How Much Is Your Loyalty Program Worth?

Phil Dourado wrote a great post 'On Lipstick and Pigs: Sales Promotions and Customer Loyalty'. At the end of the post he says, "If you can keep millions of customers coming back for repeat purchases through ongoing discounts that lead them from one transactional encounter to another (as Tesco does with its Clubcard, ...), who cares if it's real loyalty or not? The end-result is the same. (My emphasis added.)

What a breath of fresh-air-thinking. We are so used to hearing that customer loyalty is the holy grail of CRM, that loyal customers buy more, pay higher prices and recommend more, and that if you don't have lines of loyal customers queueing outside your shop door that somehow you have failed. Like sheep we accept all this false wisdom at face value. It is in the Harvard Business Review, so it must be true! We have forgotten to think for ourselves and to challenge sloppy thinking.

There is plenty of evidence that loyalty programmes do work, albeit in different ways, for different groups of customers, in different circumstances.

A loyalty programme is just one of many instruments available to marketers to attract, grow and retain customers. And to drive cashflow. There is nothing wrong with customers being more loyal to the loyalty programme than to the company's core offering. Providing it offers the company a sustainable advantage and that all important cashflow. It may even be worth more than the company itself.

Just look at the successful spin-off of Air Canada's Aeroplan frequent flyer programme into a stand-alone loyalty business in 2005. The Aeroplan programme was initially valued at US$2 Billion, significantly more than Air Canada! Today, Aeroplan has a valuation of US$2.8 Billion against Air Canada's US$0.5 Billion. And Aeroplan's loyalty business has expanded into a loyalty portal, offering a vast multi-sided market of products members can 'earn and burn' points on or simply buy.

So next time you read an article about the primacy of customer loyalty, as though cashflow didn't matter, think about Aeroplan's success and take the article with a big pinch of salt.

What do you think? Is loyalty the holy grail of CRM? Or are you happy to settle with superior cashflow instead?

Post a comment or email me at graham(dot)hill(at)web(dot)de and get the conversation going.

Graham Hill
Independent CRM Consultant
Interim CRM Manager

Further Reading:

Phil Dourado, On Lipstick and Pigs: Sales Promotions and Customer Loyalty
http://www.customerthink.com/blog/lipstick_pigs_promotions_customer_loyalty

Aeroplan, History of Aeroplan
http://corp.aeroplan.com/history.cfm

Inside Flyer, Hidden Assets
http://www.insideflyer.com/articles/article.php?key=2366

New York Times, Award Plans Earn Cash for Airlines
http://www.nytimes.com/2008/04/01/business/01frequent.html?_r=3&pagewant...