Moving Beyond The Limitations Of Loyalty Programs

Remember the old adage that 80% of your sales come from 20% of your customers? Otherwise known as the Pareto Principle,  the  idea has led to the creation of endless flavors of loyalty programs focused on rewarding existing customers to increase frequency. However, this can come at the cost of building long-term brand loyalty and, more importantly, attracting new consumers into the brand.

Sure, implementing a traditional loyalty program is a relatively low-cost way to drive frequency in the short term, but the long-term strategy behind it is fundamentally flawed. For one, a brand’s most ardent customers need very little motivation to keep coming back, so freely dispensing discounts may leave revenue on the table. But more troubling for brands, points or discount-based programs quickly become expected and lead to parity, which in the end, leaves little motivation for a consumer to be loyal to any one particular brand.

There’s a massive difference between driving short-term frequency and building long-lasting devotion for a brand. In today’s fragmented media landscape, where consumers can avoid commercials, a brand has to do more to drive acquisition and cultivate loyalty. Loyalty programs as we know them need to be reimagined, so they can deliver greater value to a brand in the short and long term.



What if loyalty programs weren’t solely about points or free products or offers but about baking new forms of value into every aspect of the brand experience? What if the “program” were about creating meaningful experiences across the customer journey in ways that make the brand the only choice a consumer wants to consider? Or the only brand they remember? Or a brand they want to advocate for? And what if approaching loyalty in this manner can lead to more memorable and effective advertising? The value this can unlock for a brand is massive.

Patagonia is an excellent example of a brand that’s building loyalty without a classic rewards program. It guarantees its products  for life, and customer service at every touchpoint is personal and impeccable. The company takes action on behalf of the environment and creates initiatives to get customers in on the action too—from product innovations that reduce carbon emissions, to developing movies that raise awareness about climate change, to donating money to tackle climate change.

Patagonia has mastered the art of creating highly engaging experiences that drive a conversation, all while exchanging value for data and building a direct relationship with customers. This type of behavior is paramount today as brands seek to leverage the power of their own first-party data.

While taking a long-term, ground-up approach is a substantial investment of time and money, it enables Patagonia to drive frequency among its current customer base without discounting products. It strategy also brings new users into the funnel and builds retention, helping to create  brand advocates willing to espouse how great Patagonia is and why it is the only outdoor brand they buy. By trading short-term sales results for long-term brand building, Patagonia is building a sustainable brand that continues to attract new users and build loyalty. 

This isn’t to say that traditional loyalty programs aren't useful marketing tools. It’s just that they have limitations, and most don’t lead to true, long-term loyalty or brand building. Perhaps it's time for us to start taking a long-term approach to building brand loyalty.

1 comment about "Moving Beyond The Limitations Of Loyalty Programs".
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  1. PJ Lehrer from NYU, January 9, 2021 at 10:21 a.m.

    Most "loyalty" programs are so poorly designed that they actually piss off their best customers.  Here's a discussion about it...

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