Departments - July/August 2011

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Sink or Swim
Loyalty Marketing Needs to Evolve

By Deborah L. Vence

You might have to chuck everything you know about loyalty marketing up until this point.

As it turns out, the loyalty industry needs to make a big change, at least according to Barry Kirk, director of strategic consulting and solution leader for customer loyalty at St. Louis-based Maritz, a sales and marketing services company, who made his argument in his March 20 "Man vs. Brand" blog.

" As a fundamental assumption, [the model of do this, get that]is almost certainly at least 60 percent wrong," Kirk stated in his blog. "As a premise for an entire industry it only works if you ignore most of what has been emerging from the fields of neuroscience, social psychology and behavioral economics over the past decade."

Loyalty marketing is in urgent need of a change, he believes, and says that "loyalty's foundational glitch has been in plain sight since the launch of the very first customer retention programs. It's been easy to miss, though, because it's been masked by one of the most tried-and-true practices of marketing—segmentation."

To prove his point in part, 2011 survey results by ACI Worldwide showed that only 27 percent of Americans have received a loyalty program reward or promotion that made them feel like they were valued as a customer; while 81 percent of American loyalty program members are enrolled in a program that they don't completely understand; and two in five consumers have had a negative experience with a customer loyalty program.

The model for loyalty programs used today, at the minimum, is 28 years old or even 40 years old. Today, it's more about "get this, do that," and "we'll give you some points." And, then you can redeem those points down the road, Kirk said in a recent phone interview. "Most of these programs don't give us a reason to pay attention.

"We have these traditional programs that everybody thinks is the model. We have flat or declining engagement in these programs," Kirk said. "At the same time, we have increasing enrollment. We run some successful ones. We have people joining programs at the highest rate we've ever had. But, they're also disengaging at the highest rate."

Part of the problem is the assumption that consumers are prone to the lure of "do this, get that," a model that loyalty marketers have embraced for decades, and the notion that this traditional model has been working well.

"As long as we're satisfied with only having 30 percent of our customers join our programs—often with far fewer actually actively participating—and seeing high churn rates as par for the course. We shouldn't be," the blog read. "We shouldn't be because in the 'new normal,' this half-right model is no longer good enough."

To discuss his point further, Kirk said that the underlying structure of the current traditional loyalty program is assuming that everybody is very rational when it comes to what they're buying, etc.

"Even when we've done segmentation, we assume everybody is the same," he said.