May 26, 2006

Critical mistake #1: Focus on loyalty rather than the payment experience

(This post is part of the series on key success factors and common mistakes.)

Rewards currencies like loyalty points or mileage programs all look alike. There is no real differentiation and customers have learned how to calculate the value of each point. Customers know that they are only getting 0.5% or 1% back on their purchases, and they know that they can get around the same amount from any bank (see The commoditization of points, miles and other loyalty currencies).

An article in Forbes (Loyalty Programs Lose Points With Shoppers) also discusses this issue. “With so many in the industry caught up in the arms race of who can give out more rewards,” write the authors, “no one has stopped to notice that most of them aren't particularly effective at building customer loyalty or returning profits.”

"Too much sameness," is how Jupiter analyst Patti Freeman Evans sums up the customer loyalty landscape. "Giving people points means competitors can undercut you, and you lose your customer anyway."

"Points for the sake of points is just buying off the customer, it doesn't drive loyalty," says Gartner Research analyst Adam Sarner, who tracks customer loyalty programs. True loyalty, Sarner says, means getting increasing amounts of information from a customer who's happy to give it in return for a benefit. Surprising good customers with a sudden, unexpected discount or upgrade would go miles toward making them swear by a brand for life, he believes. "That would be a religious experience for most people, compared with having to calculate, 'Let's see, I have 5,995 points, when do I get something?'" Sarner says.

Exactly! Surprise your customers with something they don’t expect, at the moment of payment, while they are holding your card in their hands! That’s exactly what it’s all about! And since the merchant is right there at that same moment as well, get him involved and show him how he benefits. This is fundamental, transformational stuff! Stay away from the boring old loyalty program concepts that everyone is so tired of and that cost a fortune!

It was really hard to do this well in the old days of magnetic stripe cards and on-line transactions, but today, with EMV chip cards as the modern payment platform, it becomes much easier to enhance the moment of payment and avoid simply copying everyone else.

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