Aaron Dauphinee is a Partner in The Wise Marketer Group and a recognized authority and popular speaker on loyalty marketing.
The knock on most loyalty programs is they’ve never really been about loyalty at all. Certainly not in their earliest incarnation as trading stamp programs in the mid-20th century. Not even when the airline industry dreamed up the idea of point collection based on miles flown in the 1980s as a way to lock in frequent travelers. And not even today, when “earn-and-burn” programs are the prevailing model, in whatever industry you name.
The fact is, loyalty programs just about everywhere are designed to serve one purpose: maximize customer retention by incentivizing repeat purchase. Which is really just another, more targeted form of promotional discounting. The benefit to the customer, of course, is getting rewarded for purchases they might have made anyway. And that can be meaningful in this time of financial duress, when so many inflation-weary households are struggling to make ends meet. Most people are willing to stick with a brand if it offers discounts, freebies and perks. After all, they have nothing to lose. But no marketer should ever misconstrue habitualized purchases for loyalty.
Yet marketers love their loyalty programs. Whereas once upon a time these programs were only affordable if a company was large enough to have sufficient computing capacity, today every business, no matter how small, can run a templated, out-of-the-box program for a fraction of what it used to cost. And because APIs make it easy to connect loyalty platforms to the various internal systems of record, the member profiles are made up of high quality first and zero party data, making precision marketing possible. Theoretically, that should benefit the customer through more personalized offers. And while personalization at scale is finally achievable thanks to the alchemy of AI, the payoff for the customer is dubious. That’s because it opens the door to sleight of hand on the part of marketers who can be tempted to engage in deceptive practices.
For instance, one growing trend is to use AI-driven dynamic pricing and offers to maximize profit margins (called surveillance pricing): Higher pricing for some customers, lower for others, based on their behavioural footprint. Or points might be restricted to specific eligible offers. Points might also be arbitrarily devalued – redemption thresholds bumped up – or expiry limits suddenly imposed. All this goes on because the overhead costs of running a rewards program are a perpetual concern of the accountants who fret over unredeemed points. And since there is no offsetting line item for making customers feel good, marketers are pressured to do whatever they can to reduce point liability.
This lack of transparency and fairness is what undermines trust in a brand. And trust is a prerequisite for true loyalty, defined as an unwavering emotional commitment to the brand. Today’s loyalty programs only give customers a reason to stay – not a reason to believe. It is a contract the member agrees to knowing the terms are one-sided and can be revoked at any time. And that makes it a lost opportunity to develop a more reciprocal and trusting customer relationship over time.
The trouble with almost all loyalty programs today is that they are run by standalone business units outside of strategic planning. At best they are an operational extension of the performance marketing team, there to support membership growth and demand generation. The membership base is seen as an addressable target audience – a source of “value extraction” – sometimes even a lucrative ad channel for partners – rather than a relationship building platform.
So the time has come to revamp today’s one-dimensional loyalty model which is not much more than an archaic carryover from a bygone era, according to Aaron Dauphinee of The Wise Marketer Group, which is dedicated to the advancement of the loyalty industry. He believes a more holistic approach is needed which makes true loyalty an outcome of a superior overall customer experience. The loyalty program should be integrated into a broader customer management strategy that encompasses customer appreciation and recognition, voice of customer, community management and brand advocacy as interdependent pillars.
Aaron has spent almost his whole career as a loyalty practitioner, gaining a solid grounding in the financial planning and modelling of programs through his experience with both Alliance Data (which once owned the Air Miles program in Canada) and AIMIA, the former operators of Air Canada’s Aeroplan program. Today he is a partner in The Wise Marketer Group which is a global information resource and media hub for the loyalty industry, as well as offering the only certification course for loyalty professionals.
I wondered whether Aaron’s affinity for the math of loyalty marketing may have had its roots in his university days as a Science Major, so that’s where I started our conversation.
Aaron Dauphinee (AD): No one really grows up to be a loyalty marketer is how I’d open up first. But certainly my career arc from, you know, call it “science into loyalty” is a very nonlinear path and I kind of think of it more as a feature, not necessarily a bug. So you know to add some fruit around that, or some meat on the bones around that idea, a science background kind of trains you to look for evidence, and so the instinct of looking for evidence has served me well in a field like “Big M” marketing, but also in the sub- disciplines that range from where we’re spending too long operating on a gut feel in general marketing to those where you’re fully invested in the numbers, focusing on KPIs, redemption rates, attrition rates, enrollment rates like we do in multi- marketing.
So I would say that by and large I tend to bring an analytical lens to marketing overall, which is fundamentally a human behaviour problem that both science and marketing are trying to solve for. So you know, I guess to add a little bit more, I cut through – if there isn’t really in the subject matter, but perhaps it’s a bit more in the questions that both disciplines try to answer. So things like: What motivates people? What sustains commitment? How do organizations build systems around that? These are questions that appear in chemistries and biologies just as much as they do in marketing and in particular multi-marketing. So it’s just at a different scale.
Stephen Shaw (SS): It’s funny because a lot of the guests I have on that are, become well known in the field and the discipline both of marketing and loyalty marketing and customer experience, a lot of them come from English lit or the humanities and they find themselves in this data driven world and they somehow excel at it. You’re kind of the opposite. Where you had science training, go to the Government of Alberta, you’re an administrator of some kind. But then you lead to, I think it was Alliance Data that you went to work for initially.