Risk of loyalty fatigue growing rapidly

Department stores have them. So do airlines and specialty shops and railways and booksellers and tire-makers. They are loyalty programs and they've come a long, long way since American Airlines devised what is considered the first such program 20 years ago....

Department stores have them. So do airlines and specialty shops and railways and booksellers and tire-makers.

They are loyalty programs and they’ve come a long, long way since American Airlines devised what is considered the first such program 20 years ago.

But what about the consumers who use loyalty programs? Has the novelty of piling up enough points for a flight or a car rental or back massage worn off? Are they increasingly giving a curt ‘No,’ when asked whether they have a card? Do they suffer from ‘loyalty fatigue’?

It’s just possible that they do, says Mary Larson, a partner with the Mitchell Madison Group, a business consultancy in Montreal that specializes in developing loyalty programs.

‘Loyalty fatigue is an issue,’ she says.

John Wright, senior vice-president of The Loyalty Group, the Toronto-based company that manages the ubiquitous Air Miles program says, ‘There is loyalty fatigue for some programs – not all, but some. And it happens when companies don’t listen to their customers.’

Larson concurs, saying she’s not convinced companies are always doing their homework when they want to create that ‘propensity to buy.’ And as a result, she continues, the market is inundated with half-baked programs that are announced with great fanfare, but then just sit there.

‘When we’ve designed loyalty programs, we find there are four factors that made them keep working,’ she says. ‘Immediacy of rewards is the first. Then, the reward has to be a tangible one with value for the individual. You have to encourage behaviour that increases my purchasing; and benefits must be mutually beneficial to the company and the person accumulating the points.’

Ken Solmon, director of research and a loyalty expert with the Toronto office of Impiric, formerly Wunderman Cato Johnson, doesn’t actually use the term ‘loyalty fatigue,’ but does say there are problems in the industry.

‘What happens is that sometimes the programs fade into the background and cease to be a part of the (consumer’s) purchasing decision, or the store decision,’ he says. ‘It becomes an afterthought, and getting points stops becoming part of the decision process.’

Solmon figures he’s packing about 12 loyalty cards in his wallet at any given time. They range from the Air Miles card, to airline frequent flyer cards, to hole-punched cards from neighbourhood sushi and coffee houses.

Solmon says companies with loyalty programs must constantly promote their plans, keeping them fresh and playing up any unique angle they may offer.

‘Some retailers just blew into the market with a wave of advertising and drove them through the roof,’ he says. ‘Then they stopped. If you track them over time, you’ll find they can slip from the consumer’s mind share. Maybe that’s where the fatigue sets in.’

Consider Zellers. The retailer practically pioneered retail-based incentive programs in the mid-1980s with its Club Z program. Everybody was talking about it when it launched, but with so many other programs out there, it seems to have lost its lustre lately, maybe gone a bit stale. Or has it?

‘Actually, we are going to be relaunching Club Z later this year,’ says Doug Ajram, general manager of the program for Brampton, Ont.-based Zellers. ‘According to our data, 75% of the customers who make purchases at Zellers ask for Club Z points. And over the years, we’ve consistently redeemed 1.5 million rewards.’

The retailer is obviously able to keep its members active. Ajram says that’s owing to the variety of awards available, and their achievability. And, of course, some new developments to keep it fresh.

‘Rather than small, little announcements, we’ve come up with some eye-openers,’ he says. In October 1998, for example, the company launched Gen Z, for children of Club Z members. According to Ajram, there are now 1.1 million youngsters enrolled. Further enhancements to the Club Z program include a gold card, a seniors’ program, and more choice in the catalogue.

‘We’ve had focus groups, and after talking with our customers, we’ve adapted the program to meet their needs.’

For its part, The Loyalty Group tries to combat cardholder malaise by convening focus groups, conducting quantitative research and reviewing incoming messages received via phone, fax or e-mail.

‘Listen to what people want when it comes to reward choice,’ says Wright, whose company has just added sponsors such as Northwest Airlines and KLM. ‘The last thing you should have is where customers do their part in providing information to you and then you do nothing for them.

