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Brand Loyalty versus Program Loyalty: Marketing Challenges of Reward Programs

Updated on February 18, 2015
heidithorne profile image

Heidi Thorne is an author and business speaker with over 25 years of experience in sales, marketing, advertising and public relations.

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What PRIMARY REASON keeps you buying from the businesses you do?

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What keeps you buying from the businesses you do? These days, many people may answer that it's the reward programs that keep them coming back. If that's the case, the programs have been a great way for the businesses to build brand loyalty.

But let's say that a reward program suddenly disappears or changes dramatically in some way. *Poof!* All the points, all the prizes, all the perks... gone. Would you still buy from the business?

Unfortunately for many businesses, customers' loyalty often hinges on the presence of a reward program. Once the rewards are gone, the customers are, too.

So are customers truly loyal to the brand or the rewards? And have sellers conditioned customers to expect rewards? These are some of the biggest challenges to using a rewards-based marketing and customer service program.

Reward Program Goals

There are four primary reasons why any company would offer a reward program and many programs can achieve all of these at the same time:

  1. To thank customers for their patronage.
  2. To keep customers buying from them instead of competitors.
  3. To get customers to buy more.
  4. To get customers to buy more often.

Trading Stamps Pioneer Today's Reward Programs

Those of the Baby Boomer and earlier generations who grew up in the United States are likely to remember one of the most popular reward programs ever devised: S&H (Sperry & Hutchinson) Green Stamps trading stamps. The program was a true retailing innovation when it first began in 1896 and reached a peak of popularity around the middle of the 20th century. S&H did have several competitors with similar programs. (I remember collecting A&P's "Plaid Stamps.") But in 1964, S&H alone was reported to have 40 percent of the trading stamp business with 60 percent of consumers saving the stamps (FindLaw.com).

Like many of the points-for-purchase programs of today, participating retailers provided customers with a certain number of trading stamps commensurate with the level of purchasing. Customers then pasted the stamps into small booklets which could be redeemed at redemption "stores" for gifts when filled. As noted in an S&H promotional video (included in featured videos in this post), at one point there were over 800 S&H redemption centers nationwide.

Lampooning the frenzy of the trading stamp heyday is this parody by humorist Allan Sherman. (I personally love the bit about the extract of vanilla!)

Learn about Building Remarkable Products and Services that Attract and Retain Customers

Which brings up the question:

Were customers brand loyal to the trading stamps or the retailer?

Trading stamp programs began heading into decline in the 1970s due to economic difficulties which resulted in lower interest from both retailers and consumers. (Interestingly, as of the initial posting of this article decades later, a grocery chain in the Chicago area was STILL running a physical trading stamp program.)

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When Reward Programs Might Not Work

In an interesting 1985 Sun Sentinel article about retailers in south Florida, an S&H representative was quoted as saying that the use of trading stamp programs follows economic cycles, with higher use in good economic times.

This almost seems counterintuitive! Wouldn't customers be interested in gaining rewards if economic conditions are tough? Apparently not. As the article notes, in difficult economic times, customers are usually more interested in lower prices than rewards.

Today, "race to the bottom" pricing strategies have almost become a type of expected reward program, with customers making an exodus or finagling reduced or undeserved promotional pricing from retailers whenever they believe prices are too high.

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The Reward Program in Your Wallet

As noted earlier, one of the primary goals for any company investing in reward programs is to keep customers buying from the company. While that still holds today, the company offering and benefiting from a program like this may not be a retailer at all. Banks and credit card issuers are now dominant on the reward program scene.

Today, customers are likely to gain points and perks by using a certain brand of credit card, rather than or in addition to buying from a certain brand of retailer. So retailers may be out of the reward benefit loop unless they offer their own rewards, too. This creates a double whammy for retailers since they must pay fees to accept and process credit cards AND have the marketing and administrative costs associated with their own reward programs.

