Engagement is the New Loyalty

Historically, loyalty has been the “get more” industry, offering customers a reward for purchases – more purchases generate more discounts, points or other rewards. All the effort has focused on motivating a purchase, and on the person making the purchase.

A recent Financial Times story is the latest in a series of wake-up calls for discount-driven, points-based loyalty programs and the retailers that promote them. The CMO Council study found that:

Big brands' best customers have been defecting in droves since the beginning of the US recession. By this year, more than half of a typical US brand's most loyal shoppers in 2007 had switched to rival products. A two-year analysis of 685 grocery and pharmacy-stocked brands, using data from 32m consumers’ supermarket loyalty cards, found that in 2008 the average brand lost a third of its formerly highly loyal customers.

If points are out, what’s in? To earn customer loyalty, smart brands are becoming engaging, immersive, interactive and fun. One example is a unique promotion by Hyatt featuring, 'random acts of kindness' like unexpectedly paying a customer's bar tab. The point is to maximize surprise by having no apparent program or pattern. This approach can do more to delight customers and build buzz and goodwill than another 100 points in any traditional loyalty program.

Fun also works for engaging employees. The VP of Brand Experience for a national retail chain we know tried something fun after attempts to get her store teams involved in a new promotion by offering them points and coupons fell flat. She offered to have the VP of Store Operations wash cars for the winning store team. The promotion took off by tapping into the team's sense of humor.

The message to CMO’s is clear: In the new world of frugality, where conspicuous consumption is "out," marketers need to move beyond consumption- based programs to engage and even entertain us.

Points are out. Bring on the fun!