You’re grocery shopping, and it’s time to buy cereal for your kids. They like Apple Circles and Honey Nut Loopies equally, so you typically grab whichever one is on sale. But not today. Because you just joined the ‘loyalty’ club for Apple Circles, and they sent you a $1.00 off coupon, so today is an Apple Circles day! For most brands that offer a loyalty program, this is typically what it looks like. Members sign up, get some coupons, and go on their way.
Unfortunately, simply handing out coupons or giving a price reduction doesn’t build loyalty to the brand, it builds loyalty to the offer. The problem with competing on price is that as soon as another brand offers a cheaper product, you lose business.
But for many products, offering a lower price can actually hurt business. Let’s apply this same ‘coupon’ mentality toward loyalty programs for say…..a luxury brand. Let’s say you just bought a new Ferrari for $400,000. Next year when the new models come out, you are personally invited to join Ferrari’s Loyalty Program. Which offer do you think a Ferrari owner would be more interested in:
1 – A 10% discount on new models.
2 – A chance to buy one Ferrari from a limited production run of 50 cars that’s being offered strictly to members of the Ferrari loyalty program. Each of the 50 Ferraris will be signed on the dashboard by Piero Ferrari, son of Ferrari founder Enzo Ferrari. In addition, the owner will be flown to Italy to tour the Ferrari production plant and view his Ferrari as it is being assembled, then join other members of the Ferrari loyalty program for a private dinner at the Ferrari Estate. The cost is one million.
If you’re buying a Ferrari, a lower price is likely a deterrent to purchasing the vehicle. Given this, Option B, even though it is almost three times as expensive than Option A, would likely be far more popular to Ferrari customers. Also note that with Option B, the experience is what’s so important. You’re not just buying a Ferrari, you’re buying a Ferrari that only 49 other people in the world will own. In addition, you’ll get to go to Italy and personally watch your vehicle being assembled, then you’ll have dinner with the Ferrari family at their estate. If you have enough money to buy a Ferrari, the added experience of such a trip would be well worth the additional money to you.
But this extreme example also illustrates why it is so important to focus your customer loyalty program on offering a better experience than it is a better price. Let’s go back to the Ferrari example for a minute. Let’s say you wanted Option A, the 10% discount on a new Ferrari. That would likely save you $25k-$40k. A huge amount of money! But would even this massive savings really make you any more loyal to the Ferrari brand? On the other hand, if you took Option B, you would get a trip to Italy to Ferrari’s production plant. You’d get to talk personally to the engineers and craftsmen that were assembling your vehicle for you. Then you’d get to go to the Ferrari Estate and talk personally to the members of the Ferrari family, learning more about them and the brand all along the way.
Option B would give you a much better experience with the Ferrari brand, and as a result, it would do a much better job of making you more loyal to the Ferrari brand. Even if you took the 10% discount off a Ferrari in Option A, that wouldn’t make you more loyal to the Ferrari brand, it would only make you more loyal to the OFFER. If Lamborghini came out with a loyalty program and offered a 20% discount on new models, well guess what you would do?
But when your brand creates a customer loyalty program based on giving members a better experience, it actually deepens loyalty to the brand. Let’s apply this thinking to our first example of shopping for breakfast cereal:
It’s a week later, and you and a friend are shopping together, and you’re on the cereal aisle. Since you are a member of the Apple Circles loyalty program, you have your $1.00 off coupon for Apple Circles in hand. You grab a box and smile to yourself, knowing that with this coupon, you’ll only be paying $1.86 for this box of Apple Circles. As you go to put the cereal in your buggy, you look over at your friend and notice she is buying a box of cereal that costs $4.57! What is she thinking?!? You decide it’s time to educate her.
“Why are you paying so much for that cereal?” You ask. “That’s almost $5, I’m paying less than $2 for mine!”
Your friend leans over and looks at what cereal you bought. “Honey, you couldn’t pay me to buy that stuff”. “What?!? Why not?”, you ask. Your friend then takes your box of Apple Circles and starts walking you through the ingredients, and how bad they are for your kids. Artificial sweetener this, high-fructose corn syrup that, too much sugars, too much carbs, not enough vitamins, etc etc. You can feel your face dropping as you learn that you were about to feed your children poison in a box.
“Wait a minute!”, you exclaim, “How do you KNOW all this!?!?”
You friend then tells you about her loyalty program. The one she’s involved with didn’t give her a coupon off that $5 cereal, instead, it gave her access to her own nutritional expert as well as a community of dietitians and online resources that educate her on what exactly goes into the foods she and her family eat. She receives education about ingredients and the effects they have on her health, so she can make more informed opinions when grocery shopping.
She points at two ingredients in your Apple Circles. “Just FYI, these have been shown to produce irritability and drowsiness in children under 10”. On cue, your 9 year-old grabs your pants leg and starts tugging “Mooooommmmmm! We’ve been in here ALL DAY! I want to go home now now NOW!!!!!” You look down at your watch, you’ve been in this store for 6 minutes. Your friend raises her eyebrows at you in a very “I told you so” way.
By offering a better experience, your friend’s program is able to generate more sales at a higher price-point. The reason why is because your friend’s loyalty program creates an experience for her that actually deepens loyalty toward the brand. Your friend appreciates the fact that her brand is giving her access to educational materials that allow her to better understand how the ingredients found in the foods she buys impacts the health of her family.
Your loyalty program saved you a dollar on a box of cereal. Your friend’s loyalty program showed her which products to buy in order to have a healthier family. Which approach do you think does a better job of building true brand loyalty?