The Paradox of Loyalty Programs

I came across (all be it belated) this September 22nd article by the Wall Street Journal entitled Making the Most of Customer Complaints, which highlights the importance of loyalty programs and a concept that they call the “recovery paradox.” Simply said, the idea is that customers are more satisfied when they know a problem or complaint has been resolved and that it won’t happen again, thus ensuring loyal customers and increased revenue down the road, or high churn rates if the issues aren’t resolved (See Sprint Nextel for an example).

But as the article so astutely points out, most loyalty programs are failures in the long run because most are simply monetary-based. If a store is competing for customer loyalty on price alone, chances are they’re going to lose. Product discounts don’t change buying behavior. Personalized service, convenience or shopping pleasure do. For example, if I walk into a Wal-Mart to go TV shopping, believe me, it’s for the prices and nothing else. I’d always start my search at the nearest Best Buy or Circuit City to receive some degree of qualified expertise, speedy service, and overall better shopping experience. They’ll get my business every time, and that’s because monetary value is the quickest way to my temporary wallet, not to my long-term assurance that I’ll come back to you first.

This one-size-fits-all approach results in a temporary change in their behavior, with most consumers reverting back to their regular brands or buying habits shortly thereafter. The key is letting your customers define what loyalty programs you implement based on their purchasing habits or what they value most, and as a result, setting yourself apart from the competition.