The Devil’s Compact in Customer Loyalty Programs

Sometimes I show some resolve and actually carry out my resolutions. Yesterday was one such day—I cleaned out my wallet, which was too light on money and too thick with cards from various loyalty programs. Pruning those loyalty cards made me look at each program and decide whether participation was worth it, whether there was there a decent quid pro quo for using the program.

The obvious description of customer loyalty programs is that they are a way for a company to thank its regular customers for their continuing patronage with rewards and discounts. Whether it is a coffee card for an extra java after ten purchases or free tickets to Hawaii after a winter of business trips, we all especially enjoy the “free” product or service. It’s nice to be appreciated and thanked.

But there is another side to many loyalty programs, an implicit devil’s bargain: in exchange for the freebies and discounts, we give our contact information (phone, address, email) to our vendor and implicitly give them permission to market to us. Some companies abuse this relationship, bombarding their customers with irrelevant offers and annoying frequency.

But other companies are smarter. Retailers like Vitamin Shoppe, for example, use the programs to track the purchases of customers who would otherwise be anonymous, something ecommerce companies, catalog merchants, and B to B companies take for granted. Done right, we’ve seen retailers make customer associations at point of purchase at rates over 80%. This transaction data is the meat and potatoes of behavioral tracking.

The smart companies make good use of the data they accumulate on the behavior of customers who offer their loyalty card or program number when making a purchase. Companies like Wegman’s Grocers use the techniques of mathematical marketing to predict which customers will buy next, what products they are likely to buy (including those they have not previously purchased), for customer segmentation, and which customers are on the verge of defecting to a competitor. Properly analyzed, a company can learn about more than their customers from this data: there is even valuable product information buried in the transaction data of these customers.

As customers, we tolerate this devil’s compact if our vendor uses what they know about us wisely. If we get relevant offers, if our vendor uses what they learn to talk to us intelligently, they actually build loyalty to their brand. If they don’t play nice, if they abuse the compact, they turn us off and lose our business.

So what kind of loyalty program does your company have? Is it a win-win, of benefit to both the vendor and the customer? Does your loyalty program help you or do you think it is necessary evil that costs you money? Which companies do enough to earn that place in your wallet?

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