The Downside and Boomerang Effect of Customer Loyalty Programs
Well known positive effects of customer loyalty programs
are that members are more likely to buy again from the merchant/retailer, visit its website and store more frequently, are more likely to download the merchant's app, follow the merchant on social and traditional media and recommended it to family and friends.
But according to researchers Robertson and Courtney there is also a boomerang effect, a downside to Customer Loyalty Programs
: in case members experience problems with the product or service, like shipping issues, problems with returns, stock outs, etc. They get more upset than normal customers who are not a member of a such program. They expect very good service but usually find out quickly that the loyalty marketing department is not able to help them with delivery issues.
They recommend 3 countermeasures:
1. Understand which problems are the most damaging.
2. Deliver on the benefits that can protect against defections.
3. Integrate loyalty programs with the overall strategy and processes.
There are also some other disadvantages or pitfalls of customer loyalty programs like:
- Over-focusing on keeping existing customers, neglecting the needs of new customers.
- Transactional spirit, neglecting emotional aspects and missing potential long-term benefits.
- Lower profitability. In case of excessive discounts of benefits given to loyal customers.
- Incomplete picture. Typically provides only a partial picture of consumers' overall purchase behavior.
T.S. Robertson and P. Courtney, "Why Customer Loyalty Programs Can Backfire", HBR May-June 2021, pp.21-24.
Sean Ogino, "10 Most Important Pros And Cons Of Loyalty Programs", Annex Cloud Customer Marketing Platform.