Oftentimes, businesses adopt a rewards program to thank their frequent customers and to encourage and increase the likelihood that they will return. While these are both excellent reasons to have a rewards program, a business must carefully consider how to structure the program and what to offer to not only promote engagement with their customer, but to also create meaningful incentives that make sense from a revenue standpoint.

If you don’t have a loyalty program, consider a recent study by Nielsen that surveyed 29,000 people in 58 countries. 60 percent of respondents reported that loyalty programs were available where they shop, and 85 percent were more likely to choose that retailer over another. The fact that most major retailers have loyalty programs should be enough to convince you that you should also have one. All of these companies can’t be wrong, or can they?

Where most loyalty programs fail is because they are not well thought out from the onset. There’s a balance that must be created between what makes sense for your business and what rewards will actually be attractive to your customers. It certainly wouldn’t make financial sense for a dealership to give away a car even to its most loyal customer, despite the fact that this would probably be a pretty desirable reward and would certainly ring the free publicity bell.

Here are a few things to consider when designing your loyalty program.

1. Reward activities that generate new business – There’s nothing more satisfying or desirable for a dealership than obtaining referrals from satisfied customers. We also know that word-of-mouth is one of the most effective forms of generating new business. Consider adding to your loyalty program an appropriate incentive for new customer referrals by existing customers. Loyal customers bring in a lot of revenue over their lives so why not encourage and reward those same customers for assisting you in your customer acquisition efforts? Religiously servicing their vehicles with you is great. However, by rewarding customers for generating new or conquest business – sales or service – you turn that loyal customer into a willing and proactive brand advocate.
2. Make sure your incentives aren’t at the expense of revenue –Take a close look at the profit centers of your dealership when selecting rewards for your customers. Don’t offer rewards to customers that eat into your profit centers. Recent statistics show that a well-planned dealership loyalty programs will work wonders growing revenues by offering only a 4-5% average loyalty “discount.” That is typically less than most direct mail teasers dealerships often send out. How the consumer perceives a smaller “reward” can be just as effective as a free oil change. But it is dependent on how it is packaged to the customer.  If you generate a lot of revenue from oil changes, don’t offer free ones. Many dealerships choose their rewards from those services that are the most popular with their customers. However, they also tend to be the ones that generate revenue for the dealership. Consider identifying services that aren’t generating revenue and offering those as rewards. This way, your customers are still receiving value for their loyalty but it’s not coming at the expense of revenue. Many of today’s good loyalty programs will tell you exactly, by labor Op code, what services each member is using and those they are not. It’s the ones they are not using that should be incentivized.
3. Choose rewards that promote engagement – The ultimate test of the health of your loyalty program is engagement by your customers. Again, monitor which rewards are being redeemed and which ones are not. Many times a small tweak of a reward will bring up its redemption and incremental revenue generation.  Your loyalty offerings aren’t set in stone. If customers aren’t taking advantage of the offered rewards, your loyalty program isn’t working. It’s one thing for the customers to generate the points through frequent visits, and quite another for them to be doing so in an effort to earn one of your offered rewards.

The bottom line is that you want your loyalty program to encourage and reward people for their loyalty. If you’re not offering rewards that are desirable, your loyalty program has no meaning. In addition, if your loyalty program is rewarding your customers at the expense of revenue, it’s being counter-productive. A well-designed loyalty program will increase revenue, not detract from it.

I came across an excellent blog article recently that discussed the different forms of loyalty that exist in the car business. In this article, the author described three levels of customer loyalty: Brand loyalty, dealership loyalty and salesperson loyalty. He described these three different types of loyalty as follows:

Brand loyalty: The focus here is on customer loyalty to a specific vehicle brand. Manufacturers’ entire marketing efforts are designed to retain current owners and convince owners of competing brands to switch. They use many different ways to build this loyalty including quality comparisons, performance, safety, comfort and practicality. This is important for brand market share but also just as important in assisting franchises by driving customer interest and traffic.

Dealership loyalty: Loyalty to a dealership is built through providing an excellent customer experience, treating customer right and being consistent in efforts to recognize and reward frequent and repeat customers.

Salesperson loyalty: Salespeople that stay at a specific dealership for any length of time have the ability to develop relationships with customers that can last a lifetime. They can even get to the point where they no longer have to assist new customers as their referral and repeat business keeps them busy with a constant, steady flow of business.

