#505: The Foundations of Loyalty -What the OG’s Had To Say and How That Has Changed

Paula: Hello and welcome to Let’s Talk Loyalty, an industry podcast for loyalty marketing professionals. I’m Paula Thomas, the Founder and CEO of Let’s Talk Loyalty and also now Loyalty TV. If you work in loyalty marketing, you can watch our latest video interviews every Thursday on www. loyalty.tv. And of course, you can also listen to Let’s Talk Loyalty every Tuesday, every Wednesday, and every Thursday, to learn the latest ideas from loyalty experts around the world.

Today’s episode is co-hosted by Bill Hanifin and Aaron Dauphiney, CEO and CMO of The Wise Marketer Group, respectively. WiseMarketer Group is a media, education, and advisory services company providing resources for loyalty marketers through The WiseMarketer Digital Publication and the Loyalty Academy Program that offers the Certified Loyalty Marketing Professional designation.

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Bill: Hello, everyone. I’m Bill Hanifin, the CEO of The Wise Marketer Group, and I’m one of the two hosts for The Wiser Loyalty Series here on Let’s Talk Loyalty. Now, this series introduces constructs from our Loyalty Academy course curriculum that we find interesting and we hope all of you listeners will find interesting as well. And we’re going to approach some of these topics from a different angle, kind of an insider’s point of view, and hopefully we’ll help you become quote, wiser in loyalty as we go along. 

This series is meant to be co hosted between myself and our CMO, Aaron Dauphiné. And he’s usually here to be with me. He is on assignment this week in Argentina, lucky him. And, so he will be back next week. I’m going to run solo this time, and I think that should be fine. We’ll have some fun here. So if you joined us last month, you’ll know that we talked about the psychology of loyalty, and we covered different aspects of that topic. 

This month, we’re going to be talking about the foundations of loyalty and specifically in this episode, we’re going to explore what I like to say what the OGs had to say about customer loyalty and how that’s changed. So, if you’re familiar at all with our curriculum, most foundational course that we have, it is number 101, which is Introduction to Loyalty.

And that course, we started out by talking about some basic things. What is loyalty marketing? You know, why loyalty? Why does it work? When does it work? Things like that. We cover loyalty marketing today, kind of do an update. And then we share a bunch of market examples showing what works and what doesn’t and give some rationale behind it. 

But I’ve always been a lifelong learner. I’m committed to lifelong learning. I challenge myself continually and I, kind of refuse to sit still. I had a mentor a long time ago who said, you know, Bill, as soon as you feel like you’re indispensable, you’re probably going to be out the door. So what I want to share today is the foundations of loyalty as we have it in our course 101 today. I want to do a little true false challenge. Some of the things that are in there, I’m going to show you, you know, what’s still going valid today and maybe what we could think differently about going forward. 

So true or false. Loyalty is an outcome of relationships. Absolutely true. Relationships are foundational. It, I think loyalty is one of those things that you can absolutely humanize, personalize. You can take an anthropomorphic approach to loyalty and say, you have to think about how we form human relationships. And then you can think about in parallel, how we can create relationships with our customers.

So somebody very wise that I respect just recently, in fact, it’s Andy Choi, who’s the Chairman and Founder of Do Good Points told me, hey Bill, he said relationships grow at the speed of trust. And I thought, wow, that nails it like relationships are fundamental to the business. This is not a transactional, you do this, I’ll give you that. And then somehow we’re going to like each other and be sticky. I don’t think so. Once one service interruption would destroy that relationship if it was purely mercenary. If you have a relationship and you build on that relationship, you’ve got some power, you’ve got some strength and you’ve got some stickiness. So relationships are only going to grow at the speed of trust. So that’s a true statement. That’s something to think about, maybe a different way to think about it. 

But then the next question that we cover is what is loyalty marketing? And this is fascinating to me. Yeah, we know what loyalty marketing is, right? But on the other hand we’ve used several terms that have been sort of drawn together, overlap one another, and it can become really confusing. And actually, if you go into a public place, and I’ve had this experience because I had kids that all played youth sports, and I used to be on the fence at games and parents would ask other parents what you did for a living. And when I told them loyalty marketing, they got this quizzical look on their face, and when I explained a little bit more about what it was, they would right away, tell me what they liked and didn’t like about their loyalty program, that was top of mind.

So to them, loyalty meant program. And so what I want to talk about is customer loyalty. There’s three terms, customer loyalty, there’s loyalty marketing, and then there’s loyalty program. 

So customer loyalty, you got to think of it this way. It’s a top of pyramid goal. It is a path to customer centricity. It’s almost unicorn, like it’s mythical, it’s emotionally driven. It’s a state of mind. Like we’re trying to create this feeling within customers that anytime they go into a certain category, and maybe they’re going to spend in that category. Somehow your brand is going to have predominant mind share. It’s going to be the thing at the top of their mind. Every time it’s really hard to do. And it’s really hard to think that you’re going to create absolute unwavering loyalty people to brand. So it’s our goal nonetheless, but we got to realize this is more about behavior change. It’s about creating a relationship, having value that it goes back and forth and building that relationship over time.

Now, loyalty marketing describes the marketing discipline that we’re all involved in. That’s why you’re listening. And that’s why I’m talking and we’re doing this together, but it’s an aspect of marketing. That’s based in science. It’s based in behavioral science. It’s now elevating to importance within the C suite. So it’s not just something that sits in the marketing silo, but it’s something that’s, that everyone in the C suite is interested in or rapidly they’re becoming aware of it and are more and more interested in it. So this is the discipline that we use to hopefully use our tools and our smarts to be able to create customer loyalty to go after that unicorn.

