My Personal Formula for Creating Loyalty

A Strategic Approach to Sustainable Growth, Customer Retention, and Relationship Building

In the competitive world of retail and brand management, creating and sustaining customer loyalty can seem like an elusive goal. Despite the efforts of dedicated loyalty teams, many companies struggle to deliver programs that truly resonate with their customers at scale. It's often better to be a new, lapsing, or former customer than a loyal one, as these groups frequently receive the most enticing offers (think about your cable or cell phone service provider). This reality underscores a critical flaw in many loyalty strategies.

The Baecker Loyalty Forumla ??

However, the solution to this problem lies in a simple yet powerful formula I developed in my years working as a business strategy consultant focused on sustainably growing retail businesses:

High Perceived Value + Relatively Low-cost Rewards + Relevance + Experience Change = Loyalty ?

What's most important to note is that this formula isn't just applicable to business; it can be extended to any relationship, including your personal network (I'll talk more about this in subsequent articles). Each element of the program is both individually and collectively important.

High Perceived Value

The first component of the formula, high perceived value, is about understanding what your customers value most and delivering it in a way that exceeds their expectations. This doesn't necessarily mean expensive rewards; rather, it means offering something that feels valuable and unique to the recipient.

For instance, consider Chipotle's loyalty program, Chipotle Rewards. Customers earn points for every dollar spent, which can be redeemed for free menu items. The rewards feel valuable because they directly relate to the customer's purchasing behavior and preferences.

Relatively Low-Cost Rewards

Low-cost rewards are the second key element. These are rewards that are inexpensive for the company to provide but still highly valued by the customer. Chipotle excels in this area by offering free guacamole, chips, or drinks as part of their rewards program. The cost to Chipotle is minimal compared to the profit margins on their menu items, yet the perceived value to the customer is high, driving repeat visits and deeper engagement with the brand.

Relevance

Relevance, the third element of the formula, ensures that the rewards and communications are tailored to the individual customer's preferences and behaviors. This requires leveraging data and insights to understand what each customer cares about most. Relevance also includes creating a personal psychological fit with the customer. According to research by Ran Kevitz , relevance is about ensuring that the offerings align with the customer's individual psychological needs and preferences, creating a deeper and more personal connection.

Chipotle's mobile app and online ordering system gather data on customers' preferences and purchasing habits. This allows Chipotle to offer personalized promotions and rewards that resonate with each customer, such as bonus points for purchasing their favorite items or special offers on birthdays. By making the rewards relevant, Chipotle enhances customer satisfaction and loyalty.

Experience Change

The final piece of the formula is creating an experience change. This can be achieved through effective messaging or by altering the actual physical experience.

For example, instead of simply offering a discount, the message should emphasize why the customer is receiving it: "Here's 10% off your bill because you're one of our best customers." This special validation can transform the customer experience in a meaningful way --ideally by making your most important customers feel appreciated and valued.

In a physical space, whether it be a retail store, restaurant, your home in a romantic context, or your office in a managerial setting, the experience can be enhanced by making it more personal. This experience change will look different depending on whether it's a 1:1 scenario (e.g., with a romantic partner or direct report) or a 1:MANY scenario (e.g., in a retail store, restaurant or airline ticket counter with thousands of customers). The goal is to make your best customer's experience better in some way that resonates personally with the customer or individual.

Behavioral Psychology and Loyalty

The underlying principles of the Baecker Loyalty Formula are deeply rooted in behavioral psychology. Humans have a fundamental need to be recognized and rewarded for their behaviors and actions. This recognition not only satisfies a basic psychological need but also reinforces positive behaviors. When customers feel acknowledged and valued, they are more likely to remain loyal and advocate for the brand. This principle extends beyond business to personal relationships, where consistent appreciation and recognition strengthen bonds and foster loyalty.

The Baecker Loyalty Tenet ??

Despite the effectiveness of Chipotle’s program, even successful loyalty programs like Chipotle Mexican Grill's "Chipotle Rewards" can miss the mark. It would be better if they referred to it as a "customer engagement program" because they are missing the key element required to call itself a true loyalty program—the adoption of the Baecker Loyalty Tenet?:

"It should always be better to be a loyal customer than a new or lapsing one." ?

In Loyalty360's "Leaders in Customer Loyalty" Podcast Episode, "Wrapping Up Rewards: Chipotle’s Recipe for Success," Jason Scoggins , Senior Director of Loyalty and CRM at Chipotle Mexican Grill , discussed the brand’s customer loyalty efforts.

He gives the following example from when Chipotle Rewards first launched Badges, "It's been really fun seeing how it motivates customers. There's a lot of times what we'll do is...one customer may get 100 points plus a badge for completing it. Another customer...may only get a badge, or they may get 25 points and a badge. So we are able to...isolate...Was it the badge? Was it the points?...we can really get deep into what is working at the individual customer level, which the data side of [us] totally geeks out on."

In other words, loyalty in Chipotle's "loyalty program" is actually disincentivized. If Chipotle Rewards were a true loyalty program, this scenario could never happen because it would violate the Baecker Loyalty Tenent??.

I have no doubt this reward experimentation is effective at increasing the program's KPIs and optimizing Chipotle's internal RFM Model , but true loyalty should never disincentivize the loyal customer base.

Conclusion

Creating loyalty in any context boils down to delivering high perceived value through relatively low-cost rewards and ensuring relevance. By applying this formula with the right messaging, you can build stronger, more meaningful relationships that endure over time. Loyalty isn't about grand gestures; it's about consistently showing appreciation and providing value in ways that matter most to the recipient.