‘Loyalty Programmes’, Expensive and Useless

Before taking any actions it is worth while formulating clearly the goals to be reached.

If you can’t formulate your goal clearly and convincingly, then you’re probably up to some nonsense.

To realize your venture’s goal first is especially important in business.

If you cannot model a realistic situation where your undertaking will result in a growing profit, it’s a safe bet that you’ve invented a stupid thing.

This elementary rule of thumb, if consistently applied, would have saved trillions of dollars for shareholders around the globe. But… Well, you understand.

Let us apply it tо the topic of our publication, ‘Loyalty Programmes’ (LPs).

All LPs, however decorated outside, finally consist in the handing out money to your customers. Whether through ‘bonuses’, discounts, gifts or other options.

Theoretically, an individual market player’s LP should differentiate him somehow from others and thus lead the buyer to more probably prefer this very actor (other things being equal).

But… Comrades, they all have the same LPs! We have already examined this topic from another perspective.

And identical LPs will hardly single out anybody at all. If only with some brighter stupidity cranked out.

LPs used on a massive scale lead inevitably to the following:

1. Loss of LP significance for the consumer — as all active buyers have cards from all the competing chains. Because, in turn, the cards are handed out freely: ‘Have you got our card? Want one?’ 
   As a result, everybody has a thick wallet at home, bursting with multi-coloured cards. 
   Which is certainly a terrific distinction for each issuer.
2. Also, in a competitive market the margin is so much depressed that you are simply unable to grant your buyer any significant discount. Whom can a 1% to 3% motivate, guys? Off a ten-dollar purchase. Or even off a 150-dollar one.
3. Even those discounts, while being negligible for the customer, turn out damn expensive for the seller. The mathematics is very simple: if your net profit is the usual 2 to 4% of turnover, then scrapping your LP that grants buyers an average 3% discount will double your net profit rate, to put it crudely (actually your final benefit will be even higher, as we’ll show below), without losing any sales due to Para. 2.
4. In addition to direct sales profitability losses, you bear the LP processing costs – printing, distributing and accounting for the cards, handling bonus assessment problems, etc. A monkey business designed to cut your profit.
5. All LPs mainly benefit not the buyer but the seller’s personnel who use them to steal hefty amounts of money.

By virtue of Para. 3 arithmetic, salesmen/cashiers/shop assistants can earn far more than the company’s shareholders, depending on LP processing technology. These are not singular events, as we know perfectly well.

On the contrary, we do not know a single case of a LP used in a company and not accompanied by gallant theft by personnel. It is for an ordinary buyer that a 2% bonus or discount off a 20-dollar purchase is peanuts.

But imagine how much it makes for a cashier who checks out several hundreds of such customers every day! Especially as compared to his salary from the employer.

And don’t hope for your control systems, dear managers: firstly, they are also quite expensive to maintain and, secondly, in a competition between employees and their managers/shareholders the former stand to win – both due to their sheer numbers and because their financial motivation is many times stronger and they can focus on a single goal.

If you hope for the opposite, we feel sorry for your innocence.

The situation is exactly the same with tax exemptions and State support for business: it is always officials, rather than business or investors, who will benefit from them (= steal the money), so a flat tax rate and no State support are the best option.

So here is our Valuable Recommendation to almost every seller (almost; see below to whom it DOES NOT apply): abandon this rubbish and enjoy a growing profit and no monkey work.

Your saved effort should better be directed towards what is really important for your buyers and really makes a sale more probable:

• a correct marketing strategy for your company; correct positioning (think of it yourself or contact us);
• for all trading folk — assortment / product range and prices (we have already published a whole series on it – beginning here)
• for offline retail – suitable shop locations (even more important here than assortment / product range and prices), and for online retail, correct catalogue design and structure;
• the company’s business processes efficiently organized in general.

P.S. Nevertheless, there exists a very small percentage of cases where a discount LP really works. These have the following features combined:

• the average spend amount makes the purchase so important for the target buyership as to overweigh shop proximity/convenient location.
• there are relatively few players in this market segment, so their outlets are not located round every corner;
• the business is marginal enough to afford serious percentage discounts that mean substantial in-kind savings for your target buyership;
• the LP is highly selective; the cards are difficult to obtain and prestigious to hold, and moving to a higher LP level requires one to spend a considerable amount (by this buyership’s standards) while offering substantially higher advantages.

Here we leave the reader to reflect on how often such a combination of conditions occurs in real practice.

There is a vanishingly small set of cases where a set of factors, so big as to make a detailed analysis redundant, converges to permit the implementation of a working LP essentially designed to bring more customers into the game.

Discounts are also present here, but are quite a secondary factor. Here is an example of such a programme authored by Ultima Consulting.