Some larger retailers have resorted to hooking up with a credit card issuing bank to offer a branded standard credit card (Visa®, MasterCard®, etc.) that customers can use anywhere, not just at their stores. These programs may offer these retailers a bit of commission or fee income.

Gaming the Reward System

As the Green Stamp parody noted earlier illustrates, some customers have turned reward getting into a sport! While that might sound like a boon for the retailer who can get a customer to buy more and more often, the end game is truly the reward offered, not undying loyalty to the retailer offering it.

Customers may even play other games with the rewards. When customers were buying, selling and swapping their S&H Green Stamps, S&H instituted some restrictive use policies that invoked legal action by the Federal Trade Commission (FTC) who won. How times have changed since then! There are now even reward point exchange websites.

One can easily understand both sides of the reward game equation. Customers feel they have "earned" their rewards and don't want them taken away. They also don't want to be told what they can (or cannot) do with them. Retailers invest, sometimes heavily, into creating and managing these programs with the intent of building a loyal customer base, not to create an asset for customers to "own." But today, retailers must deal with this reward program reality.

This ups the reward program game one more notch, with customers becoming loyal to the rewards themselves and not the actual reward program or retailer.

The Bottom Line on Reward Programs

Carefully evaluate the costs and benefits of offering reward programs for marketing and explore whether brand loyalty could be achieved by other means such as improved service or user experience.

Disclaimer: Any examples used are for illustrative purposes only and do not suggest affiliation or endorsement. The author/publisher has used best efforts in preparation of this article. No representations or warranties for its contents, either expressed or implied, are offered or allowed and all parties disclaim any implied warranties of merchantability or fitness for your particular purpose. The advice, strategies and recommendations presented herein may not be suitable for you, your situation or business. Consult with a professional adviser where and when appropriate. The author/publisher shall not be liable for any loss of profit or any other damages, including but not limited to special, incidental, consequential, or other damages. So by reading and using this information, you accept this risk.

© 2014 Heidi Thorne

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    • heidithorne profile image
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      Heidi Thorne 2 years ago from Chicago Area

      Wow! Thanks for the heads up, Iris. I didn't see it recommended in my email, maybe because I wrote it. :) Happy New Year, girlfriend!

    • Iris Draak profile image

      Cristen Iris 2 years ago from Boise, Idaho

      Congratulations on your recommended hub in HubPages' email!

    • heidithorne profile image
      Author

      Heidi Thorne 2 years ago from Chicago Area

      Hello Carrie Lee! Lots of people (including many marketers!) don't give the topic much thought either. Glad you enjoyed it. Thanks for stopping by and Happy New Year to you, too!

    • carrie Lee Night profile image

      Kept private 2 years ago from Northeast United States

      What an interesting hub ! :) I never gave this kind of topic much thought, but you have got my wheels turning :) Thank you ! Have a great New Year:)

    • alancaster149 profile image

      Alan R Lancaster 2 years ago from Forest Gate, London E7, U K (ex-pat Yorkshire)

      It's all down to choice, isn't it. Nobody's going to force you to slit your throat, that's voluntary. As long as you don't rob, murder or embezzle anybody, what you do is your business.

      On that cheery note, Heidi, have a Good New Year - "may all acquaintance be forgot..." (that means bye-bye to bad vibes).

      Best, Alan L

    • heidithorne profile image
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      Heidi Thorne 2 years ago from Chicago Area

      Alancaster149, oh dear! What a sad story of the dark side of rewards. With today's consumer-centric regulations, we hope these scenarios are a thing of the past. On a lighter note, I hope you have a very Happy New Year ahead! Thank you for your support in the past year!

    • heidithorne profile image
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      Heidi Thorne 2 years ago from Chicago Area

      DzyMsLizzy, I'm going to have to remember TINSTAAFL. :) And you're right, there isn't! You've got a lot of company with those who would rather just have discounts than rewards. Have a great last week of the year & Happy New Year!

