Monday, August 02, 2004

Jump-Starting Loyalty and Affinity-Group Programs

Ned Barnett

(c) 2004

This article was originally published in The Wise Marketer, an excellent online marketing 'zine (with a free e-mail-feed subscription - available on application ...) published out of the UK - Wise Marketer can be found at: - my thanks to editors Peter and Robin Clark for inviting me to discuss loyalty programs, and what makes them work.

I've left the article intact-as-published, including the UK-variant on spelling ...

What kind of consumer buy-in can triple loyalty results?

By Ned Barnett
Published by The Wise Marketer in July 2004.

Successful corporate loyalty programmes try to create in the consumer a kind of self-generated identification with the company, eventually leading to loyalty. So why do some fail, and what can be done to help them succeed?

Successful corporate loyalty marketing programmes - from airlines' frequent flyer programmes, to retail loyalty points schemes, to credit card rewards programmes - are a kind of marketing Nirvana. Their intent is to create a kind of self-generated identification, by the consumer, with the sponsoring corporation. This identification, in turn, is supposed to lead to greater purchase loyalty, more frequent spontaneous referrals, and - ultimately - more business generated at less cost.

That's the goal. The reality is often far different. Frequent flyer and point programmes too readily become an added cost that generates little offsetting revenue - a defensive strategy to retain existing volume from current clients, rather than an offensive strategy that attracts new clients and increased business from existing clients. There are a few reasons for this but they tend to boil down to a combination of incentive and emotion.

Alumni successes
Some classic success stories include college/university alumni associations. Four years at a college or university 'imprints' a person, creating an emotional bond that will shape actions, often for their entire life. For decades, this loyalty was mostly manifest during university fund-raising drives (along with, on a small scale, the sale of university-branded products). However, the sale of branded products - from t-shirts to coffee mugs - faced stiff purely-commercial competition and seldom produced significant revenue for the alumni associations.

That formula for limited success changed with the advent of what's come to be called cause marketing, through which consumers can elect to make use of services (e.g. credit cards or long distance phone services) that provide their alumni associations (and later, their favoured charities or causes) with per-transaction revenue. Academic researchers have found that consumers are willing to pay slightly higher prices, and to acquire or use products and services preferentially, when they know that a portion of the proceeds will benefit their favoured cause.

Charities followed
Cause marketing was quickly adopted by charitable organisations, which had long paralleled alumni associations, capitalising on similar emotional ties. It was no surprise that the main donors to the cancer society were people who had experienced a cancer-related loss among their immediate family or circle of friends. So, once universities began experiencing real success with cause marketing affiliations, it was inevitable that charitable non-profit groups quickly adapted the concept to their own benefit - and savvy commercial organizations hopped on the same bandwagon.

American Express, more than a decade ago, proved to itself (and to other businesses after extensive coverage in the Harvard Business Review) that cause marketing could increase sales. Several years in a row, the company fielded Christmas-season promotions promising consumers that their designated charity (each consumer could choose between two or three) would benefit from each transaction. These promotions significantly increased the company's market share during the peak consumer-buying season of the year.

Using emotional ties

The lessons from these activities was simple: if you could follow the long-standing charity/alumni approach and capitalise on pre-existing emotional ties, you could generate additional commercial sales from consumers who would preferentially use your products or services in order to support their favoured causes. A 1996 Harvard study found that 54% of consumers would even pay over the going rate cost for a given retail product or service simply to benefit a chosen cause.

However, most commercial loyalty programmes have tried to succeed not with emotional ties but with often-vague promises of consumer self-interest, frequently manifested in miles or points that can be traded later for benefits or goods (which are sometimes also not very clearly defined). Looking back, many of these have failed to greatly benefit the sponsor organisation. The reason may be that those commercial loyalty programmes failed to create an emotional link. Without that, they failed to require consumers 'buy in' in some way. With no emotional ties, and with nothing of value at stake, too many consumers just don't care enough about the points to actively participate.

Differentiation needed
For example, when all airlines had adopted similar frequent flyer programmes, truly frequent travellers joined all of them, slowly accumulating reward miles that they might eventually be able to trade for extra trips. Even without the limits and conditions that made such miles seem less valuable, extra travel proved to be a remarkably de-motivating incentive for those business travellers who already seemed to live in airports, taxis, and hotels! What had been intended as a way of attracting new customers - and additional business from existing ones - had become an added marketing cost spent to defend existing market share.

