It's Not Loyalty If You Paid For It - Believe In Your Offer!

There is an interesting local business 'loyalty program' making its way across the U.S. By joining an exclusive club of merchants, your business can offer customers 2% cash back on every purchase. The business also gets .5% cash on any purchase made at a participating member location by a customer they brought into the program. That was a horrible sentence, so let me explain. If I'm a Crab Shack and I sign up Tom and Mel, and Tom and Mel spend $100 each at another member's venue, I get .5% of 2 $100 purchases. The program is far more complex than any other local business program. It gets into points, referrals, and so much more that after spending multiple hours on their site I still couldn't understand it. The complexity isn't the point. The point is, it's not a local business loyalty program if you're paying for loyalty. And trust me, when most businesses work out the numbers on that .5% cash back into the business, nearly all of them are paying.

What's the biggest issue with deal sites? Can't target? Can't track? Hard to explain to employees? Nope. Nope. Nope. The biggest issue is the type of customer they bring in - deal hunters. We give up too much to get too little. Not only that, the sales process is uncomfortable, and an uncomfortable sales process usually leads to uncomfortable results.

You don't need to give out great big deals to get new customers, and you don't need to offer cash back to keep current ones. In fact, an interesting question is being posed in Psychology these days. Regarding the psychology of rewards,

is money the best motivator in any given situation?

I've borrowed this from an interview with Alfie Kohn, author of Punished By Rewards. Our Psych insight for the day: 

Interviewer: And you're saying rewards are just as undesirable as punishment.

AK: By virtue of being controlling, they're likely to be experienced as aversive in the long run. The reason is that while students would certainly like to have the goody itself—the pizza or money or gold star—none of us enjoys having the very things we desire used as levers to control our behavior. So it's the contingency of the goody—"Do this and you'll get that"—that accounts for its punitive status over the long haul.

The answer is (usually) no, and the logic is sound. If you say 'try our product for $10 off' or 'come in Tuesday for a $20 cut' you are discounting your product and valuing your customers time. You're saying '$20 should be enough to get you in the door' or 'We can take money off. Sure, if that what it takes to get you to try us.' Have a backbone, will ya?

People don't always want cheap, and they don't like having their time valued. In advertising they say it's not what you say, it's how you make them feel. Shh, keep quiet on the discounts, and make them feel special with a more surprising offer. 'Try our product and get a few of my homemade brownies' or 'Come in Tuesday for a burger made by me!'. Now we're bringing in brownie lovers and friends, not penny counters and nickel framers.

It's true that discounts work. Who doesn't love free money? But we want to attract and retain the type of customer that comes for more than that number in the checkout line. We want the people who are their for the experience. Plus, everyone gives discounts. In a world with the internet, how is that going to help you stand out to the great customers, really?