    • heidithorne profile image
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      Heidi Thorne 2 years ago from Chicago Area

      Hi AliciaC! Glad you found it interesting. So appreciate your support during the past year. Cheers and Happy New Year!

    • heidithorne profile image
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      Heidi Thorne 2 years ago from Chicago Area

      Travmaj, I think all of us (as noted by other commenters, too) are being more selective with our rewards programs. Gaming is so tempting and can be so counterproductive. Thanks for your support during the past year! Happy New Year!

    • heidithorne profile image
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      Heidi Thorne 2 years ago from Chicago Area

      MJsConsignments, bummer to only be able to get classical cassette tapes! I think you've touched on an important point. Pricing is today's true reward program. Will be interesting to see how these programs develop in the coming years. Thanks for stopping by and Happy New Year!

    • alancaster149 profile image

      Alan R Lancaster 2 years ago from Forest Gate, London E7, U K (ex-pat Yorkshire)

      When Green Shield began trading here people changed their lifestyles in order to 'save', some buying goods they'd never touched before. Some started smoking to save Green Shield stamps, many were hospitalised in order to get goods they could have bought cheaper by cash.

      When the company crashed there were thousands who'd been collecting stamp books and hadn't got around to redeeming them - usually because they'd aimed to get what they thought were 'quality' wares.

      With trading stamp firms you've also got to think of Luncheon Voucher companies who worked through employers, with people saving their vouchers to buy one slap-up meal at the end of the month, practically starving themselves the rest of the time, or buying snacks with cash. As it was, most employers were pretty stingy with the vouchers. They were a 'make-do' for the lack of canteen facilities, and as lunch hour led to long queues outside sandwich shops they would stagger their breaks.

      Luncheon Vouchers went belly-up late in the 20th Century.

    • DzyMsLizzy profile image

      Liz Elias 2 years ago from Oakley, CA

      P.S. I do have house-issued "rewards cards" from Safeway, Best Buy, Staples, and Office Depot. I don't really use them. Why? I can't afford to shop at Safeway anymore, anyhow.

      The others? They are fairly pointless, either offering discounts on things I don't need or use, or having expiration dates that do not coincide with my need (and payday schedule) for those items I would like to use the points on. I'd rather just have a discount on the price to start with, and be done with it.

      I am convinced that the prices are higher at stores with these programs--so they can cover their costs--there is no such thing as a free lunch: also expressed in shorthand as, "TINSTAAFL"

    • AliciaC profile image

      Linda Crampton 2 years ago from British Columbia, Canada

      This is another interesting and thought provoking hub, Heidi. I enjoy learning about business strategies by reading articles like these.

    • travmaj profile image

      travmaj 2 years ago from australia

      Excellent article. I'm a bit of a sucker for what seems like a good deal. However, I'm much more aware these days and have retained only a few reward cards. Being selective about my shopping probably saves me more than being loyal to one store. The games we play never cease to amaze me.

      Thanks for a most interesting article.

    • MJsConsignments profile image

      Michelle 2 years ago from Central Ohio, USA

      I remember collecting up all of my mother's Green Stamps to get cassette tapes only to find that the tapes the store carried were not of anything but classical music.These days we have grocery rewards programs that give us money off of gasoline but gas is now well under $2.00 a gallon. Food is still sky high. Where's the reward?

    • heidithorne profile image
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      Heidi Thorne 2 years ago from Chicago Area

      Hi joyfulcrown! I think we're all become more selective on the reward programs we choose. Glad to hear they've been a help. Many of us have Green Stamp memories. Thanks for stopping by and have a blessed New Year!

    • Joyfulcrown profile image

      Joyfulcrown 2 years ago

      I am selective with the reward program I use but those I do use have been a blessing to me. I remember S & H green stamps. :)

    • heidithorne profile image
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      Heidi Thorne 2 years ago from Chicago Area

      Hi FlourishAnyway! You have definitely got the game down, girl! My hubby loves his Amazon rewards, too. And we buy ourselves gift cards at restaurants to take advantage of the bonus cards. Yep, we've all figured out the game. Thanks for joining in on the conversation this holiday weekend! All the best for a wonderful New Year ahead!

