Do loyalty programmes work?

We have been through an interesting process recently that involved us in taking a long, hard look at how we can improve our various loyalty programmes. In this process, we have delved extensively into a brilliant book called 'How Brands Grow' by Byron Sharp, Professor of Marketing Science at the University of South Australia.

What we have discovered is that the word 'loyalty' is a misnomer, as the people who are likely to sign up with the programme are already loyal - they are in your store, casino or property and they are already a captive market. They are converted users and it is easier to target them. Arguably, one is then 'discounting' to a market that would have used your product anyway.

Only heavy users benefit

In addition, loyalty programmes are often structured in favour of heavy users, which means that the benefits are not meaningful enough to motivate new consumers to sign up. Think of the air miles earned in different airline loyalty programmes and how many thousands of Rand you have to spend to earn just one flight. Quite simply, the people who gain the real benefits are already loyal. If your objective is to encourage existing customers to spend more, the chances are good that you could be flogging a dead horse. They do not necessarily have more to give.

One of the main reasons cited by companies as a reason to have a loyalty programme is to avoid customer defection. However, studies have shown that, more often than not, when people stop using your brand, they were going to leave anyway - for a variety of different reasons that are not usually influenced by whether or not you offer them a loyalty programme. Moreover, with the new Consumer Protection Act in place, these barriers to exit are largely being eroded.

Focus energy on next level

If any company was to take its most valued customers and look at how many of them were top customers the year before, it would be surprised at how low the figure is. In the casino industry worldwide, the figure is estimated to be as low as 30-50%.

Considering this, it is clear that we should be focusing our energies on growing the next level instead of worrying so much about the top level. That is not to say that we must not look after this top tier - that would be folly. However, where more time, energy and resources should be spent is on growing the next levels - including the mass market or main floor 'bread and butter' market.

Rewards vs loyalty programmes

This is where the value of rewards programmes vs. loyalty programmes comes in. We are refocusing our loyalty programme to be a rewards programme, where the reward structures do not only benefit the top 10 or 20% of our customers, but also look at the wider market, rewarding everyone across the board.

This programme is aimed at encouraging relationships of mutual value with our customers and guests, which will ultimately grow our revenue. We give value to the cardholders in the form of benefits and rewards and they give value to us with their patronage (and of course spend). Our positioning statement describes it as, 'Unleash value'. In essence, this means that the more the cardholder engages with us on our properties, the more value he or she can unleash.

Boosting communication

The benefit of what customers give us in exchange for the benefits we give them is the ability to communicate effectively with them. They are likely to be a receptive audience because we have a relationship with them and they are likely to give us the quickest response, which is extremely valuable in an ever-changing environment such as the entertainment and casino industries.

Yes, loyalty has its place in business, but there are many factors to consider for every spending decision made by customers and guests. Invariably, those reasons are as straightforward as convenience. That is why we cannot afford to make any programme the be-all and end-all of our marketing approach. In addition, whichever one we end up with, we need to make sure we can measure the results so that adjustments can be made if it is not achieving the desired results.