As reported in The Wise Marketer earlier this month ("Have Loyalty Platforms Caused Commoditisation?", subscription required), some recent research by the Aberdeen Group of 231 retailers suggests that loyalty programs are not producing any real competitive advantage for the majority of these retailers.
Readers of past posts may recall my use of the term "synthetic loyalty" to describe the kind of customer behavior produced by perks and rewards programs. I use this language to distinguish these programs from "natural loyalty," which is cultivated by producers when they deliver consistently branded customer experiences across all touchpoints. Synthetic loyalty is bought and temporal; natural loyalty is earned and persistent.
This research finding supports my arguments against reliance on synthetic loyalty. Loyalty programs have created an "arms race" in which competitors play a constant game of one-upmanship, but in the end no player really comes out ahead. It is difficult--perhaps impossible--to create a sustainable competitive advantage with loyalty programs.
But the arms race metaphor also works to explain why these loyalty programs have become a cost of doing business and won't disappear anytime soon. It is much more difficult to induce trial if you haven't sweetened the deal like your competitors have with their rewards programs.
But here's the lesson: you cannot rely on these programs to win long term. The only way to win--to achieve persistent market share gains and grow profits--is to deliver customer experiences that are so thoroughly branded that no competitor can possibly duplicate them (or would even want to, for fear of confusing their own brand). So offer loyalty programs if you must, but only invest the minimum necessary to stay at or near parity with competition; spend your serious thinking, energy, and money on branded customer experience.
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