    • heidithorne profile image
      Author

      Heidi Thorne 2 years ago from Chicago Area

      Hi DzyMsLizzy! Thank you so much for sharing your trading stamp experience with us! I remember doing the trading stamp thing, too. And, I agree, it was a project in an of itself. Glad I now have my credit card which tracks all my points for me. Appreciate you taking some time of your holiday weekend to stop by. All the best for the New Year ahead!

    • DzyMsLizzy profile image

      Liz Elias 2 years ago from Oakley, CA

      Excellently done article. I remember my mother saving Green Stamps!

      In the San Francisco area, there were several different competing stamp companies. This was during the late 1940s, when I was born, throughout the 50's and early to mid-60's, when I graduated high school. They did last just barely into the early 70's, shortly after the birth of my first child.

      We also had Purple Stamps, Orange Stamps, and Blue Chip Stamps! As time went by, all the others faded into history, until only Blue Chip, the Johnny-Come-Lately of the bunch, was left. I "bought" a few of my original household items and baby supplies with Blue Chip Stamps!

      I can understand these programs being more popular when times are good, because:

      * You are not getting "something for nothing." Prices of goods are adjusted upward to compensate the merchant for the cost of the program.

      * The goods you get with the stamps are either (a) bottom-of-the-line quality of that manufacturer, and/or (b) given an inflated value in the catalog, so you "overpay" by needing a great many more stamps than you would have needed in dollars to just buy the item.

      * It is a time-consuming nuisance to sit and paste stamps in booklets, and in hard times, time itself is a precious commodity, what with people trying to either find work, or working 2 or more jobs to make ends meet.

      Thanks for the jaunt down memory lane! Voted up and interesting!

    • FlourishAnyway profile image

      FlourishAnyway 2 years ago from USA

      Oh, yes, I game the system. There's a grocery store that has a loyalty program and they'l also give to your favorite local charity based on your purchases. The more you buy, the more your charity gets and the more "fuel points" you get. They have certain days where if you buy gift cards you get 4 times the fuel points.

      I have figured out that instead of going directly to HomeDepot or some restaurant to buy what I want, I buy myself gift cards ... with my Amazon rewards card! I even buy myself a giftcard to the same grocery store! The way I see it, everybody wins -- the charity, me, the retailers. Am I loyal? Well ...

      Great hub, Heidi! I sure remember those stamps when I was a kid and the plates and other stuff you could get with them. Voted up and sharing.

    • heidithorne profile image
      Author

      Heidi Thorne 2 years ago from Chicago Area

      Hi Iris! I've ditched many of my rewards cards, too. Just too much hassle for too little reward. Only have 2 restaurant cards and 1 retail loyalty card I actually use, plus my cash back credit cards. Indeed, many businesses would be better off spending time and money on improving the overall product or service instead of messing around with rewards. And, yes, something we all need to be aware of as business folks.

      Hope you had a great Christmas! Thanks for stopping by and chiming in during this holiday weekend. Cheers!

    • Iris Draak profile image

      Cristen Iris 2 years ago from Boise, Idaho

      Very interesting distinction about being loyal to the rewards program and not the brand or business.

      What I find frustrating as a customer is "rewards" programs that offer me discounts on products I don't purchase. I have so-called rewards cards for several retailers. I no longer take the time to pull them out at the register because they are of no value to me.

      When I first got them it inspired a bit of brand/store loyalty but my experience has been that they take my time and effort and offer nothing substantive in return. In fact, I feel pestered because they try to get me to purchase things I don't care about. I see the value for the retailer but not for the customer.

      If I had a way to share this article with those major retailer I would! Excellent advise. Not only does it reflect my experience but it gives me something to guard against in my own business.