Consumers Feel Loyalty Programs Hold 'Little' Value

Getting new customers is expensive, which is why sensible marketers toil to keep the ones they've already got -- and to get them buying as often as possible. As such, loyalty programs have become a conspicuous part of the marketing landscape. But how do consumers feel about such programs? A recently released survey by the Chief Marketing Officer (CMO) Council takes a close look.The polling finds consumers exhibiting a kind of "yes, but" attitude toward loyalty and rewards programs. Sixty-nine percent of respondents said most of their own experience with such programs has been "pretty good," and 10 percent said they've been "very satisfied." Half said a program membership either "strongly motivates my repeat business or visits" (21 percent) or is "usually a big factor in my decision making" (30 percent). But, the report has less favorable news as well: "In fact, 32 percent of respondents felt that program participation held little to no value while 37 percent felt individual rewards had even less to offer by way of value." Do these negative sentiments reflect a lapse in communication on the part of loyalty marketers, or is the problem that many of the programs really aren't valuable? "It's both," says Liz Miller, who was involved with the study in her role as vp of programs and operations for the CMO Council. "Listen, there are a lot of programs out there that only exist because of some brands viewing loyalty programs through what I call a 'Field of Dreams' lens -- the 'if you build it, they will come' mentality. So, they build this program, investing millions in it, and then they pepper the consumer with junk. Or, they don't pepper them with anything and just let consumers pile on points into a fantasy account that does nothing. What is worse is the lure of savings only to realize you can't get to them because you can only do it on the second Tuesday of the sixth week of the month." On this last point, 38 percent of respondents included "too many conditions or restrictions" among their top complaints about loyalty programs.MEMBERSHIP HAS BEEN GROWINGWhatever misgivings consumers have about loyalty programs, though, this doesn't seem to stop them from signing up. "Our research shows 67.7 percent of consumers belonged to loyalty programs in 2009, a 19 percent increase over 2007, when 57 percent of consumers belonged to one," says Kelly Hlavinka, a partner in Colloquy, a firm that provides research and other services to the loyalty-marketing field. "Activity in some key demographic segments is up even more," Hlavinka adds. "Just to name two, participation by young adults has soared 32 percent, and women age 25-49 are up 29 percent."Another statistic, from Colloquy's "census" of loyalty-program participants, points to the ambivalence many consumers bring to these relationships. "Colloquy's census does indicate a critical gap -- that the average U.S. household has enrolled in 14 programs, yet only participated in 6.2 of them," says Hlavinka. "So clearly, most loyalty-program operators need to be thinking about how to enhance their value proposition for their most profitable customers. In addition, much more can and should be done to enhance the relevance of program communications and the recognition benefits for a company's most profitable customers."It's important, after all, to remember that consumers' true loyalty is to themselves, and they tend to judge a loyalty program on the dollar-and-cents benefits it provides. That's reflected in one of the CMO Council report's observations about how consumers react to such programs: "Unfortunately, they've been programmed to expect the fundamental discounts and free products, and marketers will be hard-pressed to wean them off such a deep dependence on them and respond to more experiential rewards."CITING THE KEY BENEFITSIndeed, when respondents were asked to cite the three key benefits of loyalty-program membership, the top vote-getter (66 percent) was "discounts and savings," with "better deals and offers" the runner-up (43 percent). Filling out the top five were "free products or premiums" (38 percent), "perks and privileges" (36 percent) and "cash back" (33 percent). Significantly fewer mentioned "recognition and appreciation" (18 percent) or "more individualized attention" (12 percent).But if "individualized attention" ranks low on the hierarchy of things consumers value about loyalty programs, that doesn't keep them from taking umbrage at an excess of not-so-individualized attention. When asked to identify the "top issues or concerns you have had with loyalty and rewards program memberships," No.1 on the list (cited by 44 percent of respondents) was "receive too much spam e-mail and junk mail."Liz Miller tells a tale of her own recent experience in this regard. "Just the other day I got an offer to get a credit card that would attach to my airline frequent-flyer card," she says. "I got two e-mails about it, one from the credit-card company and another from the airline. Both told me about the fabulous offers and savings I could achieve, and even offered special bonuses if I joined. Then, I got three different mailings in my mailbox: one to Liz, one to Lisa and another to Elizabeth. Not sure who Lisa is, but she could get an even better offer than the one Liz received via e-mail. Here's the problem: I already have a card. In fact, I already got suckered for less savings, less reward, less bonus! So consumers are really learning that for every program or for every savings, you have to pay the piper, and you are going to pay with an avalanche of irrelevance that now could spread to your mobile phone." LAPSES IN USE OF CUSTOMER DATAThe report says loyalty programs generate lots of data about members, but often not in a way that helps them address members as individuals. "One of the greatest deficiencies the study identified was in the collection and utilization of this customer information," says the report. "Marketers largely gather fundamental demographic information and transaction histories while only about a third captured personal or product preferences from program members."This leads to a situation in which consumers often feel programs are spamming them with offers and information in which they have no interest. "It is clear that consumers want -- or, more accurately, are outright demanding -- that the companies they do business with start communicating with them in a manner that indicates that the customer isn't a total stranger," says Miller. "Instead, the consumer perception is that brands are just collecting contact details as a way to spam and flood inboxes with irrelevant promotions and messages." For better or worse, consumers' whose loyalty is tested are apt to bail out of loyalty programs. In the CMO Council polling (conducted during the third quarter of last year,) 54 percent said they've given up a membership "after poor product or service experiences with a brand." Unrealistic expectations play a role here as well, with consumers feeling they'll get more pampering and more rewards than companies are really willing or able to provide. "Marketing made this monster, and now we have to feed it," says Miller. "We built programs that said we will reward/bribe/pay you to be loyal. So, how can we wonder why loyal customers want more?"SEEKING PROGRAMS TO JOINStill, past disappointments with loyalty programs don't dissuade consumers from joining new ones. In this regard, Hlavinka cites a striking figure from Colloquy's 2009 research: "16.4 percent of the general population was actively looking for a rewards program to join," she says, "indicating the value of such programs has clearly taken hold." And there's no doubt that companies will keep plugging away at such programs. "Marketers see the promise of loyalty-program payoff, says Miller, adding in this context that "American Airlines has a program that many speculate is worth more than the airline itself." But the program is worth a lot because consumers have come to value it highly. In an open-ended question in the CMO Council polling, respondents were asked to say which program they regard as the best. American Express and American Airlines were the top vote-getters.

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Consumers Feel Loyalty Programs Hold 'Little' Value

Mark Dolliver

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