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Are preferred customer punch-card programs effective?

Experts Peppers and Rogers answer a reader question about customer loyalty programs, and whether traditional punch-card programs are an effective way to build loyalty.

What's your take on traditional loyalty programs? By traditional, for example, I mean a preferred customer punch-card program that lets a customer earn free merchandise or discounts after a certain number of purchases. Is this becoming old-fashioned? Is there a better way, or have "loyalty programs" been redefined?
We think that punch card programs -- whether they are in fact literally punch cards or even the electronic version, which is either a card or a program that keeps a record for you, like a frequent flier program -- are probably the lowest rung on the loyalty ladder and the loyalty program ladder, for the simple reason that what they do is reward a transaction with a bribe to get that transaction. And we know this because if we open the wallets of many folks around the world, what we see in those consumer wallets is many different cards from many different competing companies. I, for example, carry nine different frequent flier cards with me. So as long as I'm in any of those I'm happy and each of them thinks that I love them the best, but it may not be true!

So basically what we are looking for now is the capability that goes much further. Instead of just rewarding a...

customer to do this transaction with me today, I want to reward him instead for giving me the information -- perhaps it's just giving me his identity so I can link it with a shopping cart, or letting me know that he's flying me again -- so that I can find out something about him that I wouldn't known otherwise. And I'm rewarding him for giving me that information and linking his identity to the info I have about him. And then I use that information to do something for him that nobody else could do.

For example, a frequent flier program could send me information offering me special deals allowing me to bring a member of my family with me, which would be valuable to me. Or they could let me know about a special deal on a route that they know I'd actually like to use. It drives me nuts when they send me an email and it offers me special prices on routes I'm never going to take. What good is that to me? That just took up my time for nothing.

So what we really want to do is use a loyalty program to gather information about each customer, mass-customize communication and offers to those customers, and then really entice genuine loyalty from those customers who are now getting greater value from us than they can get from competitors who don't know what we know, and they get greater value from us than from other customers do whom we don't know as much about as we know about this customer.

Hear more in Creating Customer Value, a SearchCRM.com monthly podcast series with Peppers and Rogers.

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