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Do customer loyalty schemes work?

Last Saturday morning I was sent to buy coffees at our neighbourhood cafe by SWMBO, who handed me a full loyalty card to claim one free. When I handed over the card at the counter, I received no acknowledgement other than “That’ll be $7, please. Oh right, $3.50 then.” Two things struck me. Firstly, this cafe has no competition, so why do they need a loyalty scheme? Secondly, I thought about the different approach taken by the cafe next to my office, for which I don’t have a loyalty card, but they always make me feel that they genuinely welcome me as a customer. And once in a while, they’ll offer me a spur-of-the-moment free 2nd coffee, or even a meal one time when they refused to take my money. No prizes for guessing which one makes me feel more loyal.

Structured “loyalty” schemes, whether “tenth coffee free” or air miles, are just another preset pricing strategy. I don’t go to my usual cafes because of their so-called loyalty schemes. I go because of their food and coffee, their decor and ambience, their service and their overall value. Likewise, I wouldn’t use my usual airline if it wasn’t up to what I want. I have another airline’s loyalty card as well, but I only use that airline when I have no other choice.

Business owners and marketers shouldn’t think they are building customer loyalty when people are accumulating frequent purchase discounts. They’re just saving money. You win customer loyalty by giving them great value, and making them feel valued. Never forget it.

First posted September 1st, 2007