For the past 10 years, I have regularly had my car washed and cleaned at a local car spa cafe. At one point, they issued me with a loyalty card, and I would get it stamped when I remembered to bring it. A couple of years ago, I presented my card to get it stamped, but they wouldn’t stamp it because the car I was driving (my wife’s) had a different registration number to the one on the card. I ignored it and forgot about it.
Five months ago, I went back to get my car washed and cleaned. I presented the card, not even realising there was a reward on it until the girl behind the counter said she couldn’t give me the reward because the card was out of date. I asked her to explain and she told me the loyalty cards were only valid for six months from the time they were first used, meaning you had to get your car washed every month to receive any benefit. For many people like myself, that is not an option, as we travel and sometimes drive other people’s cars. I realised the girl did not make the rules and said to forget about it, but I kept the card.
I looked at the card later. The reward was a cup of coffee or bottle of water. I figured the cost of either of these items was 70 cents.
So, now, I get my cars washed wherever is convenient. The place I had been loyal to for so long misses out. The cost of the car wash and clean, excluding GST, was $50, so the enterprise misses out on $100 worth of sales for the sake of 70 cents. In fact, they lose more because most times I went, I bought a cup of coffee.
Most people in business would agree that the cost of acquiring a new client or customer is a lot higher than retaining an existing one.
If you told this story to Dan Ariely, professor of psychology and behavioural economics at Duke University and author of Predictably Irrational, he would say my behaviour was predictably irrational. And the reason for this is that we humans are wired to be loss averse, and that includes losing free things. We do not like it when things are taken away from us, as many a government can vouch for – look at the effect the possible loss of franking credits had on the 2019 election result in Australia.
Businesses that run loyalty schemes need to manage them very carefully and think about the consequences of small things going wrong. For me, the best way to retain customer loyalty is to earn it with good service, fair pricing and being prepared to go the extra mile when things go wrong. Customers who get those things are loyal due to an appreciation and anticipation of those qualities.
If you need help to ascertain why things are not working as well as you would like, email me at email@example.com.