Loyalty programs often fail to understand the key drivers behind loyalty and how these drivers vary between cultures. Loyalty is not simply about providing monetary rewards or discounts; the driving forces behind effective loyalty programs are actually status, relationship and habit. Concentrating on these core behavioral motivations, and the cultural context that shapes them, will lead to more valuable customer connections.
Let’s focus on one driving force in particular: status. Status is dependent on social context as it provides an indication of where one fits into a hierarchy, as well as the benefits one gains as a result. Recognizing varying cultural norms around status can change the effectiveness of a loyalty campaign.
To better understand how our various audiences derive status, consider three tactics: up, lateral, and down. The up tactic creates a sense of status by motivating people toward greater achievement or recognition. Lateral describes the prestige of joining a particular group. Down indicates the process of achieving status by dissociating from a less prestigious group.
Considering the importance of status and how it is expressed in different cultural contexts can provide a great starting point for how to tailor each loyalty program. Take two countries, India and Germany, for example. Each country places a unique importance on status and recognition.
In India, the pursuit of status is driven by a strong desire for individual, exclusive recognition, so rewards based on unique service and privilege work particularly well. One of the most successful loyalty programs in India, the Shopper’s Stop First Citizen’s Club, offers exclusive shopping experiences, like dedicated staff or special, members-only shopping hours. The program engages the target audience with the correct up status tactic, where the individual is singled out and can derive status from exclusive, visible benefits that connect on an emotional level.
In Germany, rewards are typically driven by a utilitarian and collectivist outlook. As a result, rewarding customers with recognition that separates them from a crowd may be ineffective. One of the fastest growing loyalty programs in Germany, Payback, found that German customers “expect coupons for savings, attractive special promotions, and most important, a loyalty program that can be used in many different ways.”
Payback is proving to be very effective as it plays on the German desire for utility and utilizes a lateral status tactic. The Payback card indicates inclusion into a desirable peer group: those who are smart with their money.
Each loyalty program will, of course, be different depending on the industry or specific customer segment, but understanding the core motivations and cultural nuances behind customer action should help to develop the best program possible for the local audience.
Many businesses have lost sight of the goals and tactics at work in driving real, sustained benefits from their loyalty programs. As we continue to accumulate unused rewards cards, we are experiencing first-hand the drop in effectiveness of many loyalty programs.
Customers have become numb to undifferentiated offerings and complex reward schemes. In fact, the Harvard Business Review reports that “93% of respondents agree that loyalty programs are not serving loyal customers, but are primarily marketing tools.” Ninety-three percent! Loyalty programs are indeed losing their effectiveness, but it is possible to get back on track with programs that take consumer behavior and cultural context into account.