Cornell and SAS coauthoried a study presented recently as a Webcast available free, to determine the success of loyalty programs. One finding was that most programs are not able to determine their success in terms of strategic and measurable results.
Price sensitivity was highlighted:
"(A)n effective loyalty program should decrease participants' price sensitivity, but too many programs focus on discounts or other price-related concessions. That has the opposite of the desired effect, because it directs customers' attention toward pricing. He suggested that loyalty programs instead focus on ways to give special treatment to top customers." (my emphasis)
Here are the six cardinal rules for a loyalty program according to this study:
"(1) Avoid provoking customers' price sensitivity, and be careful about "cash back" or discounts.
(2) Manage program tiers carefully, because it's easy to give rewards (when someone goes up a tier), but painful to take them away (when someone drops down to a lower tier).
(3) Think carefully about customer values.
(4) Reward customer engagement.
(5) Separate true effects of a loyalty program from artifacts by choosing appropriate data.
(6) Bridge the gap between academics (theory) and practice."
Anyone have a comment on these?
Thanks for posting. This is a great topic. I agree with the conclusions of the study. I am particularly sensitive to the pricing/ bait n switch perception. I would rather earn the rewards and feel I was getting value for the standard pricing then feel like I was constantly getting a deal that is nothing more than my paying more (or my company or clients) to get a portion of it back in a rebate. Basically, promoting unethical behavior.
I just left a Hertz program for those reasons. The higher you move into the program, the more often it seems the prices are escalated and the more frequent I seem to receive special promotions. The price codes always result in a significantly higher "rack price" and a marginal increase in the rewards making most of them more expensive.
I appreciate a consistent, fair program with level playing field. I've spent over 200 nights in a hotel this year and worked hard to be loyal. Recognize it but don't ask me to jeopardize the integrity of my business by assuming the company or our clients will pay for it.
As an FYI, I always look at every program & rewards offering in terms of what have I invested to earn it; how many dollars have I ethically spent and what time away from my family have I invested in the promotion.
"Basically, promoting unethical behavior.I just left a Hertz program for those reasons. The higher you move into the program, the more often it seems the prices are escalated and the more frequent I seem to receive special promotions. The price codes always result in a significantly higher "rack price" and a marginal increase in the rewards making most of them more expensive."
On-point, see Marriott Dropped | 2010 Most Ethical Companies