These are all valid and excellent points. The author of the aforementioned blog placed these different types of loyalty in order as sort of a funnel from the top down. I believe that it’s important for dealerships to recognize the importance of all of these areas but to also realize that, from a business point of view, there is a definite hierarchy that management must recognize in order to create a loyalty strategy that maximizes success.

This is the order I believe accomplishes this best.

Dealership loyalty: By far the most important type of loyalty to a dealership must be loyalty to that dealership. This is the only type of loyalty that a dealership can directly influence. Dealerships must build a base of loyal customers, and then service those loyal customers in order to survive. The less customer retention a dealership has, the more focused on customer acquisition they must be. A solid and growing base of loyal customers will assist dealerships in growth and make customer acquisition less important. If your dealership has a 30 percent defection rate, it will always need to replace that 30 percent with new customers, just to maintain the status quo. Decreasing defection through customer retention allows a dealership to grow. Dealerships will only accomplish this through providing an excellent customer experience in all departments. They can also reinforce and reward repeat customers through rewards programs and recognition.

Salesperson loyalty: Dealerships can assist in this effort by building employee loyalty. Providing a great work environment, with basics such as training to help increase the salesperson’s abilities, along with a company philosophy that reinforces positive attitudes and behavior, can decrease your employee turnover and increase longevity of employment. This allows relationships to be built and serves to reinforce to the dealership’s customer that your dealership is a great place to do business with. Ultimately, however, dealerships cannot control an employee. Turnover does happen, and the last thing any dealership wants is to lose customers because they are more loyal to a salesperson than to the dealership. Too often salespeople take their customers with them which is why dealerships need to focus on retaining their staff.

Brand loyalty: Manufacturers focus almost entirely on brand loyalty and conquest. A dealership’s sales revenue is dependent on both new and used car sales. Most dealerships carry multiple brands in their used car inventory and would be more than happy to sell a customer a pre-owned vehicle of a competing brand. Not only is brand loyalty affected in this manner but a recent study by ADP showed that 63 percent of online shoppers began their research with the intent of purchasing a specific brand. Only 20 percent of those shoppers actually ended up purchasing that brand. While a dealership can certainly reinforce brand loyalty through new car sales and leasing retention, this is where they have the least influence.

The bottom line is that every dealership must focus on loyalty at all levels, but just as in all facets of business, focus must be prioritized to maximize efficiency. Place the order of importance on items where you have the most influence at the top, to those that you have the least at the bottom.  By doing so, a dealership can maximize its efforts in creating a loyal customer base that will sustain the dealer and assist in its growth. 

I came across an excellent blog article recently that discussed the different forms of loyalty that exist in the car business. In this article, the author described three levels of customer loyalty: Brand loyalty, dealership loyalty and salesperson loyalty. He described these three different types of loyalty as follows:

Brand loyalty: The focus here is on customer loyalty to a specific vehicle brand. Manufacturers’ entire marketing efforts are designed to retain current owners and convince owners of competing brands to switch. They use many different ways to build this loyalty including quality comparisons, performance, safety, comfort and practicality. This is important for brand market share but also just as important in assisting franchises by driving customer interest and traffic.

Dealership loyalty: Loyalty to a dealership is built through providing an excellent customer experience, treating customer right and being consistent in efforts to recognize and reward frequent and repeat customers.

Salesperson loyalty: Salespeople that stay at a specific dealership for any length of time have the ability to develop relationships with customers that can last a lifetime. They can even get to the point where they no longer have to assist new customers as their referral and repeat business keeps them busy with a constant, steady flow of business.

These are all valid and excellent points. The author of the aforementioned blog placed these different types of loyalty in order as sort of a funnel from the top down. I believe that it’s important for dealerships to recognize the importance of all of these areas but to also realize that, from a business point of view, there is a definite hierarchy that management must recognize in order to create a loyalty strategy that maximizes success.

This is the order I believe accomplishes this best.

Dealership loyalty: By far the most important type of loyalty to a dealership must be loyalty to that dealership. This is the only type of loyalty that a dealership can directly influence. Dealerships must build a base of loyal customers, and then service those loyal customers in order to survive. The less customer retention a dealership has, the more focused on customer acquisition they must be. A solid and growing base of loyal customers will assist dealerships in growth and make customer acquisition less important. If your dealership has a 30 percent defection rate, it will always need to replace that 30 percent with new customers, just to maintain the status quo. Decreasing defection through customer retention allows a dealership to grow. Dealerships will only accomplish this through providing an excellent customer experience in all departments. They can also reinforce and reward repeat customers through rewards programs and recognition.

