Customer Loyalty Programs

As business owners we all struggle with ways to reward our best clients for their business. We all know that it is easier to get business from a returning client than it is to get a new client.

There are all types of customer loyalty programs, depending on the type of business or service being offered and the level of investment the client puts into the business. For instance, if you have ever spent time at a casino you may know that big spenders at the casino get all types of compensation, from dinners to accommodations and travel depending on how much they spend. When I shop at Zehrs using my Presidents Choice banking card I get free groceries. When I renew my mortgage with my bank, I get a better rate than I could at other banks. For my clients, I have offered loyalty discounts on projects and rewards for referrals.

The longer our clients have known our business, the easier it should be to deal with us. We do not want our clients to jump through hoops to renew our relationship every year yet that is what one of my service providers has just done. Let's look at this from both the business side and from the customer side.

First, I will not name this business because I have had a successful relationship with them for 15 years. This is not a letter of complaint (I did that through their corporate channels) this is an article about the perception of a reward from both the business and the customer's point of view. For the sake of clarity I will refer to the business as Smith's, which is not their real name.

The business view
Smith's is a successful Canadian company, with a long history of service. They started offering their products and services for the consumer market and diversified into several products, including Internet, Cable, and Wireless. They have implemented many promotions and discounts for their customers, giving them hundreds and sometimes thousands of dollars of discounted products and services.

On top of these promotions and discounts Smith's started offering a bundle package, as many companies have done, to entice their current clients to purchase more from them. This offered their clients greater discounts for being loyal repeat customer, with more than one product. For each additional product purchased the client would receive a greater discount.

As a business marketing initiative, this is brilliant. In general I expect that most business owners would rather make 15% less on their products and services to get their best clients to purchase more and stay as a loyal customer. This makes sense. The "fear of loss" also sets in with this program because once signed up, removing any one product from their purchase would reduces their overall savings from 15% to 10% to 5%. This helps to ensure a commitment from their clients as their relationship matures.

The customer view
From the customer's prospective this is a great reward. If you are a customer of a company that has provided great a product or service in the past and they were to be offered additional discounts on your current product/service as well as other products or services with discounts you may feel privileged. At the very least you would feel you got more than you paid for as we all appreciate getting a reward for our loyalty. Customers are very savvy these days, and they are not blind to the marketing plan that is behind this type of offer. I would say that customers have come to expect some type of reward for exclusively patronizing a company. There are so many choices in today's market that customers expect extras if they are to remain loyal.

The balance
So the balance between the business and the customer is that the business needs the ongoing customer loyalty and client 'buy-in' for more of their products and services while the customer needs to be shown they are worth keeping because of their loyalty.

Very 'Marketing 101' you might note, as you read this, to which I would answer, "Yes!"

The imbalance
We always want our client's feedback. It is important to a company to know what we are and are not doing correctly. Often we set up programs so we can 'touch' our customers regularly to ensure they are getting what they need. What we do not want to do is ask our clients to work at being our customer. When we ask clients to review their relationship with us on a reoccurring term we ask them to also review their options. For instance, when my mortgage or insurance come to the end of the term I consider whether or not I will continue with my current provide. For the insurance, since I have to do nothing to continue on with my current provide, I may only look at whether or not I am satisfied with the service I have received in the past. I am likely to renew because I do nothing to continue with my current service and costs. Since I have to do more to renew my mortgage, including make decisions about what type of mortgage I want, signing visits, and the terms that I will need, I spend more time thinking about what is the most value for me (time, cost, commitment, etc.) I refer to this type of interaction a 'customer relationship renewal'. As a customer I have to renew my commitment to my relationship with my bank.

"So what does this have to do with Smith's", you might be asking. Well, their customer rewards like their bundles are now consider promotions that expire. If the customer does not take the time to call and review their products and services the loyalty discounts will be removed, even though they still may have the multiple products. For customers that do call they are expected to commit to a minimum 12 months and then they are considered a loyal customer, even if they have been with Smith's for 15 years.

Perspective
This is not wrong in a business sense but it is not perceived as a reward. Smith's clients must now remember to update their relations with the company each term. During that time they may take note of other companies that offer the same services for less work. Any time you give your clients the opportunity to compare your offering you had better be sure you have the best offering on the market or you will be losing clients.

If your client has to evaluate your product or service, costs, and their commitment to you, they will also evaluate others. The upside for Smith's is they now get to hear from their clients at the end of their commitment term and during that commitment term Smith's get regular, expected sales. The serious side affect of this program is they no longer actually have loyal clients. They only have term-to-term customers. Loyalty is now purchased for 12 months and this does not necessary get them referrals. Every customer is a returning client in 12 months. So it may be easier to get business from a returning clients but not as easy as keeping a current client.

I do know that Smith's is a very large corporation with hundreds of highly educated and knowledgeable people working on their marketing programs. I'm sure that my simplistic view does not address all the challenges and values that these promotions have been designed to deliver. As a long time customer, that had no intention on looking for another service provider, I will spend the next 12 months reviewing my exclusive relations with Smith's and all the alternatives. Who knows, I might sign up to be a loyal customer for another year.