3 Reasons Why “Loyalty” Is an Outdated Strategy (Focus on People Instead)

By Shayna Stewart

Loyalty: the holy grail of all company metrics.

This makes sense — the more people who continue to purchase, the more profitable a brand is.

However, loyalty as a strategy is a self-serving strategy that removes people’s needs and desires from the equation altogether.

What brands should focus on is creating people-centric strategies that provide long term intrinsic value in order to generate loyalty.

When brands use the word loyalty, they are typically referring to one of two things:

  1. A points system offered to repeat customer that results in discounted prices
  2. A business goal that refers to keeping people coming back to make a purchase

These constructs of loyalty are now outdated and the progression away from “loyalty” as a strategy has been happening for sometime.

Those that are leaders in loyalty are aware that loyalty as a strategy is dead, but the construct of loyalty that a person may have to your brand is very real.

In this article, we dive deep into why loyalty as a strategy can hurt your business and does not actually promote loyalty from real people, and how you can get started on a people-centric strategy to reconnect with your customers.

Table of contents

  1. Why loyalty points erode loyalty
  2. Loyalty as a strategy focuses on the past, not the future
  3. Loyalty as a strategy is not a people-centric strategy
  4. How to get started on a people-centric strategy

1 / Loyalty points erode loyalty

Brands are competing on consumer experience as opposed to pricing.

Historically the way brands captured market share, and what most of us learned in our economics books, is to reduce the price of your product in order to trigger demand for your product.

What this traditional framework does not account for is delivering upon a superior consumer experience.

In fact, we are seeing that people are willing to spend even more money for the exact same product with brands that have a superior consumer experience, which is an extreme deviation from our 101 economics books.

If you think that offering people discounts will sway them to buy from you compared to a competitor that has a superior experience, you will be sorely mistaken.

Intuitively, the price of a product is not the first thing you think of when thinking of superior brands — because pricing is table stakes these days. People just expect fair pricing for the value that is being provided previous to the purchase, and post-purchase.

The reasons the winners are winning is not because of a cheaper price, but because they provide superior connected digital and in-store experiences throughout their customers’ journey.

This concept is not new:

B. Joseph Pine II and James H. Gilmore published the first inkling of this concept back in 1997!

Below is how they framed up creating superior experiences as opposed to competing based on price for making goods or delivering services.

Source: Harward Business Review

There’s a new breed of companies that have changed the way consumers interact with their category altogether, all of which build their products with consumers’ needs in mind first and the business second. This category is not represented in the framework above.

Think Uber, Etsy, Ebay, Amazon, any mobile banking app.

These brands and technologies have revolutionized their respective markets so much that they have shifted consumer expectations, which captured market demand without pricing playing a role. In these cases, the pricing strategy in terms of point systems or discounts came after they have proven the intrinsic value from their product.

Telling people that your product is cheaper is not a good long term strategy. Discounting your price via rewards points or continuous sales will erode the consumers perspective of your brand:

You become the “cheap” brand.

2 / Loyalty as a strategy focuses on the past, not the future

Loyalty as a strategy does not promote proactive optimizations to the product.

If return visitors are on the rise, then what is there to change?

People’s expectations are constantly changing. A simple UI improvement in an unrelated industry could become the standard for all industries (think the Like button from Facebook, which single-handedly changed review ratings forever).

The brands who are doing it right, know that they are never safe and therefore should always improve their digital presence.

They spend a significant amount of money doing so too.

Jeff Bezos recently said “Amazon is not too big to fail”. This is coming from the CEO of the brand that spends the most money on research and development in the tech industry.

If you feel you are in a safe climate where your return visitors are increasing, know that your success will not stay for long without the continuous optimization from your product teams.

In case you are experiencing a decrease in return visitors, loyalty tactics that typically will benefit your product will actually counteract increasing return visitors.

Counteractive Loyalty Tactic #1: Double down on core users

This tactic is great, particularly for new to market products, but in the case you have been available to the market for a while, this is counteractive to your long term growth.

