It’s time to rethink the carrot and stick approach to customer loyalty.

There are few things more satisfying than an unexpected upgrade. Like booking the cheapest hotel room only to be moved into a suite on arrival, or when scoring a bump to first-class for an overseas flight. 

These perks are rare, which is what makes them so gratifying. They also do wonders for your brand equity.

But if all customers gain access to these perks in an attempt to improve Loyalty it no longer benefits the brand. The traditional carrot and stick approach to loyalty is designed so that people work tirelessly towards achieving premium status, and so that even after succeeding they must maintain the same level of commitment or risk losing their status. 

People put lots of effort into earning their spot behind the curtain, and would traditionally do anything to keep it. The writer Gary Sernovitz likened his obsession with preserving his United Airlines premium status to a psychological condition, which he affectionately called Global Services Maintenance Anxiety Disorder. Sernovitz even admitted to having paid full price for a flight he had already booked for free using his air miles.

This level of zeal is becoming less common as people grow tired of the chase. After investing large sums and countless hours into achieving a premium status, can they be expected to keep up the effort for some nice-to-haves? No matter their value, perks lose their luster when we feel duped into earning them, and with so many other brands to choose from why not just buy from one that won’t cause us benefit anxiety?

That’s not to say premium status doesn’t matter. We all love perks and upgrades, but why make it so hard for customers with a proven track record of loyalty to continue liking your brand?

The issue is that despite advances in technology and the way people interact with digital services, loyalty programs have not evolved significantly. Yes, people can manage their rewards using any device, but in most cases, brands do not use the data at their disposal to personalize or augment their services in any way.

There is no single answer to the loyalty question, as every company has something different to offer, but there are a few points every brand should consider when developing their approach for digital users:

1. Loyalty is a two-way street

Companies can’t let every customer maintain their premium status indefinitely as they would just end up bleeding money, but they also can’t afford to take loyalty for granted. Whether they make it easier for people to renew their benefits, guarantee them access to some perks for their devotion, or choose another approach, brands need to show customers the same level of loyalty they’ve been given.  

2. Positive stories build brand advocates

As my colleague Michael Bornheim says, customers, love to share stories about their interactions with a brand. Word of mouth is arguably the most effective form of marketing in the social media age and giving customers a positive experience worth sharing will pay wider dividends once the story spreads through their network.

3. Data holds the key to personalization

For customers used to exceptional levels of personalization in their interactions with brands, a loyalty program should be equally tailored to their habits and needs. The carrot and stick approach to loyalty is not fit for the digital age and must give way to one that makes each customer feel valued and understood. It is by collecting and effectively interpreting the massive amounts of data they can now access that brands will be able to achieve this.

Loyalty programs are an increasingly tough sell. People don’t want to wait three months before seeing a return on their investment, nor do they want to spend more than they need to on a product or service unless there is a clear value-add. In short, the carrot and stick approach isn’t suited to customer-centric commerce. It’s time to ditch it and start showing loyal customers a genuine worth of their long term patronage.

For more on how to drive customer loyalty, check out our eBook on building digital, connected and adaptive customer experiences.

To learn more about how to use data to drive personalized selling experiences, read more about Oracle Loyalty Cloud.