too much and create them.

The old adage about "pay peanuts, get monkeys" suggests that the quality of work - and in fact products / services - is directly related to the amount we pay. If we pay more for something then logic would say we are getting better materials, more expertise (who can command a higher day rate) and more time - all of which combine to provide a superior result.

But where does this end - when is more money too much money.

Well it would seem there can be a limit. In research carried out by Dan Ariely - professor of behavioural economics at Duke and author of Predictably Irrational: The Hidden Forces That Shape Our Decisions - it was found that offering more money to individuals to complete a task can actually decrease performance.

In a number of tests which were designed to replicate everyday work - requiring attention, memory, concentration and creativity - those offered a large financial incentive for completion fared consistently worse than those with medium or low incentives.

This research has been reported upon in conjunction with discussions around the benefits (or not) that large bonuses provide for bankers - suggesting that the size of the bonus may have little effect on their delivery and in fact may ultimately be detrimental. Counter arguments have put forth that these astronomical bonuses are less about performance and more about recruitment and retention of top talent.

Whatever the reason for the bonuses and their impact on actual performance, what interested me is that we see this type of effect within loyalty programmes as well - but possibly for different reasons.

It is well known and documented in the book Scoring Points: How Tesco Continues to Win Customer Loyalty that Tesco originally trialled 1% and 2% back in value and found no real difference in the loyalty effect - so opted for 1%. This suggests that at these relatively low values, consumers aren't additionally motivated. However, when they were researching Club Card deals, which effectively gives 4 times the reward value at partners, a lot of time was spent getting the wording right as consumers initially felt this was too good to be true.

This "too good to be true" effect is also visible in other programmes. In recent tests we carried out offering varying bonus point values for the same behaviours we actually saw a drop off in responses with a larger bonus point value. It would appear that customers felt the reward value was too much - maybe thinking that there was a hidden agenda and so was too good to be true.

All programmes need to be tuned to ensure the best value is being achieved, both in terms of how much value is given back and what behaviour change is exhibited. Too little and the value is simply wasted on little or no change - however too much and you'll see the same effect. This is mirrored in rewards with rewards which are too low in value - too easy to reach - risking a decrease in ongoing participation.

Whilst it may be right to say pay peanuts and get monkeys - and there is actually research to prove this - it would appear that this can equally apply if you pay too much, with the recent banking crisis seeming to back this up.

Whether it is money or points however, the same rules would appear to apply - under rewarding may simply recruit monkeys, but over rewarding could actually be helping to create them.

Democratisation of Journey fills me with Glee

Sometimes it feels like we’ve rewound time back to the 80’s.  Whether it’s the Virgin Airlines advert with Frankie Goes to Hollywood theme tune and Our Price record store (remember those) in the background, girls wearing leg warmers or the fact that Journey are now in the Top 10 chart with “Don’t Stop Believing”.

Whilst I have to admit to already owning this particular Journey track (and handful of other 80’s soft rock tracks), it does show how different the music industry has become.  With services like iTunes, providing access to millions of tracks, the charts are much more democratic – reflecting what people actually want to listen to rather than what they are told they should listen to.

Of course what people listen to is still influenced by media – whether this is Mass Media like the Cadburys advert which caused the Phil Collins track “In the Air Tonight” to reach number 9 in the download chart or Social Media which managed to get Rage Against the Machine to the Christmas number 1 and displace the “sure thing” X-Factor winner.  In the case of Journey their leap to the top of the chart has been influenced by the new hit E4 show Glee – which interestingly has also released a version that is running neck and neck with the original.

However, it’s not only the music industry which is benefiting from this democratisation of choice.  Waitrose opened up their CSR programme to customer choice about 18 months ago – and in the process have really engaged customers. 

Most corporate CSR programmes feel like little more than an attempt to stem criticism of any perceived obscene profits or sky high executive packages and customers have typically little choice, knowledge or even buy in for the nominated charities or “good causes”.

What Waitrose did instead is throw open their programme to the customers through their Community Matters scheme.  Each customer is given a token at the tills which they then place into one of three bins at the exit, with each bin representing a local charity which the customers have nominated that month.

I was in Waitrose the other day and stood watching customers as they placed tokens into the bins.  Two things struck me.  First, almost every customer placed a token into one of the bins so this scheme has very high participation(or a very successful nudge) even after 18 months.  The second was that many customers actually considered their choice before placing the token into the relevant bin – demonstrating engagement.

In one newly opened store they reported that “In the two months since opening we've had more than 200 customer nominations for charities to support [and] had so much feedback I had to order another box of suggestion slips.”

Although never explicitly stated, CSR programmes are also meant to provide a positive customer feeling which leads to ongoing loyalty – and this is exactly what Waitrose see through this scheme saying “[We’ve] been able to help local causes through [Community Matters], and in return, customers are remaining loyal to Waitrose.”

