This article first appeared in Exchange4media and FirstPost on Jan 10, 2012.

Ramu Dosawala is a popular man in Bandra. He has a road side stall off Carter Road from where he serves dosas. His Mysore dosa is highly recommended. But the reason that he is popular goes beyond just the quality of his food. It is because he recognizes his customers. He knows their tastes, he asks about their welfare if they haven’t been to his stall for a while and about their results after the exams. Ramu Dosawala has a loyal customer base, and no, he doesn’t have a rewards program.

There is an important lesson here for marketers. We are so focused on being rational, that we think the best way to get brand loyalty is to bribe customers with lots of rewards. Yet, experts keep advising us that customers prefer recognition way more than rewards. I am not arguing against rewards – just saying that rewards work far better when packaged with recognition.

There is a delightful TED talk by Daniel Pink on the science of motivation. It is 18 minutes long, but well worth a look, if you haven’t seen it before. In it Mr. Pink, a lawyer by training, presents the evidence that human beings are motivated more by non-material things.

Some marketers have taken this lesson to heart and built significant recognition components into their loyalty programs.

Neiman Marcus is a high end fashion retailer. Its has several rungs in its loyalty program. As you go higher on the ladder, you keep getting more and more “perks”. These perks include free dining in the store before or after your shopping (“our treat”), customized monograms on clothes and handbags, fur storage, jewelry cleaning and repairs to name a few. They even get to be the first to buy products that are not even sold by the store e.g. They got a chance to be the first people to buy the Lexus Hybrid car.

So being a member of that particular loyalty program makes you feel special. And thats what loyalty programs are meant to make you feel.

Kingfisher Airlines is in trouble these days. But it does know how to make its customers feel special. From the valets to to help with your bags when you reach the airport, to the special bus to take you to the aircraft to its cool lounge in Bangalore airport, it does make its Kingfisher First customers feel very good. I know a lot of business class travelers who were Platinum members of Jet Airways’ frequent flyer program, moved to flying Kingfisher because it made them feel special. This is almost a test case of the difference between rewards and recognition.

Best Buy has noticed that the R in CRM stands for relationship. So it has created a unique way to form a stronger relationship between the customer and its staff. Best Buy is well known for its “Geek Squad”. These are experts who are present in stores and who can solve any tech problem that you may have. But in order to access them, you had to go to the store.

Now Best Buy has created a Twitter handle called @twelpforce. Anyone can send a tweet with a tweet query addressed to this handle. And one of the hundreds of Geek Squad members will respond instantly to your problem. This program won a Cannes Lion last year and is certainly a very innovative way to create customer bonding and hence loyalty.

There are so many small ways to make consumers feel special. Reserved parking spaces, special check out counters, extra service. All these do more for creating consumer loyalty than the points accumulating in an account which people often forget to redeem.

Next time, find a way to address your customers by name or ask them about their constipation. Rather than give them double reward points.