Part II, The Mechanics · Chapter 12

Keepers

Customer loyalty programs and retention strategies: how to keep good customers without pretending to be their friend

I don’t want a relationship with Coca-Cola

One of us has a line he uses when a client starts talking about building a relationship with its customers. In the meeting it has an extra word in it. Here it is without: “I want a relationship with my friends and family. I don’t want a relationship with Coca-Cola.”

It gets a laugh, and then it gets a nod, because everyone in the room is also a shopper and knows it is true. And it turns out there is evidence. A study by the Corporate Executive Board, published in 2012, asked more than 7,000 consumers about the brands they bought. Only 23 per cent said they had a relationship with a brand. Of those who did, 64 per cent said the reason was shared values; only 13 per cent said it was because they interacted with the brand often. And across the study, the researchers found no link between how often a company interacted with a customer and how likely that customer was to stick.

That is a hard finding for a whole industry built on engagement, and it is the starting point for this chapter. A Keeper is the promotion whose job is to keep good customers buying. It is not the promotion whose job is to make them love you. Most people do not want to love their dishwashing liquid. They want it to work, to be there when they need it, to be fairly priced, and occasionally to be rewarded for sticking with it. A Keeper that does those things will keep more customers than one that sends them birthday emails signed by the brand.

What a customer loyalty program can and cannot do

Australians are not short of loyalty programs. Fly Buys launched in 1994 as a joint venture between Coles Myer, Shell and the National Australia Bank, and about a million households joined in its first six weeks. Today it reports more than nine million members, and it is one of many: supermarkets, airlines, fuel, pharmacies, coffee.

In 1997 Byron Sharp and Anne Sharp, of what is now the Ehrenberg-Bass Institute in Adelaide, published the first serious attempt to measure whether an Australian loyalty program actually changed loyalty. What they found was modest. The brands in the program showed a small amount of excess loyalty, a little more repeat buying than their size would predict, and not much more. A loyalty program, it seemed, mostly rewarded people for behaviour they were already showing.

That is not a reason to scrap loyalty programs. It is a reason to be honest about what they are for. In 2019 the Australian Competition and Consumer Commission reviewed the country’s customer loyalty schemes and its concerns centred on two things: the data the schemes collect, and the terms under which points can expire or change. Both are signs of what a modern loyalty program largely is, a data system and a deferred-reward liability, and neither has much to do with friendship. A Keeper can sit inside a program like that, or run without one. Either way, it does its best work when it stops pretending to be a relationship and concentrates on being worth staying for.

Where a relationship does exist

The CEB numbers cut both ways, and it is worth being fair to them. Nearly a quarter of people did say they had a relationship with a brand, and most of them said it was because they shared its values. Those relationships are real. They are just rare, and they are not built by sending more emails.

The example everyone in the trade reaches for is Harley-Davidson. In 1983 the company founded the Harley Owners Group, open to anyone who owned one of its motorcycles, and it describes the club today as the largest factory-sponsored riding club in the world, with more than a million members. What membership offers is telling: rallies, events, recognition for miles ridden and years of membership, the company of other riders. Almost none of it is a discount. It is a place to belong, built around something the members were already doing with their weekends.

Most brands are not Harley-Davidson, and most categories are not a way of life. Nobody joins a club for their laundry powder. The lesson is not that every brand should try to build a tribe. It is that where a relationship exists, it was built on something the customer already cared about, and where it does not, a Keeper should stop trying to manufacture one and concentrate on the things people do want from a brand they buy often: that it works, that it is fairly priced, and that sticking with it is occasionally, noticeably rewarded.

What a Keeper is for

Chapter 2 gave the Keeper two lines. It is reward of a particular shape, the kind that is worth more for being scarce. And it is judged on who stayed. Between them they rule out a great deal of what passes for loyalty marketing.

A reward worth more for being scarce is not a discount. Discounts are available to everybody, which is exactly what makes them worthless as a reason to stay: the competitor can match them by Thursday. Scarce rewards are the things a loyal customer can get and a casual one cannot. Access, first look, recognition, a seat that is not for sale, a service that is quicker for the people who have been around longest. They often cost a brand little, because most of them are things the brand already controls. And they mean something precisely because they cannot be bought.