It’s also driving advocacy with one store reporting that “One school sent a text message to all parents telling them to shop with us and put their token in the school's box, as did a vicar when he mentioned us in his parish sermon.”

All of this for a token which on it’s own is next to worthless.  Each store gives £1,000 to the charities each month, based on the percentage of tokens received so an individual token would be worth less than a penny in real terms – and yet customers take part, interact, engage and advocate.

I’d struggle to be able to tell you what charity my regular supermarket supports or indeed if they support any – but after shopping at Waitrose I know that for that month at least, they’ll be donating some money to a local school playground.

Unlike me, you may not favour 80’s soft rock in the charts, but at least you can try and change it if you like by downloading what you want.  What Waitrose have shown is that you can provide that same level of democracy for customers – distribute over £2m in charitable donations – and reap the rewards of increased engagement at the same time.

Without losers where would the winners be?

We certainly do live in interesting times – interest rates at the lowest since 1951 and if they go down much more then the lowest rate since the formation of the Bank of England. As ever there are winners and losers – mainly borrowers and savers respectively.

What's also been interesting is how the banks have so far responded – some such as the Halifax are only passing on part of the rate cut, others such as LTSB and HSBC will be passing the rate cut on in full.

The news grabbing the headlines though is the so called "collar" which many tracking mortgages include within the small print and which prevent the tracker rate from dropping below a given level. Financial institutions such as the Nationwide Building Society which have decided to keep the collar in place, thus not passing on all of the rate cut have received the full blast from the media.

All businesses though at some time have to make decisions on what is considered profitable behaviour and have to take tough choices which may adversely affect one customer segment so as to benefit another. Whilst it would be great for a financial institution to pass on the rate cut in full, if this is done at the expense of savers who normally represent a much larger segment of customers or indeed at the expense of the overall stability of the bank then this may not be "fair" overall.

Even before the current financial crisis financial institutions have had to make unpopular decisions. Card issuer Egg was derided in the press when it decided to remove a segment of 161k customers from its card book back in February due to a "higher than acceptable risk profile" – probably a prudent move now in hindsight.

These are exceptional times however and this causes many businesses to have to make difficult decisions within challenging timescales. Looking slightly more long term though every business has customer segments which provide very little return or worse still cost more to service than they return in profits. Normally termed "BZs" or Below Zero customers, they are an obvious target to reduce or remove so as to lift overall profits and benefit other, more sustainable customer segments.

There tends to be two approaches "managing" this type of customer segment - carrot or stick.

You can either create losers by penalising the customers in some way - charging them a fee or reducing customer service channels - or you can create winners by rewarding and recognising profitable behaviour in the hope of encouraging these customers to change behaviour.

First Direct made the headlines in 2007 when it introduced a £10 fee to customers holding a single bank account and not paying in a given amount. This "stick" approach probably looked great on paper by reducing the number of these unprofitable customers, increasing revenues through fee collections or increasing individual product holding – however it caused a storm of bad PR with many customers considering moving their bank accounts despite not being in the segment affected. Fees can be an effective means of creating customer engagement, but these typically work better at the top end where customers pay them in order to access additional benefits rather than at the bottom end where customers are being penalised for "bad behaviour".

A different approach to the same problem was put in place by ADBC Bank in the UAE. Rather than penalise customers for not holding enough products, ADBC rewards customers for holding more products. Their "carrot" approach called TouchPoints provides recognition and rewards across a customers whole financial relationship, allowing a customer to earn more value as they increase their product holding or usage. At a recent conference I attended where they presented the results of their programme so far, they demonstrated an uplift across all products, with some seeing as much as a 600% increase in acquisitions!

Sometimes timescales force a business to make decisions tactically – having to reduce costs quickly through punitive measures – however where time allows it can be much better for overall customer engagement to provide positive measures that reward and recognise profitable behaviours, encouraging all customers to make decisions which reward both them and you – creating a real win-win.

(Title: Quote from Casey Stengel - American Baseball Player and Manager, 1891-1975)

The best things in life are free

One of the questions I’m asked quite often is how do we measure engagement within a loyalty programme - how do we know people are "getting it".

There are obviously a number of indicators to a loyalty programme working well including enrolment levels and tracked spend, but the number one measure of engagement is normally expressed in terms of redemption. Where 30-60% of customers are redeeming within a programme we’d class this as working well - over 70% probably too well and under 30% not well enough.

It’s a simple measure but it makes sense.

For someone to go to the effort of carrying a card and swiping it they must feel there is an achievable reward in the future. Driving loyal behaviour is a balance between having rewards the customer wants (the goal) and how achievable the rewards appear (reward divisibility). The level of redemption within a programme validates the number of people seeing this benefit and working towards achieving it - low levels of redemption suggest low levels of engagement.