Salesperson loyalty: Dealerships can assist in this effort by building employee loyalty. Providing a great work environment, with basics such as training to help increase the salesperson’s abilities, along with a company philosophy that reinforces positive attitudes and behavior, can decrease your employee turnover and increase longevity of employment. This allows relationships to be built and serves to reinforce to the dealership’s customer that your dealership is a great place to do business with. Ultimately, however, dealerships cannot control an employee. Turnover does happen, and the last thing any dealership wants is to lose customers because they are more loyal to a salesperson than to the dealership. Too often salespeople take their customers with them which is why dealerships need to focus on retaining their staff.

Brand loyalty: Manufacturers focus almost entirely on brand loyalty and conquest. A dealership’s sales revenue is dependent on both new and used car sales. Most dealerships carry multiple brands in their used car inventory and would be more than happy to sell a customer a pre-owned vehicle of a competing brand. Not only is brand loyalty affected in this manner but a recent study by ADP showed that 63 percent of online shoppers began their research with the intent of purchasing a specific brand. Only 20 percent of those shoppers actually ended up purchasing that brand. While a dealership can certainly reinforce brand loyalty through new car sales and leasing retention, this is where they have the least influence.

The bottom line is that every dealership must focus on loyalty at all levels, but just as in all facets of business, focus must be prioritized to maximize efficiency. Place the order of importance on items where you have the most influence at the top, to those that you have the least at the bottom.  By doing so, a dealership can maximize its efforts in creating a loyal customer base that will sustain the dealer and assist in its growth. 

Manufacturers are increasingly introducing programs designed to increase brand loyalty, and car buyers are staying more loyal than ever before. One of the most recent examples is GM’s decision to expand its free scheduled maintenance programs to more of its vehicles including most 2014 Chevrolet, Buick and GMC vehicles.

Many dealers have offered a few free scheduled services to their sales customers in an effort to not only introduce them to their service department, but to keep them coming back. With manufacturers focusing more on retention and shifting towards offering free scheduled maintenance for new car buyers, this offers dealerships greater opportunity than ever before to build a customer relationship with a car buyer (whether that car was bought from them or a competing dealer). This can not only increase up-sell opportunities, but also increase their chances at future vehicle sales.

Dealerships who have an OEM customer retention program need to recognize that this is a golden opportunity for them to really focus on “WOWing” the customer as, at this point, a customer has no concerns about price (the service is free to them). It’s all about the customer experience. Provide a great customer experience and they will continue to come back after their free maintenance benefit expires. Treat them poorly and they will take their vehicle to your competitor.

Cadillac has offered a 4-year, 50,000 mile free scheduled maintenance program for a while. Even with car buyers keeping their cars longer (58 month average in 2012), dealerships will still have the opportunity to impress and win the loyalty of the consumer for most of their time of ownership. If done properly in combination with the OEM’s brand retention strategies, a dealership can greatly increase their chances of converting that long-time service customer into a new car sale that then converts back into a service customer.

This “circle of life” could continue indefinitely as long as both the brand and your dealership focus on providing customers with programs that are designed to maintain the customer’s brand and dealership loyalty. As length of ownership continues to increase, fixed operations revenue becomes more important than it ever has been in the past. Leverage your OEMs brand initiatives to support your own dealership retention strategies and you can set yourself up to earn more lifetime customers.

The reason OEMs see the wisdom in using such maintenance programs is to sell more vehicles and importantly keep those buyers loyal to their GM dealer.  One might conclude then that this trend erases any market need for third-party prepaid maintenance (PPM) programs. After all, PPMs are substantially the same as those OEMs offer.

Given this, are factories’ free maintenance programs making third-party PPMs unnecessary?

On the contrary, they are now more vital than ever. The first automotive loyalty programs were utilized by dealers in 2002. Now, more than half of all the US dealerships employ some type of loyalty initiative (many through OEM sponsored programs).  But what about the dealerships with multiple brands where the OEM programs could do more harm to the remaining dealer brand than the good they provide to the other?  Multi-brand dealership groups need a solution that will allow cross-selling and plan redemption between all of their brands. OEMs simply can’t provide this type of solution, nor are they expected to.  Think of the brand Starwood Hotels and Resorts. We all know them as The Westin, Sheraton, The W, Le Meridian and others. Starwood wants to encourage their loyalty members to utilize all of their different brands but under one common moniker. Dealership groups that have multiple brands can benefit from this practice, and they will start realizing the benefits it provides to them in cross-brand marketing, (not to mention the vast amount of customer purchase data and analytics it provides).

