Marketing Thought

Customers As Liabilities

In marketing we often talk about customers being assets. The relationship a business holds with its customers is a key source of profits. As such it was a deliberately provocative move when the editor of Marketing Science described some loyalty schemes — including the classic stamp based programs — as seeing customers as liabilities.

Why Customers As Liabilities?

The idea being that with stamps, points etc… the firm is in effect promising customers later benefits for buying now.

These so-called loyalty programs are shams in the sense that they produce liabilities rather than assets. These programs produce short-term revenue from customers while producing substantial future obligations to those customers. Rather than demonstrating trust by committing to the customer, the firm asks the customer to trust that, in return for current revenue, the firm will provide future customer rewards.

Shugan 2005
Customer Liabilities

A One Sided View Of Loyalty Programs

Shugan’s analysis omits points that people might make to defend loyalty programs. I’m pretty sure he was just trying to provoke a reaction. Supporters of loyalty programs would say that they do much more than create a liability (points) to the customer. Loyalty prorgams tie in the customer, capture data for firm, create a communications channel, and often encourage spending etc…

Furthermore, I think his analysis of competitive effects is questionable. That said, Shugan’s point remains an interesting one. It is useful to think about whether your customers are loyal because they have made some sort of meaningful connection with your brand. Instead, maybe you are just bribing them with the promise of future goodies. If the customer isn’t loyal you just owe them stuff for their points maybe when can really see customers as liabilities.

What is loyalty in marketing remains a great question to think about.

For more on loyalty programs see here and here.

Read: Steven M. Shugan, 2005, Editorial: Brand Loyalty Programs: Are They Shams? Marketing Science, 24(2) page 185-193

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