Similarly, some points programmes from hotels, car rental firms, credit cards and other high-volume businesses proved equally de-motivating. Having joined casually without any personal motivation, customers were often only marginally aware that they were even members of these programmes, and felt no particular incentive to try to capitalise on them. There are two possible reasons for such failure: First, the consumers had no emotional ties to the corporations; The incentive that works so well for alumni associations and charitable or cause organizations was absent from these programmes. Second, the members had no commitment; They had no motivational buy-in, and therefore no particular reason to care about the programme. Without some believable and motivating incentives, consumers disengage from such loyalty programmes.

Consumer buy-in
Yet, handled properly, commercial loyalty programmes can be effective marketing tools. As already noted, cause marketing efforts that link corporations to favoured charitable causes or fraternal organisations have a long track-record of success. However, there is an even better approach - one that not only motivates consumers but becomes (at least partly) self-liquidating. This approach is a programme that requires consumers to invest in it, and offer some true commitment.

In working with a client which provided effective loyalty programmes for 'white tablecloth' restaurants throughout the USA, Barnett Marketing Communications had the opportunity to see first-hand the real impact of such consumer buy-in. The client provided a turn-key internet-managed loyalty programme which provided consumers with points that could later be redeemed for free meals and other benefits. In addition, members were offered discounts, birthday gift bottles of wine, special desserts and other interim incentives to motivate their return to the sponsoring chain of restaurants (in order to build up points). In implementing the programme, some restaurants charged an annual membership fee, while others opted to give away the programme. This gave me the perfect opportunity to test out my theory about commitment as an important measure of the success of points-based loyalty programmes.

Triple the results
By head-to-head comparison, I was able to determine that programmes which charged a joining fee of US$20 signed up roughly 33% of the new members each month as those which simply gave away the same membership programme. But those that charged for membership saw triple the rate of points redemption compared with those that offered the same programme for free. But while these two methods might appear to produce much the same result, they don't. Those that charged the US$20 fee had, in effect, a self-liquidating marketing programme: On the balance sheet they were already a long way ahead of those that had initially absorbed the costs of the programme themselves. In addition, with triple the number of members to service, the 'free programme' restaurants had three times the programme overhead costs. It turned out that charging a membership fee - asking members to commit themselves financially - was a double-win situation for those that charged the joining fee.

Some of our branded restaurant chain clients did programme comparisons, with some restaurants giving away the programme while others in the same chain charged the fee. Every one of those restaurant chains, after completing the comparison, converted to the fee-for-membership version of the programme.

So, if you have (or are planning) a membership-based loyalty programme, either tie the programme to a cause or organisation that capitalises on pre-existing emotional ties, or develop a programme that requires members to demonstrate some buy-in before they can benefit. Both approaches, based on the core principles of motivational psychology, are valid - and both work.

For more loyalty marketing feature articles:

BTW - all memberships/subscriptions are on application. At least in the UK, it's become fashionable to "subscribe" under pseudonyms such as "Michael Mouse", and the editors at The Wise Marketer therefore review each application to make sure the publication is going - for FREE - to a real marketer, and not (apparently) to a Mickey Marketeer.

Copyright © 2004 Barnett Marketing Communications

About the author...

Ned Barnett, the owner of Nevada-based Barnett Marketing Communications, has over thirty years of experience in high-stakes, crisis-management public relations, and is a well used information source for both print and broadcast journalists. As a political consultant and speechwriter, he has worked for candidates and officials from both US parties, as well as for public interest advocacy groups in areas involving the economy, the environment, and healthcare.

Barnett has taught PR at two state universities, and has written nine published books on public relations, marketing and advertising. He has earned PRSA's coveted 'Silver Anvil', two ADDY awards, and four consecutive MacEacherns. In 1978, he was the youngest (at the time) person ever to earn accreditation from PRSA and, in 1984, he became the first person to earn a Fellowship in PR from the American Hospital Association.

Barnett Marketing Communications can be found online at