With a third-party PPM program, a dealer extends maintenance services at a discount price (some dealers choose to give them complimentary to purchasers). Consider that for GM, late-year buyers of its 2013 models won’t receive free factory maintenance. A dealer offering a PPM program can bridge that gap.

Furthermore, only PPM programs enable dealers to:

• Offer similar maintenance incentives to customers who purchase or lease a model year not covered by the factory program.
• Offer these conveniences – and gain their retention value – to purchasers of other makes it sells from its used vehicle inventory.
• Capture bought-elsewhere and other-make customers who visit the dealership service department.
• Offer these advantages to customers of other franchises in its group whose OEMs do not offer free maintenance.
• Offer customers prepaid maintenance after the duration of the OEM program to further retain them. 

Manufacturers are increasingly introducing programs designed to increase brand loyalty, and car buyers are staying more loyal than ever before. One of the most recent examples is GM’s decision to expand its free scheduled maintenance programs to more of its vehicles including most 2014 Chevrolet, Buick and GMC vehicles.

Many dealers have offered a few free scheduled services to their sales customers in an effort to not only introduce them to their service department, but to keep them coming back. With manufacturers focusing more on retention and shifting towards offering free scheduled maintenance for new car buyers, this offers dealerships greater opportunity than ever before to build a customer relationship with a car buyer (whether that car was bought from them or a competing dealer). This can not only increase up-sell opportunities, but also increase their chances at future vehicle sales.

Dealerships who have an OEM customer retention program need to recognize that this is a golden opportunity for them to really focus on “WOWing” the customer as, at this point, a customer has no concerns about price (the service is free to them). It’s all about the customer experience. Provide a great customer experience and they will continue to come back after their free maintenance benefit expires. Treat them poorly and they will take their vehicle to your competitor.

Cadillac has offered a 4-year, 50,000 mile free scheduled maintenance program for a while. Even with car buyers keeping their cars longer (58 month average in 2012), dealerships will still have the opportunity to impress and win the loyalty of the consumer for most of their time of ownership. If done properly in combination with the OEM’s brand retention strategies, a dealership can greatly increase their chances of converting that long-time service customer into a new car sale that then converts back into a service customer.

This “circle of life” could continue indefinitely as long as both the brand and your dealership focus on providing customers with programs that are designed to maintain the customer’s brand and dealership loyalty. As length of ownership continues to increase, fixed operations revenue becomes more important than it ever has been in the past. Leverage your OEMs brand initiatives to support your own dealership retention strategies and you can set yourself up to earn more lifetime customers.

The reason OEMs see the wisdom in using such maintenance programs is to sell more vehicles and importantly keep those buyers loyal to their GM dealer.  One might conclude then that this trend erases any market need for third-party prepaid maintenance (PPM) programs. After all, PPMs are substantially the same as those OEMs offer.

Given this, are factories’ free maintenance programs making third-party PPMs unnecessary?

On the contrary, they are now more vital than ever. The first automotive loyalty programs were utilized by dealers in 2002. Now, more than half of all the US dealerships employ some type of loyalty initiative (many through OEM sponsored programs).  But what about the dealerships with multiple brands where the OEM programs could do more harm to the remaining dealer brand than the good they provide to the other?  Multi-brand dealership groups need a solution that will allow cross-selling and plan redemption between all of their brands. OEMs simply can’t provide this type of solution, nor are they expected to.  Think of the brand Starwood Hotels and Resorts. We all know them as The Westin, Sheraton, The W, Le Meridian and others. Starwood wants to encourage their loyalty members to utilize all of their different brands but under one common moniker. Dealership groups that have multiple brands can benefit from this practice, and they will start realizing the benefits it provides to them in cross-brand marketing, (not to mention the vast amount of customer purchase data and analytics it provides).

With a third-party PPM program, a dealer extends maintenance services at a discount price (some dealers choose to give them complimentary to purchasers). Consider that for GM, late-year buyers of its 2013 models won’t receive free factory maintenance. A dealer offering a PPM program can bridge that gap.

