Loyalty Cannot be Bought, It Can Only Be Rewarded

bank note twistLoyalty is something the Photiq team has been thinking about a lot lately. We’re getting ready to launch the Photiq app and want to be able to build a loyal customer base that keeps coming back to our app to find special and unique items locally that you can’t find in big chains and department stores.

You would think that consistently offering a product that is unique would itself be enough to attract and retain customers right? But we keep hearing from merchants and experts in the eCommerce and mCommerce business that this is simply not enough. When we talk about Photiq, one of the first questions that comes up is, “what’s the incentive?” “Incentive?” we reply. It turns out that we need to provide an incentive for people to download our app in the first place – analogous to a customer walking in the door – they need to be offered a gift just to come in to look at your wares…

It sounds silly, but this is actually a serious point and small businesses need to consider this too. Does a small business owner want to spend his or her already limited funds on marketing to provide an incentive for someone that is new customer or to reward an existing customer that has shown loyalty? We looked up the term loyalty and here’s what the dictionary said:

Loyalty – a strong feeling of support or allegiance

How does one create loyalty? The Photiq team racked their brains, but could not come up with an incentive that could do this. But we could come up with lots of incentives that would reward loyalty. A few days ago at lunchtime we came across an organic chocolate store and could not help but go in. After finding ourselves in chocolate heaven, the Photiq team decided (very sensibly) to purchase three large organic chocolate bars. As we handed over out money, the store manager gave us a small card and wrote on what we had just bought. “When you purchase your tenth bar” he said “it will be free!” Needless to say we are still very excited about that tenth chocolate bar and are determined to buy the nine chocolate bars needed to get our free one.

Back at the office and munching on our wonderful organic chocolate, we decide to do a little thought experiment. What if the store manager did a Groupon deal instead of offering us the tenth bar for free? Would it ‘create’ loyalty? If the Photiq team saw a Groupon deal for discounted chocolate then we would buy as much chocolate as possible. While it may be the case that we discover a new chocolate store locally, that we had never heard of, we are not sure we would keep going back after he deal is over. It turns out the we are not unique here. Deals bring in new customers, but do not create loyalty. And actually this is hugely expensive for merchants since Groupon insists that merchants offer at least 50% off and they take a cut of between 30 and 50% for themselves! Its not difficult to imagine a merchant having more deal grabbers then he or she can handle and then still lose money as was the case with this Smoothie Store in New York and reported in the WSJ.

Groupons are good for new customer acquisition, but the cost can be quite high and the retention rate as Groupon itself says, is measly 22%. Check out these interesting calculations and tips by LightSpanDigital. When it comes to loyalty though, to create that sense of support and allegiance, that plan is one merchants need to start executing as soon as someone actually walks in the door. It is possible to get someone coming back 20 times if they are truly loyal – so make them loyal.


2 thoughts on “Loyalty Cannot be Bought, It Can Only Be Rewarded

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s