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Loyalty programs have gotten increasingly complex in recent years. As companies fight for share of wallet, simple sandwich punch cards have been replaced with complex point earning schemes, tiers of status upgrades, and labyrinths of prize redemption.
The result is that loyalty programs have grown as a proportion of the overall interactions a customer has with a company. (Whenever I shop with Amazon, fly on United, or use my American Express card, I’m interacting with these companies’ loyalty programs in some way.)
At their core, loyalty programs seek to encourage customer behaviors that benefit the business through a system of perks and rewards: “Be loyal to us because you’ll get something in return.” The inputs of the program are how you earn that something. This might be the number of items you buy, the number of visits you make, or the amount of money you spend. That mechanic can have significant impact on customers’ perceptions about their purchase interactions—and the overall brand.
For example, there’s a fresh juice place up the street from where I live that offers a free juice after ten visits. This may sound like a traditional punch card program, but the psychology of this earning screen leaves me with very different emotions depending on how much I buy. If I purchase one juice in a single visit, I feel that I’m getting a good deal—I’ve moved 1/10th of the way to my prize with that single item. But if I buy three juices in a single visit (which is much better for the company), I somehow feel that I’m being shortchanged in some way—I’ve spent three times as much as necessary to move the same distance to my prize.
Starwood Hotels & Resorts recognized this dilemma and its potential to create negative perceptions. The chain now grants loyalty program status based on either the number of nights or the number of stays in one year. So a customer who makes a few weeklong trips can earn the same status as one who stays more frequently, but only for one night at a time. Such structuring of earning options around key differences in customer behavior is a subtle and ongoing reminder to customers that the brand understands and values them.
United Airlines currently does something similar, offering status levels based on either the number of miles or number of segments flown in a year. But United’s earning scheme will shift in 2015 to awarding “miles” based on ticket price. Unsurprisingly, the announcement produced an uproar on online flyer forums, illustrating how sensitive customers are to changes in loyalty program earning schemes.
We’ve also seen companies experimenting with a loyalty program input that was unthinkable just a few years ago: upfront cash. Amazon customers have flocked to pay $99 in order to receive “free” two-day shipping and access to instant streaming of movies and TV shows over the course of their yearlong Prime membership.
Upfront cash inputs produce positive brand perceptions, of course, only when they’re part of a value exchange that customers perceive to be equitable or (let’s be honest) in their favor. Get that equation of inputs and outputs wrong, and you risk alienating your most valuable customers.
In an upcoming post, I’ll talk more about outputs—what customers get from loyalty programs and the perceptions that those outputs produce.
