Loyalty Programs are Passé, what about Customer Advocacy Programs?

Customer Loyalty programs have been around for more than a century and marketing managers have used them very effectively for rewarding loyal customer behavior, especially repeat purchase. According to Gartner, U.S. companies spend more than $1.2 billion per year on customer loyalty programs. It is also estimated that more than 75% of consumers today have at least one loyalty card and number of people with two or more is estimated to be one-third of the shopping population (for more, see The Lowdown on Customer Loyalty Programs: Which Are the Most Effective and Why:) Knowledge@Wharton.

It is time for business to look beyond Loyalty Programs that reward repurchase and consider having a Customer Advocacy Program instead.

But given recent growth in Social Networking on the internet and our ability to precisely track outbound Word of Mouth (WOM) and its impact on customer behavior, it is time for business to look beyond Loyalty Programs that reward repurchase and consider having Customer Advocacy Program instead.

In a recent research study titled Effects of Word-of-Mouth Versus Traditional Marketing: Findings from an Internet Social Networking Site, findings of which were published in Journal of Marketing (September 2009), it was found that “Word of Mouth (WOM) referrals have a strong impact on new customer acquisition. The long-term elasticity for WOM referrals is approximately 2.5 times higher than the average advertising elasticity reported in the literature. Part of the reason for the high long-term effect of WOM relative to traditional marketing is that it has a much longer carryover period.”

Marketing Managers should design programs to track and reward Customer Advocacy behaviors such as WOM on Social Networking sites.

Given the impact of Word of Mouth (WOM) on purchase decisions and our ability to track outbound WOM on Social Networking sites, Marketing Managers should design programs to track and reward Customer Advocacy behaviors such as WOM on Social Networking sites. This will not only help marketing managers in promoting their products or brands on Social Media channels, but will also help in building trust and loyalty among target audience.

What do you think? Do you agree that Loyalty Programs are Passé and companies need to have Customer Advocacy Programs instead? Please do share your thoughts!

Dr. Harish Kotadia

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3 thoughts on “Loyalty Programs are Passé, what about Customer Advocacy Programs?

  1. Don’t disagree that customer advocacy is important, but I don’t think this replaces a loyalty programme. For many brands, the loyalty programme is the only way to find out who their customers are. The points are a value exchange for the card swipe. This card swipe then brings in the valuable data on who the best customers are. Combined with social interactions this then allows for targeted and relevant comms. Loyalty programmes are not passé, they are just getting started.

  2. I don’t know if I go so far as to say loyalty programs are passe’. Will they evolve – most definitely. They will become more effective as they move outside of the ‘airline mile’ mentality.

    I don’t quite understand what you mean by Customer Advocacy Programs though. Of coarse we all want to nurture ‘word of mouth’ activity – it’s the most effective form of exposure. I have some hesitation, however, thinking that tracking is the ‘be all end all’ of marketing prowess.

    If you just mean looking past the standard reward programs into more total customer experience oriented approaches – then I’m all for.

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