A Framework for Sustainable Loyalty–Co-written with Aristotle

Loyalty marketing is big business and I should know, it pays the mortgage and private school tuition. But lately, I’ve been feeling a big squeamish about the future of this once powerful technique to drive repeat sales. The signs of a slow, painful death are everywhere. Companies are struggling with rising liabilities, and increasingly low engagement rates. Check out the stats:

  • In 2010, $48B was spent on initiatives to drive loyalty, with the average household belonging to 18 different loyalty programs. (Colloquy)
  • The average active membership is less that 50%, with only 8.4 active memberships per household. (Colloquy)
  • 1/3 of the $48 Billion global slush fund of travel industry rewards go unclaimed every year. (Deloitte)
  • 30% of hotel loyalty members “at risk” of switching preferred brand with 50% of their annual spend not with their preferred brand. (Deloitte)
  • 66% of consumers say that loyalty programs do not make them more likely to shop with a particular retailer. (CMO Council)

Damn depressing right? But maybe not. Maybe there’s a reason and where there’s a reason, there’s a way. Perhaps the decline of consumer engagement in loyalty programs is just another bit of evidence that the things that motivate consumers today have changed.  Individuals are paying more attention to their own personal impact and the impact of the choices they make. As John Gerzema, vice chairman of Y&R’s BrandAsset Consulting, suggested to CMO.com “Consumers’ current frugality is apt to be durable because it’s actually the long-term norm. “It’s not a ‘new normal,’–it’s the ‘old normal,’ ” he said. “Modern consumerism of the past 30 years is an anomaly, and, in fact, people are reverting to older, much longer-held values.” In the process, consumers “are moving from mindless to mindful consumption.” Here are some positive stats.

  • In 2011, more than $1.7B was spent on cause sponsorships. (Mintel)
  • 65% of all consumers (75% of Millenials) say they take cause messaging on packaging into consideration during the purchase process. (Mintel)

For the past few years I’ve been working with brands to try to find a bridge from the old world loyalty schemes to a new way of engaging consumers in true values-based conversations. These have often been frustrating endeavors working with pure bottom-line thinkers or with marketers who have no way of connecting with their CSR and cause counterparts. It was during one particularly frustrating project with HP that, with help from my friend Matthew Wilcox at the Institute of Decision-Making, I stumbled across an ancient, yet so modern way of framing more sustainable relationships between consumers and brands. A Framework for Sustainable Loyalty downloadSuccessful companies that are rethinking strategies for the long-haul are taking a behavioral economics approach. Just look at Patagonia or Seventh-Generation with deeply embedded environmental and social causes at the root of their brands. Or start-ups like Yerdle that are building their companies from core based values like consumption reduction. They seem to be looking at brands relationships as forms of friendship which is a much more helpful guide and this is where history comes in. Aristotle, in his Nicomachean Ethics of 350 BC, provided a perfect framework for the types of friendships one can aspire to have. According to Aristotle, there are three types of friendships: Utility: Friendships of utility are formed without regard to the other person at all. Such friends are often not very interested in being together, and the relationships are easily broken off when they cease to be useful. Pleasure: Friendships of pleasure are based on fleeting emotions and are associated with young people. They tend to end easily whenever people no longer enjoy a shared activity or can no longer participate in it together. Goodness: Friendships of goodness are the perfect form of friendship. They are motivated by care the other person and are forged through shared values. Such relationships tend to be rare and take time and attention to cultivate. While principles of goodness are actually the basis of many brands, many more traditional brands are also creating successful strategies incorporating aspects of good into their existing programs. As we evaluate the success of brands today, we can use this friendship framework to understand what sorts of friendships have contributed to fruitful and lasting connections and which are most important to increasing loyalty and helping shift the dynamics for the long haul. I’ve got a feeling the next half of my career is gonna be even more fun than the first!

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