Loyalty is overrated

<sub>''Freedom is irrelevant. Resistance is futile."
- Borg Collective;
Star Trek: The Next Generation episode "The Best of Both Worlds" (1987). Courtesy: http://en.wikipedia.org/wiki/Resistance_is_futile</sub>

The backgrounder: Star Trek Voyager 
If you are a Star Trek fan, then you're familiar with The Borg – a vast collective of humanoids that have been assimilated by the Borg Collective. These humanoids, called Borg drones, have various cybernetic implants embedded inside and outside their bodies. These implants connect all the drones to each other in a massive collective called the hive mind, which suppresses each drone's individuality. The Borg is unemotional but efficient, and can only grow in numbers by assimilation. Read up more on the Borg here.

The analogy: customer acquisition programmes – it's in the numbers
As confederates in the airlines or the credit card business would testify – this sounds remarkably close to a customer acquisition programme. Acquisition programmes tend to treat populations of prospects in the same way as the Borg view of a civilisation to be assimilated. The aim is to acquire, standardise, integrate with the portfolio, and present the numbers.

By design, these programmes tend to completely ignore customer's individuality; in the process, they also overlook the very basis for a more 'human' virtue that they later try to derive – loyalty. No one plays 'for keeps'.

Take a look at the cards business. Acquisition programmes of card issuers thrive on credit and marketing data collated from myriad resources. These are run through the acquisition programme factory, forming lists of acquirable customers, i.e., people who 'conform' to their criteria. The chosen ones get a card with standardised attributes (a.k.a. card features, including a reward programme) without regard to individual needs, likes and dislikes. The small print does the rest, and millions of mail pieces, phone calls, and customer service reps later, customer loyalty continues to elude most card issuers.

What about the loyalty / reward program? Truthfully, these programmes are largely ineffective in generating loyalty. They serve merely as 'equalisers' by equalling the product offering to that of the competition.

Every card issuer has a reward program. Not too many have loyal customers.

The two collectives of Borg customers: loyalists and churners
Customer acquisition invariably creates two distinct groups of customers. A loyalist group that is inclined to stay and a churn oriented group. To get ahead in the loyalty game, businesses need to figure out, beforehand, which is which.

Who are the loyalists? I'd say they're customers who probably don't buy your stuff every day, but when they do buy they head straight for the isle with your stuff on the shelf. On the other hand, churners may favour the 'reward' programmes and even display frequent buying behaviour, but they're the first ones to abandon ship as soon as something else comes along.

Modern 'loyalty' programmes – something for nothing
Who's truly plagued? Is it the customers or the card issuers?

A Star Trek fan can tell you that the fine print of card agreements are modelled on the directives of the Borg Queen, who retains her individuality and freedom, while expecting the customers to be the drones in the collective. Reward programmes have barely any aspect of generating loyalty. Giving 'something for nothing', as they usually do (typically, a point for a dollar spent), anyone who cares to do the math can plainly see this programme means more to the issuer. Accumulating points is an expensive affair, and even if a customer does accumulate enough points, redemption options are ridiculous at best. They don't take into account individual tastes or needs, and what's more, most of the stuff in there is way cheaper if you were to buy it on sale. If you are an airline points customer, would you really like to fly for 'free' on an airline whose flight delays make you spend all night at the terminal, but they do not have the courtesy to even offer you a $5 breakfast next morning?

So, with the odds favouring the issuers and airlines, how does that fuel loyalty? At the end (or the beginning of the downturn), we've got a large collective of customers, feeding off generic, non-customised products or services, who are expected to be loyal to the company's offering.  Some are bound to take a walk.

That split-off point where loyalty becomes overrated
This distinction between loyalists and churners is needed to run intelligent, truly cost-effective loyalty and retention programmes that appeal to individuality rather than a standardised collective. Common sense exemplified by the parable of the boy, his father and their donkey, dictates that first and arguably the most intelligent thing to do would be not to try and retain everyone. Keep the apple core.

Inverse viewpoints on loyalty
As a child, I remember being told that if I wanted something, I should make the effort to go get it. If I were to extrapolate that to the concept of customer loyalty, then businesses should be looking to be loyal to customers, not the other way round. They are the ones who want loyalty in the first place.

What if businesses were to show loyalty towards individual customers by truly offering what they want?

For starters – that would mean graduating from standardised mass production to individualised product and service offerings. Case in point, the auto companies – a mass produced, standardised product rolls off the assembly line. Yet, customers spend millions 'personalising' their cars almost as soon as they get out of the dealer's door. So, if the auto companies really want these people to be loyal, why don't they go 'above and beyond' and offer these customisations as add-ons? As long as the customer is paying for this stuff either ways, he may as well be paying the auto company for his personalisation, rather than three to five different vendors, right?

One company that has got at least part of this concept going for it is Apple, who personalises an otherwise standardised, white I-pod by laser-engraving the customer's name on it prior to shipping. Talk about building strong emotional connects when the customer receives a product with his name on it. That is the kind of stuff that generates loyalty. Interestingly, Apple does not run any 'reward programmes'.

Womb – to – tomb loyalty: stand by me
What is a good measure of loyalty? Different businesses have different views on this.

For the sake of argument, let's say that as a business you'd like a customer to buy your product, and keep buying your products as his needs evolve (assuming you have a product line which is clued in to what he wants incrementally).

Upfront, you need an ever-open channel of communication as part of this relationship. Dell seems to have this bit in place – the relationship between the company and the customer is one-on-one right through, with added strength from service quality and global support. Clearly, as a company, Dell thinks more about how it is doing with its customers than it does about its rankings against the competition.

In India, automotive leader Suzuki had to think on similar lines when it found market share eroding on account of newer brands from competition. Introducing a 'true value' loyalty programme, it allowed customers to exchange their old cars for new ones, getting a fair value for the old car, and a discount on the new Suzuki they bought as an added 'loyalty bonus'. What they've succeeded in doing, in some measure, is build an apple core of customers to whom they sell an entry level car, and keep him coming back for next level upgrades every other year whenever he's ready to graduate to a higher level of luxury. Of course, communication comes in the form of the largest service network in India by any auto company, and one on one interaction driven by email, the Internet, and individual friendly dealership staff.

The bottom line(s)
Loyalty is overrated, at least in the form in which it is largely prevalent today. Businesses need to spend more time and effort in customising or personalising, if not individualising their products and services, if they want to get anywhere with loyalty. They need to automate building customer loyalty into the very fabric of their existence, rather than try and 'buy' it using overrated and uselessly expensive 'something-for-nothing' reward programmes.

Individuals don't want rewards for their loyalty anyway.

You just have to be someone they'd like to be loyal to.