Why Your Customer-Loyalty Program Might Not Be Profitable

Researchers are warning businesses that their customer-loyalty programs, which are designed to increase repeat business, may be causing more harm than good.

Even though “customer prioritization” is widely used by companies, the researchers warn they’re a double-edged sword and represent the dark side of customer loyalty programs.

As a result, businesspeople get stressed out after implementing customer-loyalty programs because they lose profits when they unknowingly and disproportionately increase service costs.

“This dark side results because prioritization signals to customers that they are very important to the firm, and this leads them to feel entitled to demand more from their exchange partners,” explains Alex Zablah, associate professor of marketing at George Mason University’s School of Management in Fairfax County, Virginia.

“Ultimately, entitlement-driven customer behaviors undercut profitability by increasing firms’ cost to service their relationships with customers,” he adds.

His co-authors are Hauke Wetzel and Maik Hammerschmidt from the University of Göttingen in Göttingen, Germany.

After conducting two studies in B2B sectors, which led to similar conclusions, they published a report: Gratitude Versus Entitlement: A Dual Process Model of the Profitability Implications of Customer Prioritization.

“Ultimately, entitlement-driven customer behaviors undercut profitability by increasing firms’ cost to service their relationships with customers.”

Tactics — dos and don’ts

The professors assert that certain types of tactics result in negative effects.

“If firms focus their prioritization efforts on ensuring a good match between customers’ needs and the products they buy, then dark side effects are negligible,” says Professor Zablah.

However, he warns if companies focus on providing customers with symbolic benefits, like labeling them as “VIP,” the dark side tends to become more pronounced because customers are alerted to the fact that they are considered more important to the firm than other customers.

“Contrary to popular belief, sharing prioritization schemes with customers can backfire for firms,” he adds.

When customers learn of the prioritization program, they begin to feel a sense of entitlement — that they can get more than is reasonable.

Professor Zablah recommends such prioritization programs should used with great diligence. It’s important to show appreciation but not at the unreasonable expense of profits.

Indeed, added value is a good thing. But too-much service resulting in a sense of entitlement can be a negative sales opportunity cost. Time is money, too.

From the Coach’s Corner, more profit tips:

Do You Know What Drives Your Profit? (There Are 4 Drivers) — For profits, entrepreneurs must learn how to manage their financials and performance, which are difficult tasks. Savvy business owners know who their ideal clients or customers are. Entrepreneurs realize financial benefits when their revenue from business exceeds their expenses and taxes. 

For Stronger Profits, Avoid 11 Typical Pricing Mistakes — In general, how can you manage the sweet spot – between your price-optimization and costs? Dennis Brown of the consulting firm, Atenga (www.atenga.com), says many companies make 11 pricing mistakes.

8 Strategies When Sales Drop and Costs Cut into Your Profits — If your sales are down and costs are hurting your profits, you’re certainly not alone. This is still not a good economy for many sectors. The irony is you can do something about it.

Checklist — 10 Tips for Leadership in Business Profit — In the new economy – a former Great Recession that seems to linger and linger – a company will succeed if it’s a leader in generating capital. Unfortunately, this economy has become a zero sum game for many businesses. Why? They stay alive by taking market share from their competitors, not by innovating.

For Profits, Manage Your Growth at the Right Pace — Entrepreneurs frequently try to rush their business growth. Certainly, growth is great but if you scale too fast, you’re looking for trouble. The key is to prepare.

”Nothing profits more than self-esteem, grounded on what is just and right.”

-John Milton


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Image credit: www.scottliddell.net

Energize Your Customer-Loyalty Program in 6 Steps

The quickest way for established businesses to optimize revenue is to have a stellar customer-loyalty program — there are six steps you can take for repeat sales and referrals.

If you’re not a great steward of your current book of business, it’s futile to look for new customers. Why? It’s far easier to keep a current customer happy than investing time and money just to replace the business.

 If you’re unsure about the state of your customer service, here are two key questions: What’s your customer-service quotient? What are your slowest months? Your answers to these questions will help you fashion a new customer-loyalty program.

Here are six steps:

1. Assess your company’s customer-service quotient.

Know how you stand with customers. How do they perceive you and your employees? Hint: In most cases, if you’re just now dealing with this question, it’s a very telling answer.

True, you can do a customer survey to learn customer opinions. But it’s quicker and cheaper to develop a customer-service checklist and to make certain that it’s followed.

Not to over-simplify, but the words, please and thank you, should be consistently used with customers.

Meantime, watch the reactions of your customers. Are you respected for being helpful, reliable, educational and durable? Consumer attitudes are changing. You must think 1930’s values for business success.

2. Identify and improve any attitudinal shortcomings.

A key component of your company’s DNA should be that all employees believe and act as if your customer’s problems are your problems.

In the event a customer customer complains, listening and empathy should be your No. 1 and No. 2 responses, respectively. Practice the Golden Rule: “Do unto others as you would have them do to you.”

Customers are turned off by irritating behaviors – often, business owners and workers aren’t even aware of what they’re saying and doing that tend to annoy customers – behavior that determines why your customers stay or leave.

It’s very likely that your employees need customer-service training.

3. Make the customers feel special with a customer-rewards program.

It should be an ongoing program but your slow months are a good time to start. Everyone likes to feel they’re appreciated – like they’re getting a deal.

“Everyday low pricing” works for very few companies. Even low-priced Costco offers specials. Costco’s customers love to taste the food samples, and the bulk buying capabilities promote almost a cult-like following among small businesses.

And, oh yes, daily deal sites such as Groupon will be unprofitable investments for you and they won’t promote customer loyalty.

4. Maintain top-of-the-mind awareness with your customers.

Synchronize your value propositions in all branding – advertising, PR, social media, newsletters, e-mails, and in-person contact.

Every employee should be intimately aware of your value propositions and should use them at every opportunity. This will help to build and maintain trust.

5. Continually fine-tune your customer-service program.

Don’t assume anything. Determine the best ways to stay in touch with customers, including phone calls and thank-you notes.

Remember that your supply chain must meet the expected standards of customers.

6. Get all employees involved.

Exemplary customer service is everyone’s job. That means partnering with your employees for profits.

Again, don’t overlook customer-service training.

If you follow these practices, you’ll create a happier buying environment even in your slow months as well as the prospect of good referrals. Good luck!

From the Coach’s Corner, here are related strategies:

Invigorate Sales with 11 Customer Retention, Referral Strategies — How to attract and keep brand evangelists with customer service and word-of-mouth advertising.

How to Best Profit: Word-of-Mouth Advertising, Customer Service — To increase your sales revenue with word-of-mouth advertising, here are 10 tips.

7 Precautions for a Profitable Layaway Program — Despite the continuous changes in technology, retailers are reverting to a sales and customer-loyalty practice that was prevalent in the 1950s. That would be a layaway program to sell more products to cash-strapped customers. Big box stores, such as Walmart and Toys R Us, have benefited from PR when they’ve announced their layaway programs.

The sun is shining brightly outside, and I gotta give excellent customer service?


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Seattle business consultant Terry Corbell provides high-performance management services and strategies.