This measure was called into question though earlier this week when I was reviewing a US retail loyalty programme. This programme had 80% basket penetration (% of visits with loyalty card used) yet only 5% redemption. Given the low level of redemption you’d expect low engagement and hence low levels of card carrying/usage. Customer research carried out for the programme also showed that customers were not aware of the benefits of the programme even though they had apparently worked towards them and received them. So here was a programme which customers didn’t really know about, didn’t redeem for and yet had high levels of usage.

Digging into how the programme worked revealed some interesting findings however. The employees of the retailer were trained to ask for the card on every transaction and where the card wasn’t being carried could use the customer’s phone number to link the transaction.

I know from my own experience at retailers like Wickes in the UK that when they suddenly ask for your post code at point of purchase you simply provide it - sometimes a little uneasy as to why they asked - but they asked so you provide it. I've also seen the same effect on a programme we ran where we simply asked a customer if we could put that purchase on a specific card type and managed to significantly move the needle on spend towards that card - for free - just by asking.

It would appear the same thing is happening here - customers have high levels of inertia and are taking part in the programme just because they are asked to on every visit. Although this makes the programme successful in terms of the amount of spend tracked through it and the data this affords the retailer, it could be significantly more successful if customers actually valued the programme, saw achievable rewards within it and changed behaviour to reach them.

That said, it is a great example of what can be achieved by engaging employees in a programme - something that is key to all successful loyalty schemes - and best of all its free.

Why do (some) loyalty marketers throw out the rule book?

Traditional promotional marketing tends to use a combination of activities which includes "push" based techniques - whereby trade based promotions are utilised to encourage wholesalers and retailers to stock a product - as well as “pull” based techniques which use more above the line methods and consumer promotions to create demand.

When done right the combination of "pull" and "push" techniques can work very well to ensure the product is in the retailer for the consumer and that consumers are buying the product from the retailer.

Given that most marketers understand this it raises the question as to why so many loyalty programmes seem to throw the rules out of the window. Whether it's channel loyalty programmes that are used to reward intermediaries, employee incentive programmes rewarding sales, or consumer loyalty programmes rewarding purchasers - very rarely are these combined to maximise the effect.

I was quite pleased then when attending Loyalty World this year to actually see someone who is actively doing this. The new programme for GHD (blessed) is a very clever loyalty programme which essentially engages their sales channel (salons) in the programme (the “push”) along with engaging consumers through their online activities (the “pull”). Although the roll out is only small at the moment, the programme has a number of design features which make it very interesting.

GHD want customers to purchase their products which are stocked by salons and the salons would like repeat custom. By creating a programme which works for and incentivises both, it helps to ensure the programme is well promoted by the salon and the consumer is keen to take part. Key design characteristics such as surprise and delight mailings - which the consumer is notified about but has to pickup in-store - help to ensure that this symbiotic relationship continues to thrive.

However the real success is that - because it's one programme - the push and the pull work together, so the salon feels like consumers are genuinely interested and the consumer feels like the retailer is genuinely engaged – moving the conversation from selling to that holy grail of marketing... personal recommendation

Customer loyalty or inertia - two sides of the same coin?

In reviewing some recent credit card customer qualitative research it was suggested that the customers didn’t have emotional loyalty with their card and that instead any loyalty they did have was more akin to inertia than actual loyalty. Their hypothesis was that all credit cards offer the same “service” – i.e. payments, and so a customer remains with a credit card whilst the benefits they receive outweigh the effort it takes to change issuer.

As one of my main areas of expertise is card based loyalty this struck me as quite an interesting thought. Is all the work we do to retain customers and engender loyalty simply a way of tipping the balance of inertia so its not worth the customer making the effort to change rather than loyalty being a means of building deeper engagement.

I agree that building any type of engagement with a product such as a credit card is hard. At a basic level all credit cards do the same job. There may be subtle differences with some cards such as Amex and the perception people have with acceptance, but basically gone are the days where the card network or even the issuer mattered that much.

However, if loyalty efforts within a credit card product were really just a way of entangling the customer a little more to prevent them from churning, that doesn’t explain the real benefit that we see in terms of card usage. There is no denying that when loyalty is put onto a credit card product we see increased card usage. A Visa payment study in 2006 showed that share of wallet for credit cards increased from just 8% for non-reward cards to 36% for reward card holders. Research from First Annapolis showed a similar trend for debit card reward programmes with activation rates 15% higher and spend per card as much as 40% higher.

This is not to suggest that reward programmes create deep engagement with a card product or in fact that people actually have real engagement with their credit card. What they can do however is create engagement with the reward programme itself – causing customers to want to consolidate their spend to maximise their reward opportunities and the rules for doing this are the same whether we’re creating loyalty for credit cards or loyalty to a carbonated soft drink.