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The term "disloyalty program" is not what it may seem (a program designed to lose credibility in the eyes of your customers). Instead, and perhaps surprisingly, it is a form of effective loyalty-building based on a partnership premise, and it's gaining marketing popularity.

A better understanding of it could well open up paths to other amazing promotional ideas.

Customer Loyalty Can Be a Two-Edged Sword

Customer loyalty is the "prize" that every business seeks. Appealing as it may seem, loyalty programs pose some hidden risks that businesses may not notice in the short run, but they can have negative effects in the long run.

Customers with loyalty incentives tend to have higher expectations of products and services. Eventually, because of those expectations, they will implicitly demand an upgrade in service and in goods quality, along with more generous incentives. The situation creates a burden for businesses to continually up the ante—in both customer care and product quality.

Moreover, a small mistake can undermine all of your painstaking efforts. Starting a business is anything but easy, but keeping a customer is an entirely different type of difficult. Long-term customers may forgive a mistake once, but their satisfaction will have slightly decreased; and if businesses fail them again, they are likely to turn away, which may result in the worst-case scenario: being abhorred by formerly loyal customers.

A Brief Origin of Disloyalty Programs

In mid-January 2014, six indie coffee shops in Washington DC—Blind Dog, The Coffee Bar, Peregrine Espresso, Chinatown Coffee, Filter, and La Mano—agreed to turn from competitors into collaborators with the launching of a reward card.

Instead of encouraging customers to consume in a particular coffee shop, this card offered a "free entrance ticket" to an interconnected community of cafes, a program later referred to as a  "disloyalty program". Once customers bought coffee and got all stamps from all six coffee shops, they could redeem the card for a free coffee at any of the six.

This strategy aimed to drive more attention to independently owned coffee shops, which were competing against big brands, such as Starbucks. The disloyalty card "encourages people to visit different neighborhoods, try coffee from different roasters each shop presents on their menus, and meet some awesome coffee professionals," stated the creators.

Each distributed card was one opportunity for each local coffee shop to grow, to attract more customers, by emphasizing the uniqueness of the product it offered.

Benefits of a Disloyalty Program

The disloyalty program deserves the attention it has gotten. Companies have proven this marketing strategy works, and they have taken full advantage of to improve business.

Compete With Big Labels

Unlike well-known businesses that are able to afford large promotional and advertising campaigns on various platforms to ensure their place in the market, local businesses may well struggle to compete.

One small independent brand is certainly not able to easily compete against large brands; therefore, cooperation with other indie brands—joining a disloyalty program—can help strengthen each brand in the market without its having to make large investments.

Drive Customers to Stores They Aren't Familiar With

As stores will have made a partnership agreement, they provide a joint reward card allowing customers to accumulate points from any purchases at any participating stores. The card helps motivate customers to make a visit to every store in the joint program. This is an opportunity for newly established and local shops that may not be familiar to consumers to gain more attention and get access to a larger group of customers.

Target Customer Loyalty

Companies can make the most of this opportunity by showing the uniqueness of every product they offer through this disloyalty program. They can highlight what sets them apart. Customers themselves will then evaluate their experience with each product; whatever product they settle on will be a source of potential customer loyalty that helps brands boost sales in the long run.

Start Your Own Disloyalty Program

To successfully pull off a joint reward program, businesses ought to keep in mind some essential rules for ultimate efficiency.

Build a proper partnership with a mutual goal

The two core determinants of cooperation are geographical location and a common goal in partnership. Since the program allows customers to head to every participating store, all store locations should be restricted to a certain geographical area—the same neighborhood or city, for example—to allow customers convenience and the stores equal physical access to customers.

However, even if a business decides to form a partnership with other neighboring sites, the program will be unlikely to succeed without a common, mutually agreed upon goal (e.g., increase sales 5% for each, attract more consumers' attention, etc.). When the mutual goal is identified, the program will run more smoothly, with minimal conflict.

Set up the program through careful calculation

This step, more than any other, will determine whether the disloyalty program is a success or a failure. When designing the joint reward card, the participating business must clarify what rewards to offer and how customers can get those rewards; they also need to come up with defenses to prevent cheating.

An effective reward should drive customers to stores with minimal effort in order to save resources and inventory.

It's also crucial for partnering businesses to make clear how they will cover the expenses for these rewards, whether it's the responsibility of the store where customers redeemed their rewards or an equal investment share among businesses. By clarifying financial issues, businesses can avoid misunderstanding and confusion so they can continue cooperating in peace.

Plan out a clear advertising strategy

A joint promotional campaign by partnering businesses will determine how influential the program is in shifting the market's consumption pattern. Of utmost importance is finding the right, unified message to spread across every brand's touchpoints with consumers.

Moreover, every participating partner should be fully aware of the tasks the campaign entails: for example, administering a reward points guide or handling media and community relations. Proper task assortment in this promotional strategy is a must to avoid confused customers.

Use the program to build customer loyalty

Reward cards by themselves aren't inviting enough to engage more customers and bring them into stores. To maximize the effects of the program, and attract loyal customers, a business must extend its efforts beyond the day-to-day.

Buyers who accumulate reward points, then register for membership, tend to expect more generous incentives; businesses can consider incentives and benefits such as special events, monthly gifting, tours at every participating business, and so on.

* * *

Many businesses have their own loyalty programs to keep customers coming back. But a collaborative rewards program can focus particularly on emphasizing the value of shopping at locally owned stores. Many local retailers see their neighboring brands as competitors, but in fact they can end up in partnership to push sales for each other so they can compete against bigger brands.

More Resources on Building Customer Loyalty

Seven Tips for Using Email to Build Customer Loyalty

Loyalty, Retention, Relationships: What's Really in It for Your Customers?

Top 10 Loyalty Reward Program Best-Practices

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'Disloyalty Programs': How to Fend Off Large Competitors and Build Customer Loyalty

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image of Thanh Thuy

Thanh Thuy is a content creator at Avada Commerce, an e-commerce solution provider.

LinkedIn: Thanh Thuy