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January 13, 1999 Event
Affinity Programs: Building Loyalty One Hit at a Time In the early days of the online world, the primary focus of most Internet companies was simple: acquire as many users as possible, as quickly as possible. Today however, marketplace saturation and competition is forcing companies to add initiatives for user retention and satisfaction to their mad dash for acquisition. Affinity programs may form the centerpieces of these strategies. Everyone seems to win with affinity programs. For users, they purport to translate activities from surfing to purchasing into additional value while forming a bond between client and customer. For companies, they claim to strengthen brand, provide a means for differentiation, and raise user-switching costs. Though their proven benefits remain to be seen, there is little doubt that online affinity programs will play a major role in the Internet battles of 1999. Because the Web mitigates traditional competitive advantages such as location (one click away), capital (lower operating costs), and size (large virtual presence), companies must place a greater premium on brand equity and loyalty. In this world of commodity products and low switching costs however, user allegiance is hard gained. Effective affinity programs can provide differentiation, promote stickiness, and eventually even increase loyalty and trust. Diverse offerings such as airline miles, merchandise, and even cash entice users into forming browsing and spending habits. The process of accumulating points and redeeming rewards encourages users to build loyal relationships with companies. And loyal relationships often lead to the formation of trust, one of the most difficult dynamics to master in the virtual world. As affinity programs become standard, there will be much debate around how to build the most effective offerings. Should websites participate in an affinity network such as Netcentives or create their own branded entities via vendors such as Intellipost? Brands with their own programs may suffer from narrow selection and limited distribution while sites participating in affinity networks may risk users becoming loyal to the rewards providers instead of themselves. In addition, there are the ongoing challenges of providing compelling offerings, maintaining privacy, and online/offline program integration. Ultimately, affinity programs may form the very basis for the customer-client relationship. Yet for now, their emergence only hints at the tremendous opportunity to strengthen and enhance user loyalty.
A Penny for Your Patrons
Intellipost Trafficks in Loyalty Points
Key Learnings
DIFFERENTIATION, ACQUISITION, LOYALTY
Come for the Food, Stay for the Pie (Points)
Internet affinity programs are more of a red herring than a proven lure. They should be the icing on the cake, not the primary reason to use a product or service. Rewarding people for random clicks that go nowhere does nothing for acquisition, retention, or loyalty.
In the online world, word of mouth or word of e-mail (viral marketing) may prove to be far more effective in encouraging trial and building loyalty than affinity programs. Cost savings and simplicity of use continue to be the most effective ways to capture, retain, and reward users.
If affinity programs are the way to foster loyalty, can product features be equally powerful? If the decision to launch a new offering is based on ROI, perhaps a $1M investment in a product upgrade will win out over an equally large investment in an affinity program.
RETENTION VS. SERVICE
Jailhouse Rock vs. Hotel California
Affinity programs should be more about service than retention. The best affinity programs operate as five-star hotels rather than jails. The focus should be on increasing loyalty and creating trust rather than on creating a program for hoarding points with an expected cash value.
It is always better to create a great offering and market it well than to offer a commodity service with reward points. Ultimately, price, convenience, and most importantly customer service are key components in fostering customer loyalty.
A large goal of incentive marketing involves inciting users into making decisions that are not financially optimal. The perceived notion of "getting something for free" is a powerful intoxicant. Loyalty, however, depends more on trust than the opportunity to obtain airline miles.
KEYS TO SUCCESS
MyEverydayEZFunRewards
Execution will determine whether online affinity programs can successfully build user loyalty. If they simply mimic offline programs by matching points for dollars spent, ads clicked, or surveys filled, they will only be a sideshow to frequent flier programs.
Successful programs must be personalized, easy-to-use, fun, and filled with daily earning opportunities. They should be transparent and fully integrated into normal usage patterns. Sites can take advantage of the Web's interactive nature by involving the user in designing his/her own systems and rewards.
Programs should not only reinforce behavior, but reinforce the emotional attachment to the offering brand. In this way, earning opportunities and rewards should be fun (Yahoo!), wholesome (Disney), practical (Microsoft), convenient (AOL), etc.
PRIVATE OR NETWORK
Dollar vs. Euro Currency
Points are the currency of affinity programs. "Countries" like Yahoo!, AOL, and Microsoft which have critical mass of users will have their own currency. Smaller countries (Web sites) will need to group together to form critical mass, like Europe forming the Euro. Some Web sites may operate in a native currency and accept others (like Canada).
For industry heavyweights, private currency can leverage a position of strength and lock-in customers. For lower-tier players, it makes more sense to use universal incentives to encourage usage and move up the food-chain. An alternative for small Web sites is the creation of mini-networks (Web rings) which target a specific psychographic and demographic profile.
Affinity programs should extend offline to increase diversity and extend online brands into the real world. Internet affinity points are the first currency available for online users to exchange for offline products and services.
QUOTES OF THE NIGHT
"Why should Green Stamps work on the Web when they failed in real life?
"The reality of the situation is that people love points; 75% of all Americans are enrolled in some kind of affinity program."