Issue #3: Is 'Disloyalty' the New Loyalty Norm?

“Fake loyalty.” “Disloyalty.” “Loyalty Penalty.” “Reverse Loyalty.” These terms are showing up more often in articles, all circling the same theme: brands are rewarding their worst customers and punishing their best. Business Insider even ran a headline declaring Customer Loyalty is a Sham along with an article backing it up. A viral piece by a local reporter detailed all the ways he gets better deals by avoiding regular interaction with a brand.

Is this fair reporting but bad PR for our industry? Or just hyperbolic clickbait? Probably a bit of both.

While there may be catchier names for it today, offering better deals to new or lapsed customers is nothing new.

I started my career in magazine marketing (ya know, those <gasp> paper things). New subscribers got nearly-free deals. On-time renewers paid the highest rates, while those who ignored our notices were rewarded with progressively lower rates until we practically begged them to renew at nearly the same rate as new members. It literally paid to be late.

Years later at Starwood Hotels (RIP SPG 🪦) I oversaw “targeted” promotions. Platinum members were enticed with bonus points for completing 10 stays, whereas infrequent base members might earn the same bonus for just 2 or even 1 stay. The goal was always to squeeze more revenue from each member, regardless of their baseline.

For consumers, nothing is more lucrative than trying to cancel. I recently canceled a hotel co-branded credit card I’d had for 15 years, partly to consolidate cards and partly because the points had become less valuable. The agent immediately offered me 100,000 points to stay. I’d be lying if I said the little devil on my shoulder wasn’t whispering, “Take it and cancel again in a month” 😈. But then I remembered I’m trying to be part of the solution, not the problem. I cancelled.

But what has changed is point values have gotten weaker, more program restrictions added, elite tiers are overcrowded, all combined with a break-neck corporate environment focused on fast growth and share-stealing, often overlooking long-term implication’s.

The obvious answer is that the ends justify the means. These tactics work, at least when looking at high level performance metrics.

But there are other reasons us marketers keep doing this:

And then there’s the uncomfortable truth: customers might not actually care. In my interview with David Slavick, he noted, “I seriously doubt that buyers get outraged about getting less while lesser members get more. It doesn’t last for long, especially once the lesser or inactive member responds and demonstrates that they might be a splitter and now willing to shift their spend back to the brand that is promoting to them aggressively.”

I agree with David that consumer outrage may be overblown. But is that because customers are simply numb to it? Are they no longer true brand fans because the we eroded trust? And can we fault ‘gamers’ when we’re the marketers training them on these tactics in the first place?

But regardless of why we’re doing it, in a digital and social age of oversharing and virality, nothing is secret, and we’re eroding exactly the habits we want to build.

I’m not suggesting we scrap proven tactics like new-member and win-back offers or personalized marketing. But we could do more to overtly reward our best customers, and use that AI for some good. Some suggestions are below. None of these are groundbreaking. In fact, they’re elementary marketing. Yet, so many brands are still not doing these.

Reward Frequency > New

Personalized but (More) Equitable

Save Incentives With a Purpose

Stop the Gamers

Guaranteed Elite Benefits

True Surprise & Delight

Dynamic Pricing Guardrails

What’s your take on “disloyalty”? Is it a real hardship for our business or unnecessary headline hype? And what other tactics would you suggest as alternatives?

For more perspective, check out my interview below with David Slavick, Co-founder & Partner at Ascendant Loyalty.

Ascendant Loyalty is an advisory/consulting firm that has been serving clients in North America and globally for 7 years in Retail, Specialty Retail, Hospitality, Casinos, Entertainment and more.  Learn more about the firm at ascendantloyalty.com and many resources for customer-centric program owners. 

This interview was lightly edited for length.

#1 SMP:  When you hear the term “fake loyalty” or “disloyalty marketing,” what does that mean to you?

David:   A programmatic approach that offers very little to the buyer of goods and services. The question is why? The most obvious is that they want to collect data to inform their understanding of buyer behavior, but their profit margins are so thin or weak that they can’t afford to give something back in value. Alternatively, programs launch with a value proposition, giving something back in value, but over time they modify the hard (reward or cash back or stored value) and soft benefits (access, special services, invitations, recognition, easy returns, etc.) to reduce the costs and think they can get away with it, the buyer won’t notice.

Disloyalty is a result of negatively impacting the love that the buyer has for the brand. The brand chooses to break promises made and fails to deliver on buyer’s expectations.

#2 SMP: Giving great deals and offers to a cohort that is not your best members are not new tactics, but seem to be more prevalent than ever in a digital and AI age.   Do you think brands are spending too much effort on these groups versus their best members?

David: No I do not. Smart marketers, their credit card marketing partners as issuers and technology partners provide capabilities to effectively target, segment, plan and execute multiple campaigns to achieve multiple goals and objectives. Consumers know that in today’s world companies can offer value that is unique to their needs and expect it to happen. Marketers have been playing this game for 30 years plus.

#3 SMP: What are common mistakes brands do when developing their promotion strategy or loyalty program strategy when you think about these different cohorts?  And what should they be doing instead?

David: From a best practices standpoint, the biggest mistake is offering bonus points too frequently, which chases sales during soft business periods, accelerates point earning, and significantly increases program liability, ultimately showing up on the Balance Sheet. We’ve seen this pre-conditioning members to “wait” for the 2x, 3x, 4x bonus in retail sectors, or the limited time only 60k or 70k miles or points offer in hospitality.

In hospitality, especially card issuers make the limited-time offer to apply for the co-brand card for airline or hotel chains, with pre-set conditions for timeframe and spend threshold. The challenge is to keep the card active and profitable.

Lastly, from time to time you will see brands implementing different offer strategies without a strong test/learn practice/method. It is essential that if you have enough members, geographic and segment or personae differentiation to have quarterly, seasonal, and exclusive holdout groups. Holding customers out from promotions is seen as a lost sales/profit opportunity – this is wrongheaded. You need to have learning to improve/refine your planning and execution, plus demonstrate to leadership that promotions are driving incremental profit, leading to lifetime value.

#4 SMP:There is pressure on marketers to bring in new customers continuously, and that is often at the expense of loyalists.    How do you recommend marketers balance this?

David: This is the struggle with where to invest. Every company wants to grow market share. Every company wants to expand their customer base at the expense of their competition (even in a sector that might only have 1 or 2 direct competitors). And every company wants to retain customers, especially the profitable ones.

Extensive analytics informed by both zero party and first party data with a commitment to action based segmentation to drive upward value migration is fundamental. Likewise, today AI capabilities are fueling even more intelligent and predictive results that can be quickly refined based on response analysis in real time.

#5 SMP:  Can the future of loyalty be both fair and personalized? Why or why not?

David: Yes. Consumers expect it. If I share my information, you'd better personalize my experience. This, unfortunately, is the #1 area of disappointment for consumers and likewise the #1 deficiency on the brand side. Data is in-house, but it is either silo’d or not effectively managed which in turn hurts the brand’s ability to deliver on personalized experiences.

Loyalty does not have to be fair, what it needs to do is satisfy the member’s desire to “show me that you know me”.

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