Loyalty Programs are Passé, how about Customer Advocacy Program?

Customer Loyalty programs have been around for more than a century and marketing managers have used them very effectively for rewarding loyal customer behavior, especially repeat purchase. According to Gartner, U.S. companies spend more than $1.2 billion per year on customer loyalty programs. It is also estimated that more than 75% of consumers today have at least one loyalty card and number of people with two or more is estimated to be one-third of the shopping population (for more, see The Lowdown on Customer Loyalty Programs: Which Are the Most Effective and Why: Knowledge@Wharton).

It is time for business to look beyond Loyalty Programs that reward repurchase and consider having Customer Advocacy Program instead. 

But given recent growth in Social Networking on the internet and our ability to precisely track outbound Word of Mouth (WOM) and its impact on customer behavior, it is time for business to look beyond Loyalty Programs that reward repurchase and consider having Customer Advocacy Program instead. In a recent research study titled Effects of Word-of-Mouth Versus Traditional Marketing: Findings from an Internet Social Networking Site, findings of which were published in Journal of Marketing (September 2009), it was found that “Word of Mouth (WOM) referrals have a strong impact on new customer acquisition. The long-term elasticity for WOM referrals is approximately 2.5 times higher than the average advertising elasticity reported in the literature. Part of the reason for the high long-term effect of WOM relative to traditional marketing is that it has a much longer carryover period.”

Marketing Managers should design programs to track and reward Customer Advocacy behaviors such as WOM on Social Networking sites. 

Given the impact of Word of Mouth (WOM) on purchase decisions and our ability to track outbound WOM on Social Networking sites, Marketing Managers should design programs to track and reward Customer Advocacy behaviors such as WOM on Social Networking sites. This will not only help marketing managers in promoting their products or brands on Social Media channels, but will also help in building trust and loyalty among target audience.

What do you think? Do you agree that Loyalty Programs are Passé and companies need to have Customer Advocacy Programs instead? Please do share your thoughts:

  • KRCraft

    I’d likely be more of an WoM Advocate for this perspective if the above also directed Marketing to lsiten to, gauge, identify. target, and value the internal resources who are also WoM Brand/Partner/Customer advocates on SM channels.

    I believe that concept was suggested as sub-text, but it wasn’t clear.

    Customers as WoM advocates can usually provide specifics on human interactions that tipped the scales in favour of a WoM kudo, if asked. The prouct lone rarely leads to passionate choir singers.

    Were it me, I’d be doing cross analysis on Customer Advocate WoM entires to also identify and congratulate internal employees for their contributions.

  • http://twitter.com/amitesh1978 amitesh srivastava

    Harish, rightly said.. Loyalty programs will still exist this platform will help organizations create the platform for customer advocacy…having said that I also believe that it’s high time that marketers start looking at creating the customer advocacy programs. My experience with some of the telecom operators in India makes me believe that the marketers are already working on this.
    I recently posted a blog on my site http://amiteshsrivastava.wordpress.com/2010/11/18/experiencing-customer-relationship-management-in-action/ where I discussed my experience with Vodafone India. Vodafone retweet that. I believe this is what advocacy will mean in its most unorganized form.
    Leveraging the digital media to create this solution is top agenda of most of the organization. This is evident from the presence that they have on these channels and the level of responsiveness that they show. My thoughts… let me know what you think

  • http://twitter.com/amitesh1978 amitesh srivastava

    Harish, rightly said.. Loyalty programs will still exist this platform will help organizations create the platform for customer advocacy…having said that I also believe that it’s high time that marketers start looking at creating the customer advocacy programs. My experience with some of the telecom operators in India makes me believe that the marketers are already working on this.
    I recently posted a blog on my site http://amiteshsrivastava.wordpress.com/2010/11/18/experiencing-customer-relationship-management-in-action/ where I discussed my experience with Vodafone India. Vodafone retweet that. I believe this is what advocacy will mean in its most unorganized form.
    Leveraging the digital media to create this solution is top agenda of most of the organization. This is evident from the presence that they have on these channels and the level of responsiveness that they show. My thoughts… let me know what you think

  • http://twitter.com/amitesh1978 amitesh srivastava

    Harish, rightly said.. Loyalty programs will still exist this platform will help organizations create the platform for customer advocacy…having said that I also believe that it’s high time that marketers start looking at creating the customer advocacy programs. My experience with some of the telecom operators in India makes me believe that the marketers are already working on this.
    I recently posted a blog on my site http://amiteshsrivastava.wordpress.com/2010/11/18/experiencing-customer-relationship-management-in-action/ where I discussed my experience with Vodafone India. Vodafone retweet that. I believe this is what advocacy will mean in its most unorganized form.
    Leveraging the digital media to create this solution is top agenda of most of the organization. This is evident from the presence that they have on these channels and the level of responsiveness that they show. My thoughts… let me know what you think

  • http://twitter.com/amitesh1978 amitesh srivastava

    Harish, rightly said.. Loyalty programs will still exist this platform will help organizations create the platform for customer advocacy…having said that I also believe that it’s high time that marketers start looking at creating the customer advocacy programs. My experience with some of the telecom operators in India makes me believe that the marketers are already working on this.
    I recently posted a blog on my site http://amiteshsrivastava.wordpress.com/2010/11/18/experiencing-customer-relationship-management-in-action/ where I discussed my experience with Vodafone India. Vodafone retweet that. I believe this is what advocacy will mean in its most unorganized form.
    Leveraging the digital media to create this solution is top agenda of most of the organization. This is evident from the presence that they have on these channels and the level of responsiveness that they show. My thoughts… let me know what you think

  • http://www.dataworksintl.com Sheila OConnell

    I agree with KRCraft. Internal resources are extremely important to the word-of-mouth equation. A customer who is treated well by a member of your staff will be your company’s most vocal advocate, within his/her own company and in future positions.

