How can I create
A consumer with wandering eyes is the bane of every brand.
Creation of the transactional brand loyalty model
In the 1980s, the airline industry struggled with customer engagement due to intermediary travel agents who owned 95 percent of the market and had a direct relationship with customers. As a way to collect customer insights, American Airlines introduced its modern loyalty program, AAdvantage, in 1981. The program evolved beyond miles rewards that earned flyers free trips and upgrades; it was also used to gather customer data, which, over time, allowed for greater program segmentation and the introduction of tiered status.
This new segmentation enticed members to level up and created rewards tailored towards their most valuable customers. Whether it is earning rewards based on spend used by credit card programs or status tiers based on frequency of stays and spend favored by the hotel industry, transactional loyalty models were quickly replicated by brands across the board and remain the foundational standard for loyalty programs today.
From ‘earn-and-burn’ brand loyalty programs to elevated experiences
In 1989, car rental company Hertz made loyalty history when it introduced its #1 Club Gold program, which was the first major loyalty program based entirely on enhancing customer experience. The program allowed members to skip the counter and go directly from the airplane to their car. It was a hit with consumers because it relieved friction in the process.
In 2007, when Virgin America airlines went into business, it offered a new take on frequent flyer programs with Elevate (a program Rokkan helped create), which rewarded flyers with points based on dollars spent instead of miles travelled, and enhanced the overall brand experience. Members could redeem points for any seat on the plane and had access to services such as onboard entertainment systems – a strategy that the best loyalty programs now follow.
The failure of today’s brand loyalty programs
While both industry and customers have embraced loyalty programs, their success and sustainability is uncertain. Loyalty programs are a dime a dozen; consumers across every category are swimming in them. That makes any loyalty program more or less the same – and leaves brands seeking to save their programs or adopt new ones that work.
A 2017 report on consumer loyalty by consulting firm Capgemini found that 90 percent of consumers have a negative perception of loyalty programs, 54 percent of loyalty memberships are inactive and 28 percent of consumers abandon loyalty programs without redeeming points.
70% of all loyalty programs are deemed as a failure and 77% of transaction-based programs fail, within the first 2 years.
Loyalty & Transaction Based Programs (First 2 Years)
The biggest insight we have into loyalty program failures is that many companies mistake customer habit for loyalty. This is because loyalty programs are often designed around transactions. While many programs may increase the frequency and volume of transactions, once the value of rewards wears out or disappears, loyalty disappears with it. What’s often left over is a transactional attachment to a brand, not an emotional one. As a result, programs become expensive to maintain and struggle to truly grow customer relationships at scale. This is supported by the fact that 95% of loyalty customers drop off after 90 days.
While most loyalty programs are designed and measured around reducing customer churn and increasing engagement, they overlook the experience-driven aspects of the program that can grow brand loyalty.
So how can brands create brand loyalty? By building emotional loyalty. According to the Capgemini report, emotions have the highest impact on loyalty, and only 15 percent of consumers believe brands succeed at emotionally bonding with them (compare that with 80 percent of executives who said their brand understands the emotional needs and desires of customers).
"Emotionally connected customers are more than twice as valuable as highly satisfied customers."
Of executives believe their brand understands their consumer
Of consumers believe a brand emotionally connects with them
ROKKAN’S 5 BRAND LOYALTY SOLUTIONS
01 Master and replicate the highs of the customer journey
If you want to build customer loyalty, the first step is to understand your customer engagement and journey. By enhancing the high and low journey moments, you can build on emotional peaks that are most influential in shaping perception and action.
For example, Southwest Airlines has built a cult following based not on being the best airline – they don’t offer meals, TVs, first class, or assigned seating – but on being themselves, and being personable. One of the Texan airline’s tricks that flyers love? Humor. The airline found that people who heard a joke from a crewmember on one of their flights flew 1.5 times more than those who didn’t. These interactions between crewmembers and passengers during flying, for many a painful experience, became an emotional high Southwest replicated to its success.
02 Use the elements of surprise and delight
Brands often assume that they should make huge investments into their customer experience, from top to bottom, to make it effective, and miss the fact that they can create very small peak experiences with minor investment that create lasting emotional effect.
One way to do this is to invest in surprise and delight initiatives that attract and nurture customer relationships, leading to viral word of mouth.
Skin and makeup brand Glossier nails consumer delight. The brand is obsessed with creating a community of not just consumers, but evangelists, for the company who bond over their love of the brand. In order to keep fans excited, the brand adds little tokens of appreciation to purchased items, like Glossier stickers, personalized referral codes, and the Glossier pink pouch (which is presented first as packaging but repurposes as a travel makeup bag or night-out clutch). These surprise and delight touches work to capture attention, create gratitude and enhance brand loyalty.
Another example of a brand that builds delight is one of Los Angeles’ most popular hotels, the Magic Castle, which has a Popsicle Hotline on premises. The hotel, which is a converted 1950s two-story apartment painted yellow, looks from the outside more like a motel, but has somehow risen to the top of the hotel chain in competitive L.A. In their 2017 book ‘The Power of Moments,’ brothers Chip and Dan Heath link the hotel’s popularity with its ability to create powerful moments for consumers they’ll remember for years to come. The most powerful of those moments? The Popsicle Hotline, which is a poolside red telephone guests can call to have a free Popsicle delivered on a silver platter by an employee wearing white gloves. Pretty memorable.
03 Create more personal relationships through technology
One of the most cited successful loyalty programs is Starbucks Rewards. While Starbucks Rewards offers freebies and discounts to members, it is Starbucks’ omni-channel capability that is attractive and the key to loyalty success.
The mobile app serves a functional convenience by making online ordering and payment easy. It also acts as a digital marketing tool, allowing for real time encouragement through earned rewards, free in-store refills and limited time promotions. In addition, Starbucks gathers information on customer habits and interests, allowing for more relevant perks and communication to customers. The direct engagement of the app provides users an inviting, convenient and innovative personalized experience that is a powerful driver of loyalty.
04 Make the program ‘invisible’ and part of the brand experience
The Centurion Card from American Express, known informally as the Amex black card, is a fought-after card shrouded in intrigue. It is not a traditional loyalty program where there are published benefits and perks. Instead, the loyalty comes from the card’s exclusivity. The brand experience starts from the invitation – you have to be invited to apply, and, once accepted, exclusive benefits and perks are given throughout the year that are known only by members and often change. In the case of the black card, the brand experience is the loyalty program.
05 Tap into customer desire
Sephora’s Beauty Insider program is a good example of offering consumers not only the products they seek, but related experiences they desire which may not be for sale. The program doesn’t just offer free products; it considers all the needs of the customer and creates a program based on its customers’ emotional goal of “looking and feeling beautiful.” This allows for expansion of rewards to include free make-up classes, private hotlines and invitation to exclusive events.
The bottom line on brand loyalty: Build emotion and they will come
Brands who want to build loyalty must lessen their reliance on transactional loyalty models and move into emotional loyalty programs. Study your consumer, understand their emotional wants and need, and build programs that speak to them. Identify your most powerful moments and repeat them, use surprise and joy liberally, strengthen relationships through technology and innovation, work to meet all your customers’ desires within the category, and watch your program become invisible and your loyalty become undeniable.