In the age of AI, the relationship strands between a business and its customers are becoming thinner and thinner, opening up that relationship to various new and more complicated threats.
It’s only a matter of time before there is no longer such a thing as loyalty in business.
You’re not alone in thinking that it seems like every company has a customer rewards program now. Incentives, points, discounts, badges, offers, VIP tiers and, most notably, free stuff — all of that is emerging from what has long been the domain of consumer retail, specifically restaurants and hotels.
3 Things to Remember About Customer Loyalty
- Everyone is a VIP somewhere.
- Customers are loyal to people, not a product.
- Tracking customer loyalty boils down to math: It’s transactional, not emotional.
You know what I’m talking about. You give a company your email address or phone number, you start earning points for each thing you buy or dollar you spend. In return, the company gets to market directly to you, and if it’s smart, it’ll offer you exactly what you want, when you want it… at the exact moment it extends your customer lifetime value or keeps you away from a competitor.
Until recently, these kinds of rewards and loyalty programs used to be the domain of, well, smaller, second-tier fast food franchises. You might remember Subway’s: Buy five footlongs and get the sixth for free. It was mostly that and local merchants punching paper cards. In 2021, even McDonald’s got involved.
But then two major changes came from two unlikely and very different directions. A trendy coffee company took the reins on digitizing its outsized customer loyalty, and an industry long rooted in landing whales went all in on tracking that loyalty.
The Loyalty Evolution
You may not think of them this way anymore, but Starbucks used to be, and in some sense still is, synonymous with customer loyalty. “The cult of Starbucks” was a thing we old people used to say.
In the mid-2010s, the hyper-trendy Seattle staple began offering in-app ordering that was seamlessly integrated into a robust rewards program, an equally successful gift card business, and a novel, proprietary cash wallet, building on its already fanatical (at the time) customer loyalty and, more importantly, digitizing that loyalty.
At roughly the same time, Las Vegas casinos were discovering the internet, better late than never. This is an industry that traditionally spared no expense to keep the loyalty of the biggest gamblers, known as whales (and for the record, you crypto punks, this is where the definition originated). Comped palatial rooms, free first-class transportation, hard-to-get tickets, fronted credit, meals, gifts, whatever it took to keep the players’ wallets open on the gaming floor.
From the 1950s to the 2010s, this loyalty tracking was all managed by pit bosses and hosts.
The casinos digitized their loyalty programs in the mid-2000s, but only in part, mostly for lower-stakes vacationers and locals. It was more about tier-based status leading to VIP treatment — bronze, silver, gold, platinum, and so on.
But the twist here was how those loyalty and rewards points were aggregated. It would take technology grafted into every slot machine, every gaming table, every reservation desk, all connected in real time, to make it work. So that’s what they did. And once it worked, and once online gambling became a thing, it exploded.
Everyone Is a VIP Somewhere
I’m writing this as I’m establishing the first independent rewards and loyalty program in a particular industry that has nothing to do with consumers. Certainly nothing to do with fast food, retail, hotels or gambling.
I’m able to do this for the same reasons that the casinos used technology to track every dollar pumped into every penny slot, turn that into average daily theoretical loss (ADTL), and offer me rewards and comps and discounts that are just enough to encourage me to spend another day losing. Theoretically.
Only now that tech is everywhere. It’s fintech. It’s credit cards and e-commerce and tap your phone to pay. The cat’s out of the bag, and it’s a shopaholic.
I’m compelled to do this for the same reasons that Starbucks evolved loyalty from a notion based on taste to a points proxy that fueled a growth engine. At some point, my loyalty to Starbucks shifted from the coffee to the customer experience.
Order in app from my office, pay with dollars I had previously over from my bank, drive over to a location, always seemingly just 10 minutes away, pick up my drink, meet my meeting counterpart, earn points (stars) and enjoy soft jazz.
Rewarding loyalty is not just a perk anymore. It’s expected.
There Is No Loyalty, Only Math
I could go on forever about the rise of loyalty and rewards programs, like my own B2B project, or late-entrant McDonald’s using its to offset inflation-based price wars (and their app infrastructure to offset high labor costs), or Uber’s recent decision to lean hard into Uber One.
And I will, obviously, write more about this concept and its derivative concepts in future articles. But I don’t want to write 10,000 words to prove out a trend when most of you are already nodding.
I want to highlight a potential pitfall right out of the gate.
There is no such thing as loyalty in business.
In both the OG examples of digital rewards and loyalty I used, examples that were two seismic shifts coming from two disparate sources, there were also two different mistakes made on two completely different fronts.
Starbucks mistook “loyalty” for loyalty. Starbucks has always been somewhat of a political animal, and it was likely that customer loyalty, which like I said was there from the beginning, that emboldened them to make public statements and take public actions they thought would most appeal to what they knew about their customers.
But just as Starbucks’ digital proxy for loyalty peaked, Starbucks went through a period of either saying the wrong thing or not saying the right thing or both. And those statements or lack thereof happened to coincide with some major external catalysts, most obviously the pandemic and also the tightening of the labor market, which disrupted their customer experience. All this together, and maybe a generational shift too, drew the ire of a lot of people, and their cached “loyalty” was no match for that ire.
On the other end, the creation of literally millions of new casino VIPs established an expectation of customer service that just could never be maintained. I’m a VIP at one of these casinos, but I know my VIP treatment is only valid for a very small slice of life in these casinos. Free room? Likely. Free suite on a fight night? Laughable.
But I know this because I’ve reverse engineered the (very complicated) math involved in bestowing my status. Most people aren’t going to bother, nor should they. Because I’m building a program, I’ve had to learn that it takes more than just computer code and connected credit-card swipes to make it work. And if I forget that loyalty is just math, I can easily fall victim to building an ultra-complicated program that is ultra-complicated to manage.
So if you take anything away from this article, as a person looking to implement a loyalty program, it should be this. Always remember it’s just math. Points are a proxy, not real-world, in-the-blood loyalty from a customer to a company.
That real-world loyalty still has to be maintained at a human level. But in this digital age, that loyalty must also be aggregated and rewarded because if you don’t do it, and do it right, someone else will.