  • http://hkotadia.com/ Harish Kotadia, Ph.D.

    Thanks @KRCraft for visiting my blog and for your comment. Greatly appreciated:

    I agree with you that companies need to pay attention to employees who are also Brand/Partner/Customer advocates on Social Media and reward those employees who contribute the most to favorable WOM from customers/prospects.

    Thanks again for your comment,

    Harish Kotadia, Ph.D.

  • http://hkotadia.com/ Harish Kotadia, Ph.D.

    Thanks @amitesh1978 for your comment. Greatly appreciated:

    Good to know that telecom operators in India are already working on this. Biggest challenge in is how to streamline internal processes, for example Twitter team may commit something, but rest of the organization has to deliver on what has been said by Twitter support team. Those organizations who streamline their internal processes with outward focus will emerge as winners.

    Thanks again for your comment, much appreciated.

    Harish Kotadia, Ph.D.

  • http://hkotadia.com/ Harish Kotadia, Ph.D.

    Thanks Sheila for your comment. Greatly appreciated:

    I agree with you that “Internal resources are extremely important to the word-of-mouth equation”. Companies need to pay attention to employees who are also Brand/Partner/Customer advocates on Social Media and reward those employees who contribute the most to favorable WOM from customers/prospects.

    Thanks again for your comment,

    Harish Kotadia, Ph.D.

  • Billv

    Why not have both?  Or have one feed the other?  For example, if a customer refers someone to your business through a social networking site, and that person joins your loyalty program, the original customer gets a reward.

  • http://hkotadia.com/ Harish Kotadia, Ph.D.

    You are right. Rewards/Loyalty program should be designed as you suggested.

    Thanks for sharing your views!

    Harish Kotadia, Ph.D.

  • http://twitter.com/RewardStream RewardStream

    A loyalty program is not necessarily separate from a customer advocacy program. Loyalty and customer advocacy can be combined.

    For example, our loyalty programs actually integrate word of mouth behaviours on social networks and more, while tracking such behaviour with in-depth analytics.

    Therefore, one does not preclude the other.

  • http://twitter.com/RewardStream RewardStream

    A loyalty program is not necessarily separate from a customer advocacy program. Loyalty and customer advocacy can be combined.

    For example, our loyalty programs actually integrate word of mouth behaviours on social networks and more, while tracking such behaviour with in-depth analytics.

    Therefore, one does not preclude the other.

  • http://hkotadia.com/ Harish Kotadia, Ph.D.

    Thanks for sharing your thoughts:

    I agree with you that “A loyalty program is not necessarily separate from a customer advocacy program” and that both can be combined. What I have tried to emphasis in this post is that in Social Age, it is not just enough to focus on loyalty (repeat purchase) but marketers should also understand importance of advocacy and leverage social media channels through customer advocacy.

    Hope this helps,

    Harish Kotadia, Ph.D.

  • http://www.facebook.com/people/Rick-Thompson/100002659151786 Rick Thompson

    Harish:  nice post supported by good facts and a posing an engaging “either/or” question to create discussion.

    Simply put, I would suggest it is a “Both/And” situation; not “either/or”.

    Customer loyalty programs are well established and ingrained into most consumer’s behavior.  Who goes to the grocery store these days without a rewards card?  Who doesn’t have a frequent flyer number when they fly?  Who doesn’t have their credit card linked to a loyalty program?  Loyalty programs can be, and are, quite successful for many companies. 

    Having said that, Customer Advocacy is emerging and companies need to understand how to leverage the power of their MOST loyal customers whether it is by: i) capturing WOM comments in social media, ii) requesting testimonials, references and referrals, or iii) developing special levels of loyalty rewards/benefits for the biggest advocates. 

  • About Dr. Harish Kotadia


    That's me with photo gear,  taking snaps of Texas wild flowers. #texas

  • Dr. Harish Kotadia

  • Dr. Harish Kotadia is an industry recognized thought leader on Big Data and Analytics with more than fifteen years' experience as a hands-on Big Data, Analytics and BI Program/Project Manager implementing Enterprise Solutions for Fortune 500 clients in the US.

    He also has five years' work experience as a Research Executive in Marketing Research and Consulting industry working for leading MR organizations such as Gallup.

    Dr. Harish Kotadia's educational qualification includes Ph.D. in Marketing Management. Subject of his doctoral thesis was Customer Satisfaction and it involved building a statistical model for predicting satisfaction of clients with services of their ad agency.

    His educational qualification also includes M.B.A. and B.B.A. with specialization in Marketing Management and Diploma in Computer Applications.

    Dr. Harish Kotadia currently works as Principal Data Scientist and Client Partner, Big Data and Analytics at a Global Consulting Company. Views and opinion expressed in this blog are his own.



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