Customer retention strategies that are really promotions

Over the years the Keeper briefs we have seen work have used some combination of five moves.

Recognition that money cannot buy. Early access to a new release, an invitation to something the public cannot attend, a tier that comes with being noticed. The test is whether a new customer could simply pay for it. If they could, it is a product, not a reward.

Never worse than the public offer. Nothing ends a Keeper faster than the discovery that new customers are getting a better deal than old ones. If the welcome offer for strangers is more generous than anything a ten-year customer has ever been given, the brand has told its best customers exactly what it thinks of them.

Reachable tiers. Status programs are Builders stretched over years, and chapter 9’s research applies: start people with progress, show the distance, and make the next level reachable on a normal year of buying. A top tier only a handful can ever reach is a trophy cabinet, not a Keeper.

Keep the promise. In 2015 Coca-Cola reworked My Coke Rewards, cutting the value of points and adding tiers tied to social media activity. Members pushed back, and the company rolled the changes back. A loyalty promise is a promise in the plainest sense, and changing it after people have earned under it feels to them exactly like being short-changed, which is why the ACCC’s 2019 review recommended clear notice before any such change.

Say thank you like a person. Not a birthday email from a brand. A real, small, unexpected reward for a real piece of behaviour: the tenth purchase, the year of membership, the product registered. Thanks works when it is specific and occasional, and stops working the moment it becomes a schedule the customer can predict.

Keepers for brands that do not own the till

Most of the brands we work with do not run a loyalty program of their own. They sell through a retailer who does, and the retailer’s program holds the customer, the points and the data, as chapter 11 described. That changes the Keeper’s shape but not its job.

There are two routes, and the best briefs use both. The first runs through the retailer: bonus points or a members-only price on the brand, funded by the brand and delivered through the retailer’s program to the people who already buy it. It reaches the right shoppers at the right moment, and the retailer will usually be glad of it; what it does not do is give the brand the customer. The second runs through the brand’s own channel: a registration, a warranty, a recipe club, a second purchase rewarded on the brand’s own site, built from the contacts a Harvester collected. It is slower and smaller, and it is the only Keeper the brand fully owns. A sensible plan does the first for reach and the second for keeps.

The liability on the balance sheet

Every point issued is a promise to pay later, and a loyalty program is, among other things, a pile of unpaid promises. Chapter 4’s Liability fader applies here at a scale most promotions never reach. Points that are never redeemed, which the trade calls breakage, quietly fund the program; points that are redeemed all at once, after a devaluation is announced, can blow a hole in a year’s budget. The ACCC found that customers could lose points built up over years because expiry notices were not prominent, and recommended that operators flag expiring points and adverse changes clearly, in the subject line of an email if that is what it takes.

The design lesson is the same as for any Liability in this book. Price it before launch. Decide what happens to points that are not used, and say so plainly. And never use expiry or devaluation to balance the budget in a bad year, because the customers it hits are, by definition, the ones you were trying to keep.

Who stayed: how to measure a loyalty promotion

Ruling R11 says the job sets the scoreboard, and chapter 2 set the Keeper’s plainly: who stayed. Not how many joined, how many opened the email or how many points were issued. The numbers that matter are the share of last year’s best customers still buying this year, compared with a similar group who were not in the program or did not get the offer, and how much of their category spending the brand kept. Those numbers live in the brand’s own sales and customer data, and they need a comparison group designed before the program starts, not found afterwards.

A promotion can contribute something smaller and still useful: whether the same people come back to the brand’s promotions year after year, which is a rough signal of whether the brand is staying in their lives at all.

Where this leaves the brief

A loyalty brief usually arrives as a wish to “build a relationship” or “drive engagement”. Translate it before anything else. Which customers do we most want to keep, and how many are there? What would make staying worth it to them, that a stranger could not simply buy? What have we promised them already, and are we keeping it? And how will we know, in a year, who stayed? Then design the scarce reward, keep the promise, price the liability, and leave the relationships to their friends and family.

A Keeper holds on to the customers you have. The last job is the one that reaches people who have never thought about you at all, and it is judged on something other than sales.