‘In our case, we’ve got IVR (interactive voice response) in our call centre, and an up-to-date site where people can book rewards online. We are trying to make interaction between Air Miles, its sponsors and cardholders as easy as possible. Loyalty fatigue sets in when you don’t deliver for your customers.’

Steve Ince, vice-president of marketing for Toronto-based Tip Top, helped implement his company’s loyalty program, called Tip Top Advantage Rewards, in 1998. He refutes any notion that newer programs such as Tip Top’s are contributing to so-called loyalty fatigue.

Ince said his company recently surveyed 400 Advantage Rewards members, segmenting respondents into three levels of purchase: low, medium and high. Without divulging actual numbers, Ince notes that those who purchased the most at Tip Top had the highest level of satisfaction with the Advantage Rewards program.

‘We were pleased with that, because while I’m not sure there is fatigue, I do sense that people’s enthusiasm for loyalty programs has waned a little,’ says Ince. ‘There is a bit of cynicism out there.’

One reason for that, he suggests, is the length of time – years, in some cases – it can take before collectors can redeem points for loot.

It’s this kind of criticism that has traditionally been lobbed at Air Miles. But Wright defends the program.

‘Air Miles offers rewards after accumulating 25 miles,’ he says. ‘We find most people can get that in one month. True, it’s no good for anyone to wait a long time for their rewards, but when you offer rewards, they have to be relevant.’

According to the experts, there are two principles that must be observed if companies are to prevent any real or perceived loyalty ills: communication and segmentation.

‘I’m not saying change the rules every two weeks,’ says Solmon. ‘But change the flower in your lapel. Change the colour. Let me know you’re alive. Communicate with me. Companies that do the best job of communicating with customers have the best retention rate.’

Adds Larson: ‘It’s not loyalty, it’s increasing their propensity to buy. So use segmentation work to make sure you are offering an award that means something. Men’s golf pants? I’m not interested.’

In Brief: The Garden picks CDs to take on daily creative leadership

Plus, Naked names two new leaders of its own and Digital Ethos comes to Canada.

The Garden promotes two creative directors

ACDs Lindsay Eady and Francheska Galloway-Davis have taken over responsibility for day-to-day creative leadership at The Garden after being promoted to creative director roles.

The pair will also help develop the agency’s creative talent, formalizing mentorship and leadership activities they have been doing since joining the agency four and three years ago, respectively. In addition to creating the agency’s internship program, the pair have worked on campaigns for Coinsquare, FitTrack and “The Coke Challenge” campaign for DanceSafe.

Eady and Galloway-Davis will continue to report to The Garden’s co-founder and chief creative officer Shane Ogilvie, who is stepping back from daily creative duties to a more high-level strategic role, allowing him to focus on client relationships and business growth.

Naked Creative Consultancy names new creative and strategy leadership

Toronto’s Naked Creative Consultancy has hired Yasmin Sahni as its new creative director. She is taking over creative leadership from David Kenyon, who has been in the role for 10 years and is moving into a new role as director of strategy, leading the discipline at the agency.

Sahni is coming off of three years as VP and ECD at GTB’s Toronto office, where she managed all the retail, social and service creative for Ford Canada. She previously managed both Vice Media and Vice’s in-house ad agency Virtue.

Peter Shier, president of Naked, says Sahni’s hiring adds to its creative bench and capabilities, as well as a track record of mentorship, a priority for the company. Meanwhile, Kenyon’s move to the strategy side, he says, makes sense because of his deep knowledge of its clients, which have included Ancestry and The Globe and Mail.

Digital Ethos opens a Toronto office

U.K. digital agency Digital Ethos is pursuing new growth opportunities in North America by opening a new office in Toronto.

Though it didn’t disclose them, the agency has begun serving a number of North American clients, and CEO/founder Luke Tobin says the “time was right to invest in a more formal and actual presence in the area.” whose services include design, SEO, pay-per-click, social media, influencer and PR,

This year, the agency’s growth has also allowed it to open an office in Hamburg, Germany, though it also has remote staff working in countries around the world.

Moray Hickes was the company’s first North American hire as VP of sales, tasked with business development in the region.