There seem to be a lot of conflicting views on loyalty at the moment. The Marketing Society identifies improving customer loyalty as a key driver for growth. Last week alone the Daily Telegraph and Hilton Hotels announced new / upgraded loyalty schemes; the direct marketing / relationship marketing gurus have told us for many years that the cost to retain and build customer value is relatively low compared to the high cost of new customer acquisition. It all sounds very plausible, so I was surprised to read that an analysis of the IPA Effectiveness Awards entries and IPA databank concludes that ‘the loyalty approach only rarely leads to successful marketing outcomes. Loyalty campaigns underperform on almost every business metric’.

It got me thinking about loyalty marketing and what it really means.

Just because a person habitually choses to buy a particular brand or visit a particular retailer doesn’t necessarily mean they are loyal – it may be a case of a lack of choice. Of course most of are overloaded with choice with very little to differentiate one product or service for another. We’re also used to getting ‘deals’ – and it is in this context that loyalty programmes have to compete.

Most loyalty programmes remind me of the child with sweets in the playground ‘be my friend and you can have a sweet’ he proclaims; but what happens when the sweets run out?

The best examples of loyalty seem to be based around the local community. The expectation of my fellow season ticket holders at Charlton Athletic (insert your local team!), still coughing up their hard-earned cash through relegation & regular disappointment on the pitch, still singing their hearts out in support – that’s loyalty. The local café / sandwich shop which despite the growing attention of the multiples chains retains its customers because they help, they smile, they ‘connect’ with their customers – (their fresh bread baguettes also help!) – that’s loyalty.  But it’s not just local businesses, national chains can do it too – look at Majestic Wine – a brilliant retailer in part because it has great things to buy – in part because it is staffed by helpful & motivated people.

Interesting none of these currently has a loyalty scheme.

So what do loyalty schemes actually achieve? Most brand owners, whilst they may desire the exclusive custom of their customers, recognise that most people will have a cluster of brands that are acceptable to them – indeed for the few people, who do buy the brand exclusively – you could argue the relevance of a loyalty programme. But, for the most part, people exercise a degree of choice between their preferred brands and at any one point in time purchase is likely to depend on availability, promotional offers, exposure to advertising, impulse, recommendation and in some cases, simply, chance. In this context, loyalty schemes are really just longer lasting sales promotions designed to sway ‘floating shoppers’ to their brand slightly more frequently. In return the brand owner sacrifices some profit – and if you look at it like this, perhaps it’s not surprising that the IPA Effectiveness Awards conclude that loyalty programmes underperform.

Where loyalty schemes start to make sense is when they collect data on people’s behaviours, their likes and preferences – and use this to increase consumer spend – and, of course, sell it to suppliers for additional revenue…every little helps. But most loyalty schemes don’t reach that level of sophistication.

I’m not saying that most loyalty programmes are flawed, just that many are not really about loyalty – they’re about bribing a purchase – and at worst they wallpaper over the cracks in brand.

I think it was the great Lester Wunderman who once said ‘loyalty is when people buy you when the incentives have stopped’ – I’m not sure we’ve learned his valuable lesson yet.

I read in a recent Trendwatching review that the concept of random acts of kindness is becoming more established; a spontaneous ‘thank you’ – something to appreciate and make you smile – for the few 100% loyalists and floating shoppers alike. I remember our local butcher doing this – the gift of a sausage, individually wrapped for each child, to break up the monotony of the Saturday shopping trip – 25 years later we still prefer to buy meat from the same butcher and there are still queues on a Saturday morning.

Perhaps a key driver for loyalty is customer service and spontaneity – meeting people’s needs better than your competitors, exceeding expectations – rather than resorting to sweets (though the occasional sweet is always welcome).