Loyalty is driven by a complex set of needs that differ by individual and circumstance. Fundamentally, a loyalty program should be based on understanding and insight on what drives purchase behavior. For some, price and a primal need to “beat the system” is everything. For others, price is but a secondary driver of loyalty.
Discounts can actually undermine loyalty. For example, the fanatical loyalty of Apple customers is driven by needs counter-intuitive to discounting strategies.
I recently completed a project for a gas station operator that showed loyalty was more likely driven by an “absence of hassle” than having the lowest price (at least up to a point). Key loyalty factors for this operator included having the right corner location, ease of ingress and egress out of the parking lot, speed of service, and ease and choice of payment. Given those needs were met, consumers advanced to a perception of product quality, cleanliness, and so on. As long as price was within a few cents of the competitor across the street, it had little impact on loyalty against their most profitable customer segments. For this client, investing in meeting those key needs drove greater loyalty and ROI than lowering the price or giving discounts.
Marketers need to build an exit strategy into their loyalty programs. Needs and economics change, so consider the impact of exiting or modifying the rules.