Furthermore, only PPM programs enable dealers to:

• Offer similar maintenance incentives to customers who purchase or lease a model year not covered by the factory program.
• Offer these conveniences – and gain their retention value – to purchasers of other makes it sells from its used vehicle inventory.
• Capture bought-elsewhere and other-make customers who visit the dealership service department.
• Offer these advantages to customers of other franchises in its group whose OEMs do not offer free maintenance.
• Offer customers prepaid maintenance after the duration of the OEM program to further retain them. 

As social media gets more and more entrenched in our daily lives, it’s becoming the easiest and most visible place for one of the most important things your company can have but can’t buy – word-of-mouth marketing.

You can have your customer experience down pat, a loyalty program that rocks and customers lined up to do business with you; but does that mean you’re leveraging everything you can?

Many social media sites like Facebook, Foursquare, and Yelp have some sort of “deal” type feature. What would happen if you take advantage of this feature and tie it in to your existing loyalty program?

Here are some things you may or may not know about these deal features. (I’m going to focus on Facebook since it has the most advantages, in my opinion.) There have been many studies that have concluded that 60% of people “Like” a business’s Facebook page for special offers and deals. Facebook has two features: check-in deals and offers. I’m going to explain how check-in deals can benefit your dealership since this feature is free and easy to maintain.

When you have a Facebook check-in deal running, a customer would go to Facebook and “check-in” using their mobile device to your dealership. When they do this, it shares with their entire network that they are at your dealership. That’s great exposure! It gets better however. If you have a check-in deal, and the customer checks-in and claims the deal, not only does it share it with their network, it will share that 1) they are at your dealership 2) they claimed a deal and 3) the specifics of the deal, quantity remaining and deal expiration date. The best part about this is that these posts to their walls go into their friend’s news feeds and cannot be hidden!

Here’s an example of what one looked like after it was claimed:

Imagine if your “deal” was tied to your loyalty program. What would that look like?

Let’s say you give “points” for each dollar spent at your store towards your customer’s loyalty account. At some point you’ve placed a value on these points. How much would this advertisement, which, in reality is word-of-mouth advertising to your customer’s entire social network, be worth?

Instead of the check-in deal being “20% off any order,” it could be “1,000 loyalty program bonus points” with a check-in. Of course, you could disclaim it as a one time offer per loyalty member or one per customer per day and include that the check-in must correspond with a purchase to avoid people simply stopping by to claim their free loyalty points without spending any money. However, even they just stopped by, wouldn’t that endorsement to their entire network be worth something to you?

If you could get every one of your customers to recommend your dealership to their friends, you would. You certainly try all the time. You ask for referrals. You might even incentivize current customer for bringing you new ones.

Word-of-mouth advertising is still one of the most powerful forms of marketing in existence. The fact remains that it’s continuing to shift online all the time. Leveraging some of these social sites to increase the visibility of your loyalty program by incentivizing your customer for “checking-in” and sharing their endorsement of your dealership with their entire social networks is worth its weight in gold.

You couldn’t pay for better marketing.

[Note: Facebook is merging its "check-in deals" with it's "Offers" product as of July 1, 2013. It is still free but allows for more flexibility in creating different types of promotions. You can read more here [LINK])

As social media gets more and more entrenched in our daily lives, it’s becoming the easiest and most visible place for one of the most important things your company can have but can’t buy – word-of-mouth marketing.

You can have your customer experience down pat, a loyalty program that rocks and customers lined up to do business with you; but does that mean you’re leveraging everything you can?

Many social media sites like Facebook, Foursquare, and Yelp have some sort of “deal” type feature. What would happen if you take advantage of this feature and tie it in to your existing loyalty program?

Here are some things you may or may not know about these deal features. (I’m going to focus on Facebook since it has the most advantages, in my opinion.) There have been many studies that have concluded that 60% of people “Like” a business’s Facebook page for special offers and deals. Facebook has two features: check-in deals and offers. I’m going to explain how check-in deals can benefit your dealership since this feature is free and easy to maintain.

When you have a Facebook check-in deal running, a customer would go to Facebook and “check-in” using their mobile device to your dealership. When they do this, it shares with their entire network that they are at your dealership. That’s great exposure! It gets better however. If you have a check-in deal, and the customer checks-in and claims the deal, not only does it share it with their network, it will share that 1) they are at your dealership 2) they claimed a deal and 3) the specifics of the deal, quantity remaining and deal expiration date. The best part about this is that these posts to their walls go into their friend’s news feeds and cannot be hidden!

