Committing to a single airline’s rewards programme to buy a flight every few months just isn’t worth it. Tools like Kayak and Expedia allow us to get the cheapest flight out of hundreds of airlines. Do people walk several blocks to a coffee shop every morning because of its rewards program? Probably not.
Many companies continue to expand their loyalty programmes as if it were an all-in-one solution for customer acquisition. Maybe it used to work but ask anyone if they are as loyal to brands right now as they were in the 90s and I’d be surprised if anyone said yes. There are two reasons behind this trend in customer loyalty.
Online Price Visibility
Comparison sites have popped up in all industries in the past decade. Flights, toys, shoes, insurance, remittances—you name it. These websites are killing customer loyalty. As they were made to do so, they minimise the price of cost comparison, once a considerably burdensome task. By doing so they bring out our inner homo economicus. Our attachment to brands clashes with our desire to be profit maximising. We might wonder, am I that picky to pay an extra $200 to fly in my favorite airline? Not all sectors are affected by this. Hermès, for example, rewards loyal or prominent customers with the possibility of buying their pricey Birkin bags. But for most non-luxury goods, the online disclosure of prices make consumers prioritize cost-efficiency over personal brand preferences.
The Idle Customer Gold Mine
Conventional wisdom tells us to reward existing customers. Why waste time and energy on acquiring new customers when you can easily get old ones to buy more? Some tech startups, aware of the importance of access to data, are starting to challenge this paradigm. Acquiring data, even from one-time consumers creates growth opportunities. Take ride-hailing companies. There’s a fixed amount of drivers out there at any time and excess demand is not rare. Do old, loyal customers get priority? Usually not. By minimising waiting time for new customers, startups are able to retain consumers and, with them, data they can monetize, such as traffic data. This strategy will allow tech companies to exploit big data to understand consumer behavior more in the long-run.