Customer disloyalty? The competition for your dollars is fiercer than ever

Loyalty programs ineffective... unless you've got a good product

With competition fierce for consumer dollars, companies are pulling out all the stops to build loyalty, from cost-cutting and beefing up loyalty programs to shamelessly broadcasting the bestowment of gifts on surprised customers.

But marketing experts say these tactics don’t work unless consumers actually like the product or service being reinforced.

“Basically, you’re trying to buy friendship,” says Ken Wong, a marketing professor at Queen’s University. “You’re trying to suggest to people that you’re this good guy bank or this good guy airline. But the reality is, if you want to be a good guy, give good service.”

“It’s a nice, cute event but it says nothing about what it’s like to do business with these folks every day,” he adds.

A recent online campaign by TD Bank featured a video with a talking ATM that gave unsuspecting customers free flight tickets, smartphones and surprise visits from Toronto Blue Jay’s outfielder Jose Bautista. At 2 p.m. on the day the video premiered, tellers at more than a thousand branches TD branches across Canada distributed envelopes stashed with $20 bills to unsuspecting customers.

In December 20103, WestJet’s online video showing the airline company granting passengers their Christmas wishes went viral racking up over 36 million views to date.

The pressure stems from consumers that are much more selective in the products and services they want and willing to spend the time online to find the best price.

“It’s much tougher for brands these days to build ongoing loyalty, especially in an environment where most competition is defaulting to price more than anything else,” says Bryan Pearson, president of LoyaltyOne, a consultancy firm that also operates the Air Miles rewards program.

Online retailers, often offering lower prices, free shipping, and at-home shoppping convenience, have taken business away from brick-and-mortar stores.

In response, more companies are developing or boosting their loyalty programs to hang on to their customers.

The proliferation of loyalty programs is “profound,” says Pearson. Citing statistics from LoyaltyOne’s research, Pearson says the average Canadian belongs to between eight and 12 loyalty programs that they use regularly.

The favoured loyalty programs among Canadian consumers are Air Miles, the Shoppers Drug Optimum program and Canadian Tire money, according to a 2014 online survey of over 1,000 respondents by Environics Research.

But the strategies marketers have traditionally relied on to foster customer loyalty – through product offering, competitive price points and loyalty programs _ are rapidly becoming outdated, says Niraj Dawar, professor of marketing at the Ivey School of Business and author of Tilt: Shifting Your Strategy from Products to Consumers.

“From a brand manager’s perspective, the question is what is a consumer loyal to – are they loyal to the brand that you’re selling or are they loyal to the points? If they’re loyal to the points the moment you stop those points your product will stop selling,” Dawar cautions. “Or the moment a competitor offers an equivalent amount of points on a slightly different program, the consumer will switch.”

There’s a better way to attract customers, he says. Companies that can make product “easier to buy, easier to find, easier learn how to use and then eventually dispose,” tend to retain its customer base for longer periods of time, Dawar says.

“It’s in the interaction. It’s in how the customer buys rather than what we sell them,” he adds.

U.K. retailer Sainsbury’s boosted sales of its private-label wines by taking the guesswork out of wine selection through the use of colour-codes and categorization.

“Sainsbury’s tried to cut the cost of the consumer’s learning curve… The wine category has been simplified for the consumer to the extent that wine consumption in the UK has grown 15% a year for the last several years,” he says.

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