Creating Value for Loyalty Programs

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By: Wise Marketer Staff |

Posted on March 17, 2022

Editor’s Note: Brian Almeida is Managing Partner & Founder of Strategic Caravan, a strategic advisory firm focused on customer loyalty and digital marketing. Strategic Caravan has been instrumental in launching and managing some of India’s most well-known customer-centric initiatives, CRM strategies and loyalty programs. Both Brian and his partner Mala Raj are Certified Loyalty Marketing Professionals (CLMP™) and will be hosting the 2022 Loyalty Academy Annual Certification Workshop in Mumbai, India on June 28 – 30, 2022. In this article, Bryan shares his thoughts on one of the key challenges facing loyalty programs in today’s fast changing tech world: how to create more value in loyalty programs by adopting innovative approaches to redemption options including curated experiences and priceless items through the medium of NFT's and the Metaverse world.

By: Bryan Almeida, Strategic Caravan

We have found, repeatedly, that one of the biggest challenges in designing and running successful Customer Loyalty Programs is to strike a balance between creating high value perception for members of the program whilst maintaining tight control over the sustainability of the program.

Loyalty points by themselves do not create loyalty or sustainability or high value perception for program members. Yes, they are a tangible, easy-to-remember core offering of most programs. However, they are easily replicable. What is important is to layer them with a host of benefits, privileges, and services that create high value perception (FOMO) — and are not easily replicable.

By doing this, brands will ultimately create the needed program personality and resultant differentiation from other programs. As technology allows us to offer NFT’s, experiences in the Metaverse world and open platforms for payments, the opportunities to improve the ROI of Loyalty programs become immense.

Managing the loyalty point currency and its redemption options is one of the crucial factors that impact value creation for members while managing the program financial costs. Here are some ideas to consider:

Capacity utilization and marginal costing

  • Businesses like airlines, hotels, cruise vacations, tours, telecom airtime, internet bandwidth, and other such (perishable inventory) categories offer great opportunities for creating value if costed and priced well. Airline seats, room nights, vacant cabins if not sold or utilized is an opportunity lost for the business.
  • This means predicting accurately capacity that would go abegging or unutilized and offering these at point value redemption rates that are highly attractive for members.
  • This increases capacity utilization, reduces cost of redemptions, and protects pricing with general customers by offering this capacity only to members.

Cost to price gap for products & inventory going out of fashion, items required for clearance

  • In industries like fashion, consumer durables, technology, CPG etc., these items offer excellent value to deal-seekers and customers who are not necessarily innovators, or early adapters.
  • Programs can liquidate this inventory with great redemptions offers that provide high perceived value for the points.

Priceless Items:

  • Dinner with a celebrity or limited signature edition products which are not available under standard catalogues present great opportunities to create benchmarks for the point value. NFT’s and the blockchain technology makes these even more accessible.
  • All these are items which are priceless and create higher value perception of the program.

Auctions, Lucky draws, lotteries

  • These tactics help increase the perceived value of the loyalty program currency and also helps reduces the program liability.
  • They provide an opportunity for even small/marginal members to “win big” via for example loyalty auctions and therefore sustain their interest and motivation for engagement with the program.

Liquidity of currency

  • An option to use points during purchases adds liquidity to a program as do the ability to apply points towards categories like charity, fuel, telecom, grocery. For members with low accrual levels and who have not reached redemption thresholds, being able to use about-to-expire points for charity increases the value perception of the loyalty program by leaps and bounds.
  • The value of the currency may drop when redeeming in these cases, however feedback shows that members do not mind this as they end up utilizing the points for daily or frequently consumed items mentioned above.
  • Often, members don’t even mind paying a premium through points as they reduce their daily cost of living.

Curation, Exclusivity, Access

  • Specially curated benefits, services, privileges, events tremendously add value. Members are willing to pay a price for these because they cannot be bought off-the-rack and are not available to anyone else.
  • Likewise, giving members access to third-party (public, high-profile) events and experiences by offering tickets for purchase creates huge desirability. Limiting such offerings to the most valuable members reinforces the feeling of exclusivity and helps manage costs as well.
  • Experiences in VR and the Metaverse world are already making this a reality.

Program Partners

  • Single-brand programs need to work harder at providing variety and velocity (of earn) to members. Borrowing “interest” from partners adds to accrual velocity and enhances redemption variety while managing program costs efficiently.
  • Care needs to be taken to onboard partners who are synergistic and will offer seamless delivery.

Don’t let members overtly estimate the value of their points. Factors that destroy members program perceived value are vouchers, cash-back, commodities like gold with volatile pricing, and points for discounts. All these may be easy to execute but, in all these options, the points are directly converted to a cash value, and this very quickly becomes a cash discount system.

If the program does not offer other benefits, the program members often see no value of the membership other than the discounts received through the vouchers or cash back.

The trifecta for program design:

  1. Go beyond points to create layers of irreplicable differentiation
  2. Drive perceived value through curation, exclusivity, innovation
  3. Manage Costs Sustainably through leveraging inventory and liquidating