How do we do it? Sometimes we have a loyalty program, sometimes we don’t. We’ll talk about that in a second. But it’s really important, I think to sort those terms out and to understand the differences and what they mean. And to make sure that if you’re focusing too much on your quote program, you might not get to the point of building customer loyalty. Because it’s not about a program, it’s about the things that we do to change behavior, to create these strong relationships. 

So, something else the OG’s talked about was all the ways that customer loyalty could and could not help you as a brand. And it’s all really true. I mean, think about American Airlines, they might’ve been the first to tie together customer data, their reservation system, their yield management system. But today building a customer loyalty strategy has to incorporate so much more. It probably has to start before transactions have even taken place before a customer has visited your website or walked in your store. 

So, the OG loyalty, the way it was defined was very much more about what happened when a transaction took place or right after, whereas customer loyalty today into the future, I think is going to be much more about what happens before the transaction and how you start bringing people along through a customer journey and developing a relationship over a long period of time.

Here’s another one. True, false. The Pareto Principle. Have you heard of it? Is it still true? Does it apply? Well, this is interesting. The Italian economist, Vilfredo Pareto originated this whole idea that he said 80 percent of effects drive, derive from 20 percent of causes. So in business, we’ve turned that around the familiar saying like 80 percent of your profits come from 20 percent of your customers. Does it apply? Absolutely. And I’ll give you a better reason to say that than just listening to me. 

I just have a, have done an interview with Paula Thomas. She was on our Women in Loyalty podcast. It’s one that’ll be released very soon. Around the time that this episode will be released, but our host, Charlie Hills asked Paula, she said, what are some of the biggest learnings that you’ve had over 500 episodes of Let’s Talk Loyalty? And Paula said that the, that she had seen that the 80 20 rule was absolutely in effect, that it worked. And that we needed to pay attention to the fact that we needed that cost customers are different. They’re different, have different values, and we need to create differentiated approaches and strategies and communications, all that to be able to connect with them.

And then I was doing some research. And if you think 80 20 is extreme, I’ll give you extreme. I read in the wall street journal that there’s a company called PointsBet, which is an online gaming, gaming company. They were acquired in 2023 by Fanatics and they reported that 0. 5%. So half of 1% of their customer base generated more than 70 percent of their revenue in 2019 and 2020. Wow. That’s extreme. That’s about as skewed as the Pareto effect can get, but it shows you just how extreme it can get and how important to a business, a very small percentage of their customer base can be. 

So truth in the introduction to loyalty. All customers are not created equally relationships can and should be proactively managed and dialogue, dialogue think about that word is the foundation of customer relationships. So here’s the twist on dialogue. And I love this. Dialogue was something we talked about a long time ago. When a lot of the inspiration for what’s in the Loyalty Academy was created, and it was about gaining qualitative data about your customers so that you could understand their wants, needs, desires, preferences, really, truly build a relationship, like getting to know somebody, you get to know somebody, you sit, have coffee, you talk, you find out what they really like, and don’t like, they’re not going to tell you in a survey or a focus group.

So we used to practice this art of dialogue collection. And now guess what? With the exit of cookies in the in online marketing, so many companies are talking about what zero party data. And guess what? Zero party data is zero party data. Is that volunteered information that customers are willing to give us that allows us to learn more about them. It’s the equivalent of the dialogue. It is. It is absolutely the same, if not very close. 

So what we’re finding out is the foundations of loyalty are, I’d say, valid from what we originally have. And everything that you would see in this course 101, but they’re expanding every day. And we’re in some areas we’re getting validation for things like dialogue through 0 party data etcetera, validation of the Pareto rule and etcetera. 

But one other thing I want to mention you know, back in the day I was scolded by the so called OGs when we talked about using loyalty to acquire customers. And they said, Bill, no, absolutely. Loyalty can be used for customer retention, customer growth things like that, but not acquisition. That’s for the marketers. The advertisers. We’ve learned today, too, because loyalty is much more about things that would happen before the transaction that loyalty is really, truly becoming a Swiss army knife. It can accomplish many objectives for business, and that, I think, is one of the reasons that it’s becoming popular in the C suite that is gaining recognition in the C suite. 

So, you know, what loyalty can’t do some of what we knew is true today, too. It can’t fix a fundamentally flawed business. There has to be an organization in place that provides enough value on a competitive basis so that customers have a reason to stay connected with you, or even to show curiosity and being connected. So that’s important to know too. Loyalty can be a Swiss Army knife, but it’s also not, you know, a panacea for any business problem that you might have. So critical to building customer loyalty is to build a value proposition that works.

This will be the topic of another segment that we’ll have soon in Wiser Loyalty, and it’s also the subject of a workshop that we’re doing next week in London with the European Loyalty Association, we’ll get into what it takes to build a next gen value proposition. 

So for now, to wrap this up, I’d say it’s safe to say that the OGs of loyalty deserve our respect. But as time has marched on the nature, the potential, the possibilities for customer loyalty have outgrown these original concepts. And so like my friends in the UK say, watch this space, there’s more to come. Stay tuned. Thanks.

Paula: This show is sponsored by Wise Marketer Group, publisher of the WiseMarketer, the premier digital customer loyalty marketing resource for industry relevant news, insights, and research. Wise Marketer Group also offers loyalty education and training globally through its Loyalty Academy which has certified nearly 900 marketeers and executives in 49 countries as certified loyalty marketing professionals.

For global coverage of customer engagement and loyalty, check out thewisemarketer.com and become a Wiser Marketer or subscriber. Learn more about global loyalty education for individuals or corporate training programs at loyaltyacademy.org.

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