Focusing solely on optimizing the product to core users will emphasize features that were already showcasing value to a small group of users instead of understanding what value to showcase to capture a more expansive return audience.

Counteractive Loyalty Tactic #2: Increase conversion for new users

At surface level this makes sense, you are trying to provide value to a new user by ensuring they have access to the product or service you are trying to sell.

This tactic does not improve loyalty long term if your product or service is not showcasing the value.

Think of Netflix:

they increase new user conversion rate by offering a free one-month subscription. Imagine that their product doesn’t showcase the value of paying for it in the first month, they would see a complete drop off in return visitors past that month.

If your product is not showcasing value to the users, then a conversion isn’t valuable to the business in the first place. In addition, this is a highly gameable metric as it’s possible to increase the conversion rate by offering steep discounts.

Which actually promotes a degradation in the brand perception.

Counteractive Loyalty Tactic #3: Spend more on marketing

Reaching new audiences is always a goal, but if your return visitors are declining, this tactic won’t fix anything; it will just decrease your marketing efficiency.

This doesn’t fix the problem because it does not address the product enhancements that need to happen in order to create the stop gap.

Andrew Chen summarizes this nicely, saying that you have to be customer-friendly, platform-friendly and product-friendly before you start on a marketing strategy.

Otherwise, this tactic is just throwing money at the problem without addressing the problem head on.

If you find yourself optimizing your product when the trends are not going your way, you are optimizing from a losing spot in terms of customer expectations. This is what a loyalty-centric strategy will produce.

To get ahead of this you need to adopt a people-centric strategy:

A people-centric strategy will allow for your product pivot as soon as the market changes and if you’re lucky, create the pivot in customer expectations.

3 / Loyalty as a strategy is not a people-centric strategy

The key is to not focus on “loyalty” per se but to focus on the intrinsic motivations of why someone would want to come back; In other words, adopt a people-centric strategy.

Intrinsic motivations describe an innate reason for a person to perform some action: they are doing something because it feels good to do it.

Think about studying hard for an exam.

Some people may do it just for the A, which is an extrinsic reward. But some people may do it because they are generally interested in learning about the topic.

The latter would be an example of an intrinsic motivation, where someone does something because they just want to, no reward needed.

Designing around intrinsic motivations is where brands must spend all of their time because, ultimately, that will lead to a person’s’ long-term engagement aka loyalty.

Can you remember the last time that you told yourself or your friends that you are going to be loyal to a brand?

No, you can’t because people don’t think like that.

The way you think to yourself about why purchasing or using a brand again is usually about:

  • Was that easy for me to use?
  • Did the product do what it said it did?
  • Was I able to contact service reps easily?

If the consumer answers yes to these questions, then the brand is successfully answering to intrinsic motivations (note: none of which have to do with price).

Unlocking a great people-centric strategy means you are leaning into the custom intrinsic motivations of why people would love your product.

4 / How to get started on a people-centric strategy

If you find yourself in this losing battle of loyalty as a strategy, there’s still hope.

Adopting and acting on a people-centric approach will enable you to pivot their digital product as quickly as consumer expectations change.

Here’s what you have to do:

First, get the team together to hypothesize more broadly around what is motivating someone to seek this product out.

Secondly, you must think through what are all of the questions that someone may have when understanding if this product is right for them.

This will help ensure that all of the content is succinctly and accurately answering the questions that someone needs answers to prior to purchase.

Lastly, the brand must make sure that as the consumer is qualifying, purchasing and engaging post-purchase that each step is delivering upon exactly what the person wants to achieve.

If you frame up your strategy with this framework you can quickly identify areas that consumers are most interested in and understand why.

This is the difference in being proactive vs. reactive where you understand what behaviors predict repeat visits as opposed to just monitoring if repeat visits are up or down.

Start thinking in terms of how people think.

If you do that your strategies will supersede market expectations, which will get you your desired outcome in the end, which is a growing group of long-term customers.

Source:ymedialabs.com/loyalty-vs-people-centric-strategy

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