Here’s an example of what one looked like after it was claimed:

Imagine if your “deal” was tied to your loyalty program. What would that look like?

Let’s say you give “points” for each dollar spent at your store towards your customer’s loyalty account. At some point you’ve placed a value on these points. How much would this advertisement, which, in reality is word-of-mouth advertising to your customer’s entire social network, be worth?

Instead of the check-in deal being “20% off any order,” it could be “1,000 loyalty program bonus points” with a check-in. Of course, you could disclaim it as a one time offer per loyalty member or one per customer per day and include that the check-in must correspond with a purchase to avoid people simply stopping by to claim their free loyalty points without spending any money. However, even they just stopped by, wouldn’t that endorsement to their entire network be worth something to you?

If you could get every one of your customers to recommend your dealership to their friends, you would. You certainly try all the time. You ask for referrals. You might even incentivize current customer for bringing you new ones.

Word-of-mouth advertising is still one of the most powerful forms of marketing in existence. The fact remains that it’s continuing to shift online all the time. Leveraging some of these social sites to increase the visibility of your loyalty program by incentivizing your customer for “checking-in” and sharing their endorsement of your dealership with their entire social networks is worth its weight in gold.

You couldn’t pay for better marketing.

[Note: Facebook is merging its "check-in deals" with it's "Offers" product as of July 1, 2013. It is still free but allows for more flexibility in creating different types of promotions. You can read more here [LINK])

The whole idea of a loyalty program is to encourage and reward customers for doing business with you. The easier you make it for them to earn rewards and the more desirable those rewards are, the more likely a customer will utilize your program by returning to your business. How many supermarket “loyalty” cards do you have? Most people have one for each grocery store they go to, both regularly or occasionally. Is that proving loyalty? No, it’s a customer using the loyalty card only because they happened to choose that grocery store on that day.

So, how do you make your loyalty program meaningful? A program where the customer chooses your business every time, not just when they were going to anyways?

An interesting study by two consumer researchers resulted in a concept they named the “Endowed Progress Effect”. In essence, the “Endowed Progress Effect [is a phenomenon], in which people who are endowed with progress toward a goal increase the effort that they exert in reaching that goal.”

One of the studies conducted by these researchers was at a local car wash. One day they handed out 300 loyalty punch cards. Half of the punch cards required the purchase of 10 car washes to receive one free. However, these cards came with 2 of the 10 car washes already stamped with special stamps, which they explained to the customers, was part of a promotion they were running that day, so they only really had 8 car washes to go to get one free. The other half of the cards required the customer to purchase 8 car washes to receive one free. The fact is that both cards really had the same offer; buy 8 car washes, get one free. Half of the customers received what they perceived to be a head start, however.

Over the course of 9 months, the researchers tracked the purchases and use of these punch cards with the owners affixing dated stamps to cards whenever presented by customers.

The results? The customers that were given the cards that had no “head start” converted – meaning they satisfied the requisite 8 purchases and redeemed the card for the free car wash - at a rate of 19%. The customers that were given cards that had a 2-stamp head start (but still needed to purchase the same number of car washes) converted at a rate of 34%! That’s almost double!

It became clear that the customers with perceived progress in the beginning were statistically more apt to complete the program to earn the free wash. They also wanted to see if there was more effort put into the achievement. Those with the 2-stamp head start cards had on average 2.9 days less between visits which decreased an average of ½ a day after each additional visit.

What does this mean? Not only did giving the customer the illusion of progress from the start almost double the success rate of the promotion, those customers made more of an effort to achieve the goal faster.

After reading about these findings, you might want to consider incorporating this practice into your existing loyalty program or, if you don’t have one yet, using this to your advantage once you get one.

The bottom line is that the car wash never gave any special treatment to any of those 300 people. They were all required to buy 8 car washes in order to receive a free one. It’s all about a perceived advantage and is an interesting concept that can be used to maximize the value and use of any loyalty program. It could help to create a loyalty program people make an effort to use, not one they use only when it’s convenient.

The whole idea of a loyalty program is to encourage and reward customers for doing business with you. The easier you make it for them to earn rewards and the more desirable those rewards are, the more likely a customer will utilize your program by returning to your business. How many supermarket “loyalty” cards do you have? Most people have one for each grocery store they go to, both regularly or occasionally. Is that proving loyalty? No, it’s a customer using the loyalty card only because they happened to choose that grocery store on that day.

