Arvind Singhal: A case against loyalty programmes

MARKETMIND

In the past two decades, a lot has been written about customer loyalty. Many businesses across the world (especially in the services domain) have launched various programmes for nurturing their "loyal" customers.

The most commonly offered programmes are those from airlines (without any creativity, now all have a colour-coded tier system), hotels (the same lack of creativity even in terms of choosing colours, leave aside benefits), shopping establishments, credit card issuers, and select restaurants (some of whom offer varying levels of discounts after having collected an annual fee for issuing a dining card).

The range of "benefits" offered by the airlines to the loyal customers include guaranteed seats, possibility of an upgrade, access to lounges across select airports, check-in in upper-class counters, and finally, redemption of accrued miles for free tickets. Hotels essentially offer guaranteed room availability, upgrades, dedicated check-in counters, and redemption of accrued points against room nights.

Shopping establishments' offer is hazier""while most promise a lot, including special offers to members, special shopping hours, dedicated fast-track cash counters, etc. most end up having only "points" to offer against redemption for other merchandise.

The credit card establishments essentially offer only one purported benefit""redemption of points accrued based on transactions billed on the credit card against merchandise and service offers from time to time.

To do so, most of these establishments have set up dedicated departments, IT and other systems, and a bureaucracy to administer and monitor their loyalty programmes.

Most of these establishments spend a significant amount of direct financial resource (in some instances, as much as 0.5-0.75 per cent of the total revenues from the business, which, effectively, may be a very substantial proportion of the overall profit itself).

Very rarely do these businesses ever question or measure if they are actually generating "customer loyalty" or, in fact, creating potentially dissatisfied customers, whose backlash may be far worse than if each customer was treated as "equally important".

For instance, at all metro airports in India and most major ones outside (e.g. Frankfurt, London, Paris, New York), there is hardly any quality space left in the airline lounges after having tens of thousands of customers who have moved up to the higher tiers.

Check-in counters handle passengers at a snail's pace""irrespective of class""almost everywhere except super-efficient Singapore, Kuala Lumpur, and a few other Asian airports excluding India.

Airlines, funnily, have a system of upgrading only when the class in which the person has booked is overbooked, rather than rewarding a top-tier customer only for his/her loyalty, and finally, most frustratingly, it is impossible to get mileage tickets issued from most international airlines for the dates and class wanted by the customer (in a recent instance, I have not been able to get two tickets issued for myself from a leading airline despite having made a request six months in advance!).

Hotels are somewhat better in offering room upgrades, though again very frustrating when it comes to redeeming points for free nights on the dates desired by the customer. Credit card issuers are, by and large, equally hopeless""they usually offer merchandise/service redemption only for products and brands that practically no one wants, or on terms that make the entire exercise a mockery.

Almost all establishments, on top of these restrictions, come out with some uniquely quirky ones of their own, which give the impression that they do not really wish their customers to "earn and feel rewarded" for their loyalty.

There are, of course, a few exceptions. In my own experience, these include ITC Hotel's "Welcom Award" and "Sheraton Plus programs" and American Express's "Platinum Membership program" (although the latter, in my view, has equally poor options on redemption of points).

In the process, I believe most of the loyalty programme operators risk making their premier customers disappointed, frustrated, and at times very angry.

This risk, considered in conjunction with the high cost of administering the programme, should make most such businesses think through the entire paradigm afresh, and in many cases, substitute the so-called loyalty programmes with some more fundamental "promises" to all customers.

These promises could include either singularly or a combination of "Every Day Low Price" (EDLP) or "Every Day Good Service" or "Every Day Good (Innovative, High Quality) Product or Every Day Good Experience".

To achieve success on one or more of these parameters, each business has to give a totally fresh look to the current and emerging needs of its targeted customers and then re-jig various business processes to meet these needs successfully.

In the coming years, the sheer size of the Indian population and the growth in the economy will throw up tens of thousands (if not hundreds of thousands and even millions) of potentially very valuable customers for almost all forward-looking businesses.

Given the state of our physical infrastructure, it would be very difficult to provide "exceptional" service to them while managing millions of other customers. Offering and delivering on one or more of the promises as mentioned above could be easier!

arvind@ksa-technopak.com