Do I Need a Loyalty Program? 3 Times When You Should Say "No"

Last Updated May 31, 2011 8:57 AM EDT

If you've ever asked yourself the question, "Do I need a loyalty program?" then you're probably familiar with the pat answers offered by the experts.

Yes, they say. You absolutely do.

A loyalty program can bring you closer to your customers. It can help you single out your best customers and offer them better service.

The American public seems to have embraced loyalty programs. A recent survey by market research firm Colloquy found the average household belongs to 18 loyalty programs, ranging from grocery store "club" cards to frequent flier programs.

But I'm not convinced.

As a consumer advocate, I've seen loyalty programs that did more damage than they did good for customers. Sure, they segmented the best customers from the rest, but they also gave companies an excuse to treat the "have-nots" like dirt. The programs also encouraged destructive behavior, compelling point- and mileage-collectors to buy products they don't need.

Are loyalty programs always necessary? I put the question to the loyalty program experts. And while many said every business should have a loyalty program, a few begged to differ.

Here's when you should turn down the opportunity to create a loyalty program.

When you're a business-to-business company. "Loyalty programs are best suited to retail organizations with direct customer contact," says Leslie Kossoff, founder of The Kossoff Group, a consulting firm. "If you're not a pure-play B2C, it won't make sense. In fact, if you're a supplier and try it as a B2B, you run the risk of looking like you're bribing your customers."

When everyone else does. If all of your competitors have a program, you may distinguish yourself by not having a loyalty program. "If a company decides not to have a loyalty program in an industry where it is the norm, they may be making a statement," says Shep Hyken, author of the book, The Amazement Revolution. "Perhaps they are trying to offer value in other areas."

If there's a better way to bring in new customers. "In a situation of more simplistic and infrequent spending, a couponing program tied to a receipt that's designed to bring the customer back to shop sooner may be more efficient and effective for the company's bottom line," says Daniel Olson, who runs several large loyalty programs for the marketing agency Wunderman.

Experts agree, though, that some of the goals of loyalty programs â€" like communicating with customers â€" should be embraced by every company, whether they have a program or not.

"Every business should have a program that communicates with their customers," says Kathy Doyle Thomas, chairwoman of the board for the Retail Advertising and Marketing Association. "A business does not need a card and give-away prizes to accomplish this."


Christopher Elliott is a consumer advocate, syndicated columnist and curator of the On Your Side wiki. He also covers customer service for the Mint.com blog. You can follow Elliott on Twitter, Facebook or his personal blog, Elliott.org or email him directly.
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Photo: Lisa Brewster/Flickr
  • Christopher Elliott

    Christopher Elliott is a consumer advocate and journalist. A columnist for National Geographic Traveler magazine and the Washington Post, Elliott also has a nationally syndicated column and blogs about customer service for the Mint.com. He is at work on a book about customer service issues.