The Executive Summary outlines Forrester's concerns with traditional loyalty programs and the opportunity social loyalty offers brands:
Traditionally, loyalty programs have provided transactional interactions with customers. But marketers who embrace social loyalty - brand affinity built on the connection of consumers to the brand as well as to each other - can use it to move their loyalty programs from mercenary rewards to a portal for identifying, creating, and nurturing high-value customers.The problem with "loyalty programs" is that they tend to reward the wrong thing (short-term behavior and manipulation of points) and the wrong people (not those loyal to your brand but those loyal to whichever brand offers the best rewards program.) In fact, I've come to despise the term "loyalty program," since true loyalty isn't built with a program, rewards, and points but with great consumer experiences.
The classic example of loyalty program misfires comes from the airline industry. Which airline brand are you most loyal to and why? Here in Milwaukee, most of us are loyal to Midwest Airlines because they're based in our home town, often feature two-across leather seating throughout the plane, and are famous for their fresh-baked cookies distributed on each flight. Midwest has a "loyalty program," but almost no one will cite it as a reason they're loyal to the brand. For those of you not in Milwaukee and not lucky enough to fly Midwest Airlines, chances are you're loyal to an airline such as JetBlue or Southwest, and it probably has nothing to do with the many rewards cards you carry in your wallet.
Loyalty programs in the airline business have become a cost of business, and an expensive one at that since they aren't differentiators and don't build loyalty. If only the airlines focused on creating loyalty through differentiated consumer experiences! Just think of what an airline could achieve if it took all that money they spend administering, advertising, and servicing those loyalty programs--not to mention the cost of all those free flights--and instead invested the cash on improving and differentiating the customer experience.
Alas, the airlines cannot suspend their loyalty programs because consumers have come to expect this feature. These programs have become demotivators (factors that reduce loyalty when absent) rather than motivators of brand loyalty.
Forrester has some interesting ideas on how to overcome the problems of "mercenary" consumer behavior induced by traditional loyalty programs. The key is to get consumers talking to each other. According to Forrester, "less than 25% say they trust even the emails they sign up for"--and this was the highest trust level of any traditional advertising channel, beating TV, radio, print, in-store, and online ad media. Conversely, when asked what influences their perception of a brand or company, over 50% cited their friends and family and just under 50% said a third-party review.
Getting people talking to each other pays brand dividends not just with the people who listen but also with those who do the sharing. Forrester notes that Word-of-mouth (WOM) consumers - those who both give and receive advice about products - are 50% more likely to agree with the statement, "When I find a brand I like, I stick to it." Getting people to speak on behalf of your brand yields loyalty in both the sharers and the listeners.
So, how do you build social loyalty? To learn Forrester's ideas, you'll need to purchase their report. They have some interesting ideas and examples, but the gist of their recommendations is to determine what peer-to-peer actions are valuable to your brand, figure out how to motivate and measure those actions, and reward consumers for these behaviors.
Unlike traditional loyalty programs that only motivate purchases--a positive outcome but by no means one that cultivates or represents ongoing brand loyalty--social loyalty programs encourage a much deeper emotional investment and provide a greater payoff.
Of course, a social loyalty program that merely gives away something of value to someone who blabbers on a forum or refers imaginary friends does even less good than a purchase-oriented traditional loyalty program. This is why these programs require careful planning, definition, measurement, and execution.
There is an even better way to assure a social loyalty program succeeds: A brand that provides undifferentiated or mediocre experiences will run the risk their social loyalty program is merely rewarding tasks and not true loyalty. But a brand that creates memorable experiences that engage consumers' emotions won't need to worry. Their social loyalty program will encourage and reinforce behavior consumers will tend to do anyway--sharing positive stories, posting complimentary reviews, and recommending your brand to others.
After all, I didn't rave about Midwest Airlines because I'll earn some loyalty points for doing so; Midwest earned the praise with nothing much more than a warm, soft, chocolaty, and delicious cookie that melts in my mouth and reminds me of home, even when I'm 2,000 miles away and 35,000 feet in the air.