Want To Create Customer Loyalty? Make The Customer An Owner.

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There is a difference between a repeat customer and a loyal customer. Repeat customers come back for reasons such as lower prices and convenient locations. Loyal customers come back because they feel emotionally connected.

Many companies have a customer loyalty program—at least that is what they call it. But actually, it’s a marketing program. What’s the difference between a marketing program and a loyalty program?

In the most simplistic example, think of the sandwich shop that punches a card every time you buy a sandwich. After you fill the card with a certain number of punches, you get a free sandwich. Frequent flier miles and hotel points are more sophisticated versions of this, and they are all referred to as loyalty programs. Yet I’ll argue these are not really loyalty programs. These are marketing programs.

If you take away the free sandwich, the free trips from points, the free upgrades, etc., will the customer still come back? If the answer is an emphatic yes, then you have the customer’s loyalty. If they start looking to competitors who still offer the same perks, you have a marketing program that drives repeat business.

By the way, I’m totally fine with that. I don’t want to “dis” a good marketing program, especially if it’s working to bring back customers again and again. Just don’t confuse it with loyalty.

I recently read an article in RetailWire that focused on another way to create customer loyalty. Simply put, make the customer an owner.

The idea is that instead of frequent flier miles, free lunches, or another type of perk, you offer stock in the company as the reward for their business. The more the customer buys, the more stock they get.

Companies like North Face, Lowe’s, eBay, Lululemon, and many other recognizable brands are rewarding their customers up to 8% of their purchases with factional shares of stock using an app created by financial technology startup Upstreet. According to Chris Eckelmann, founder and CEO of Upstreet, stock ownership drives loyalty better than typical cash back programs.

Matthew Kates, writing in Chief Marketer Magazine, referenced a survey in which more than 1,000 consumers were asked, “Does owning a company’s stock increase the likelihood of you buying products from that company?” Sixty-six percent said, “Yes.”

Another company with a similar app is Bumped. It has been around for more than two years and offers fractional shares of stock from major brands like GAP, Home Depot, Apple, McDonald’s and hundreds more.

The Columbia School of Business published a study in February that looked at Bumped’s two-year pilot and found that weekly spending at the customers’ selected brands jumped 40% once customers were rewarded with shares of stock instead of cash back, points, miles, etc. There was also an increase of visits to those brands, along with a decrease of visits to the competition.

Here’s my take. This is a great concept for the customer who is savvy enough to have at least a basic understanding of the power of investing in the stock market. According to Gallup, as of June 2020 (just last year), only 55% of Americans report that they own stock. This number has stayed fairly consistent since Gallup first conducted a similar study back in 2010, which by the way, was at 54%.

The point is, almost half the customers may not know exactly what they are getting. And does the half who aren’t currently invested in the stock market know or care about getting stock? Or would these customers rather have cash back and perks? The case made by Upstreet is that consumers like this. And it’s an opportunity for those who are not invested in the market to learn enough to go on to bigger investments outside of Upstreet.

That’s a win on at least a couple of levels for the customer. There’s the perk of stock, which has real value. There is also financial education. I like that idea, and for now, the concept seems to be working. This is especially powerful and important for younger people who can learn about investing without taking any risk.

And there’s the win for the retailer, which is all about getting the customer to come back. If the cost of giving away the stock results in even a small percentage of customers becoming loyal to a brand they were not loyal to previously, then it’s a win for the brand. Loyal customers buy from their favorite places more often and spend more than those who aren’t loyal.