The Super Bowl Reveals a Lesson in Loyalty Programs

(Who will you be loyal too?)

It’s that time of year where being indecisive is not acceptable.  People across America every NFL Championship weekend flock to parties, bars or their own living rooms often routing for a team that they haven’t routed for all year.  In fact check out your own party where guests are not even fans of the game but found some trivial reason to cheer for a team because of who the quarterback’s wife is or the color of their uniforms.   

People want to have a point of view.  They want to have a protagonist and an antagonist.  Every good book or movie has some of the base components to sway reader or viewer to a side.  A good story can make you route for an unlikely person or villain depending on the lens it is told through.  It’s the basic human social trait that compels us to pick a side.  In business we look to marketers to help harness the human trait and compel behavior to have the masses adore and frequent our brands.  This is often achieved through loyalty programs which is often seen as a “must have” part of many consumer facing businesses and often is a culprit in eroding profitability and not achieving the behavior change desired in the first place.

WINNING IN INDIFFERENCE IS THE KEY

If loyalty programs are about changing behavior it needs to often be reminded to do it in a profitable way.  I often determine when to have a loyalty program with three simple rules:

Let's tackle each scenario starting when to avoid loyalty programs.

DISLIKE FOR YOUR BRAND:

Assume consumers had a large amount of dislike for a brand.  They were not “indifferent” to it but preferred to avoid it.  In fact, in some cases the consumer was what we call a "negative Nancy".  In other cases there was no emotional hatred by the customer for the brand they just preferred not to buy it.  Offering loyalty to something consumers say they don’t like will NOT make them like it more.  So loyalty programs often won’t work and erode profitability.  Example:

Let’s assume at one time McDonald's had an issue with the health conscious consumer.  Fast food in general does have this issue but Subway Fast Food  became known for having smart eating choices and a spokesperson that was once 400lbs now at a normal weight attributing the life change to his favorite fast food chain.  Should McDonald’s have given extra Big Mac Points for every Big Mac sold?  No!  The marketers at McDonald's were too smart for that.  In order for McDonald's to move the needle with the health conscious eater they had to do something much more fundamental to gain their loyalty- change the menu.  Adding salads and oatmeal as choices vs. hamburgers and breakfast sandwiches enables McDonald's to compete for the loyalty of that consumer.

LOVE FOR YOUR BRAND:

Jumping to the opposite side of the equation if the public by in large loves your brand you may not want to provide a loyalty program.  Remember if it is about behavior change (more trips, larger basket etc.) and you already have a loyal following there may not be enough room for significant consumer change.  Let’s have fun with coffee.

Assume you had a coffee shop by your house that you loved like a Starbucks.  Every morning the line is packed and on weekends etc…  You see a lot of the same people in the shop and cars in the drive thru.  Assume Starbucks thought that 50% of their customers at this location were regulars.  In order to try and spike sales it was decided to give away a free coffee to every 5^th purchase.  Sounds good doesn’t it? 

Problem is on 50% of their sales they are now giving away a free "cup of Joe" every fifth transaction.  Since that regular customer really couldn’t come in much more than they often do this leads to a 20% decline in revenue and profits (giving away one cup of coffee free every fifth time).  It would take the other 50% of the customers to have to come in 20% more often just to break even!  In my career a 20% lift would be pretty remarkable.  In this case it would be pretty risky.

Starbucks found a way to make customers loyal through a great experience, great product and great people.  Think for yourself the level of customer service differences between the two establishments we discussed (Starbucks and McDonald's).  Clearly different.  This allows Starbucks to command a premium for their products like a $5 Vente coffee (but they need that premium to maintain that experience) and McDonald's has less room to command a premium but their promise of "easy simple enjoyment" is more founded around consistency with food, service etc.  Neither model is wrong just different.  However in both cases loyalty programs (ex points programs or free give away) are probably not needed, prudent or necessary.

INDIFFERENCE FOR YOUR BRAND:

Indifference is the battleground for loyalty programs.  Think about airlines.  A person who just started becoming a regular flyer with no restrictions of airlines was faced one day with a flight to New York and could choose United or American Airlines.  For no real particular reason other than flight timing she chose American.  After the trip she earned several thousand miles because she was signed up for a frequent flyer card at the airport.  The next time she flew she was still just as indifferent as before but now she was 2,000 miles closer to her free ticket so she chose American again because there was no real compelling reason to change airlines from a price, destination or timing need.  The more she travels the more she is locked in on getting that free ticket and loyalty becomes apparent where there was none before.

Similarly let’s say “Bill” gets his oil changed at Jiffy Lube ever three months.  Oil changes are low emotional purchases based on convenience and price.  Recently a Metro-Lube opened near Bill.  Both businesses are very similar in all ways to Bill's perspective.  So he often began to flock to the place that had the shortest line when he had his oil changed.  This was fine until Metro Lube convinced Bill to join their loyalty program.  Now Bill gets his car vacuumed out for free and upgraded to better oil.  Perhaps Bill gets a free oil change every 4^th time in.  So now Bill actually is waiting in a longer line than the Jiffy Lube across the street because he has a vested interest to pick a side.  This investment may be good for Metro-Lube if they saw a lot of indifference and the majority of their customers were not really "regulars" even if they had their oil changed at Metro-Lube before.

WRAPPING IT UP

The battle field is finding your indifference and then break that tie with a loyalty program!  Some brands are so poorly positioned they actually need to move up to indifference.  Example a long time ago Montgomery Ward may have lost apparel customers because of new off mall retailers who had better fashion cache.  People may have slowed down purchasing at Ward’s because they started to feel the brand was like Oldsmobile (offered low badging).  Perhaps it was convenience or one of any number of issues that hurt the company.  The point is Montgomery Wards probably could not have saved themselves through a points program but rather they needed to “fix their menu” like McDonald's did.  Address what consumers disliked so to reach a point of indifference and then work on a loyalty program.  If she sees no difference in JCP or Kohl’s than she will ebb and flow to both outlets but if she dislikes one of those brands more points will not provoke her to shop there.

So look around the next time you are at a football party or bar for a big game.  Look at how many people are NOT pulling for one team or another.  Most people have a point of view at game time and a team they are pulling for.  However in everyday life many consumers are caught in the land of indifference waiting for you to harness it, wanting you to choose a jersey for them and give them the comfort of a point of view!

I put it to you.  What brands have your loyalty and do they have a loyalty program?

MarketingGr8nes

An Aspiration Not a Declaration