Do Loyalty Programs Work?

As editor of SSGM, I try new products from hand tools to tow trucks, and rarely do I comment bout their performance on these pages. I recently received a letter from a famous consumer loyalty program, however, that made me think about marketing by reward. The letter was from the manager of the GM Visa program, and it was simple to understand. My seven-year “GM dollars” collection limit would soon expire, and I needed to consider using my collected wealth to purchase or lease a new GM car or light truck, or risk the erosion of my nest egg as the earliest rewards time out, month by month. There’s nothing special about the letter, except for the summary for rewards it contains. After seven years of using the card, I’m at risk of losing just over 31 dollars in possible savings on that new Corvette I’ve had my eye on. It’s the ludicrous subtext of the letter that makes me wonder what makes some loyalty programs work and others flounder. Apparently, the GM Visa loyalty card works very well (although I won’t be using it anytime soon), as do several of the oil company cards. And what makes a “good” one? It takes several factors to get my attention. The first is the rate of rewards. If it takes ten years to earn a gas barbecue, then I’ll lose interest by day three. The second is the availability of the product or service with which the customer can build more earnings. Canadian Tire is my vote for absolute winner in this category, with a large chain of stores where you can spend their “money”, and earn more. A third is a wide variety of products or services available as rewards. Again, Canadian Tire is the champ with everything from auto parts to sporting goods, and both Esso and Petro Canada have large catalogues of available goods and services. A fourth is the difficulty with which rewards can be redeemed. Mail-in cash back schemes are notoriously undersubscribed, and it’s no wonder. Who wants to cut out a box top and mail it in for a two-dollar cheque?

If you’re thinking of some way to reward your “regulars”, then consider some of these factors. If I’m halfway between a Starbucks and a Second Cup, I’ll generally buy my coffee at the Second Cup. Why? Because I have a “coffee card” which buys me the tenth cup for free. It’s wallet size, and features punched holes so it’s easy for the staff to administer. I can see at a glance how close I am to my free coffee, and the reward comes fairly frequently. The key consideration, however, is this: I’ll make the choice assuming that it’s the same distance between the two stores. If I’m much closer to the Starbucks, I’ll buy there, because after all, it’s just a cup of coffee. Similarly, all other things being equal, I’ll fuel at Esso, because they have a points program which allows me to earn a free car wash every once in a while, mainly because the staff usually tell me when I have enough points (They are also totaled on the receipt, another good idea). I can even use their loyalty card at the pump when I’m in a hurry. Will I drive an extra two kilometers on an empty tank to get to an Esso station? Probably not, but I do put a tiger in my tank more often than I otherwise would because of their well-run program. There are many other examples of good loyalty programs, but if you’re considering one, consider this: Keep it simple, keep the rewards modest, and grant them often. I know of one service retailer who keeps a board with the names of regular customers, and “stars” them with each visit, just like grade school. He says it works well, because everyone feels good about a gold star, and they can watch their progress toward that free oil change. I know many of you have similar good ideas, and if you’ve got em’, do spread them around, because Mr. Goodwrench as well as other industry heavyweights are here, and here to stay.