Rewards programs work. In our customer service research (sponsored by Amazon Web Services), we asked more than 1,000 consumers, “How important are customer reward programs (points, rewards, coupons, etc.) when it comes to giving a company your repeat business?”
Sixty-seven percent of customers prefer to do business with a company that has a good loyalty or rewards program. Only 7% said it was not important.
So, it makes sense to create a program that will drive repeat business. However, it’s important to differentiate between a rewards program and a loyalty program. Often, companies and brands use the terms interchangeably, but they are not quite the same. And while there’s nothing wrong with either program, it’s important to understand the differences.
Repeat Customers vs. Loyal Customers
Rewards and points programs drive repeat business but don’t always create customer loyalty. What brand or company doesn’t want repeat business? Of course, we want our customers to come back again and again, but don’t confuse the behavior of a customer who keeps coming back with a truly loyal customer.
Most rewards and points programs are actually discount programs. The more the customer buys, the more points they accumulate, which turns into a discount.
For example, a restaurant may give you a free lunch on your fifth visit, which is the equivalent of a 20% discount across all five lunches. An airline gives you points every time you fly. Earn enough points, and you get a free ticket. Similar to the restaurant program, it may take nine flights to get a free ticket on the tenth flight. Hence, you’re really getting a 10% discount across the costs of all 10 flights.
These types of programs promote repeat business. Again, there’s nothing wrong with repeat business, and we should continue to work on building repeat business, but it’s important to understand that repeat business is not loyal business. The important question to ask is this:
If the points and perks were taken away, would the customer still come back?
In many cases, the answer is no. Many companies confuse the repeat customer with a loyal customer. A repeat customer who keeps coming back may appear to be loyal, but it turns out the reason they keep coming back has more to do with the loyalty program. In other words, they aren’t loyal to the company. They are loyal to the program that gives them points and perks.
Related Article: 9 Ways to Build Customer Loyalty
What Creates Customer Loyalty?
Loyalty typically comes from an emotional connection with the company – or someone in the company. Sometimes it’s the ease and convenience of doing business with one company over another. The point is that the customer enjoys doing business with the company or brand, not because of a promotion or loyalty program, but because they know what to expect. In short, they have come to trust the brand. And trust is an emotion.
The emotional connection could be tied to a person. Maybe it’s the salesperson who has done an amazing job for the customer. Or maybe it’s the consistently good customer service. Why would they take a risk on another company?
One other important thought. If the customer is loyal to the company because of a particular person who takes great care of them, will the customer stay or go if that person leaves? Consider the hair salon that has a stylist with a loyal customer base. If that stylist moves to a different salon, there’s a pretty good chance the customer will move, too. Or maybe it’s an inside sales rep of a manufacturing company. If that sales rep moves to a competitor, will the customer follow?
So the question is simple. Without points or perks or that special person “on the inside,” would the customer still want to do business with you? Once you know the answer, you can act accordingly to get your customers to come back. And until the time they are emotionally connected with you, do your best to create an experience, which may or may not include points or a loyalty program, that drives repeat business until the customer – hopefully – becomes loyal.