So, how do you make your loyalty program meaningful? A program where the customer chooses your business every time, not just when they were going to anyways?

An interesting study by two consumer researchers resulted in a concept they named the “Endowed Progress Effect”. In essence, the “Endowed Progress Effect [is a phenomenon], in which people who are endowed with progress toward a goal increase the effort that they exert in reaching that goal.”

One of the studies conducted by these researchers was at a local car wash. One day they handed out 300 loyalty punch cards. Half of the punch cards required the purchase of 10 car washes to receive one free. However, these cards came with 2 of the 10 car washes already stamped with special stamps, which they explained to the customers, was part of a promotion they were running that day, so they only really had 8 car washes to go to get one free. The other half of the cards required the customer to purchase 8 car washes to receive one free. The fact is that both cards really had the same offer; buy 8 car washes, get one free. Half of the customers received what they perceived to be a head start, however.

Over the course of 9 months, the researchers tracked the purchases and use of these punch cards with the owners affixing dated stamps to cards whenever presented by customers.

The results? The customers that were given the cards that had no “head start” converted – meaning they satisfied the requisite 8 purchases and redeemed the card for the free car wash - at a rate of 19%. The customers that were given cards that had a 2-stamp head start (but still needed to purchase the same number of car washes) converted at a rate of 34%! That’s almost double!

It became clear that the customers with perceived progress in the beginning were statistically more apt to complete the program to earn the free wash. They also wanted to see if there was more effort put into the achievement. Those with the 2-stamp head start cards had on average 2.9 days less between visits which decreased an average of ½ a day after each additional visit.

What does this mean? Not only did giving the customer the illusion of progress from the start almost double the success rate of the promotion, those customers made more of an effort to achieve the goal faster.

After reading about these findings, you might want to consider incorporating this practice into your existing loyalty program or, if you don’t have one yet, using this to your advantage once you get one.

The bottom line is that the car wash never gave any special treatment to any of those 300 people. They were all required to buy 8 car washes in order to receive a free one. It’s all about a perceived advantage and is an interesting concept that can be used to maximize the value and use of any loyalty program. It could help to create a loyalty program people make an effort to use, not one they use only when it’s convenient.

I recently read an article about a recent Forrester Report titled “Banks and Retailers: You Cannot Price Your Way Out of Bad Customer Experiences.” It was quite fascinating but there was one part that really resonated with me.

In every instance, when a customer is making a decision on whether to be loyal to your business or not, any question they ask themselves can be boiled down to one simple question.

“Is this company making my life easier or harder?”

If the answer to that question is “easier”, they’ll continue to do business with you. If not, they will start looking for your replacement.

We are constantly analyzing data to try to solve the formula for customer retention. We’ve asked many questions and had many different results. However, boiling the overall question down into something that simple is something a manager can intuitively understand and apply.

Sure, there are still a lot of process changes, analysis, employee reviews and customer surveying to be done. However, if all of this is done with the goal of making the customer answer that your company is making their life easier, you’re already ahead of the game.

The Forrester report mentions that companies can no longer compete with each other on price. This is because, in the age of technology, consumers have access to real-time alternative pricing while standing in your store.  While not completely discounting the power of low prices (it works for Wal-Mart, right?), car dealers don’t have 20,000 products on shelves and stay open 24 hours per day. Even if you did, a low price may win you customers, but it won’t win you loyalty. If your customer is only your customer because you have the best price, then they will only be your customer until a better price comes along.

The report instead recommends that businesses compete for business based on experience, not just price. Of course your prices need to be competitive but they don’t have to be the lowest to win loyalty. That being said, the customer experience you offer better justify your prices and, ultimately, make the customer leave feeling as if you’ve made their life easier.

We’re fortunate that we have technology available in our industry to help facilitate better customer experiences. Many dealers go out of their way to ensure that the customer experience is top-notch, done quickly and provide every convenience possible for the customer. Dealers are constantly working on ways to quantify and stop (or reverse) defection, reward loyal customers through loyalty programs, and incentivize employees for great customer service. And all of this is while trying to win new customers through marketing efforts, word-of-mouth or new sales customers.

Just keep in mind that, consciously or not, the customer is asking: “Is this company giving me what I need, on fair or great terms, and making the interaction easy and enjoyable?”

Help the customer answer yes to that question every time, and you’ll have a loyal customer.