The reward is a vital part of any loyalty programme, and it must be worth enough to be attractive to the customer yet not cost enough to make the programme unprofitable. It must appeal to consumers of the right profile, and it must cater for wide variations in taste and desires among those customers.
But most importantly, rewards not only drive brand engagement but they also drive long-term behavioural change. Experiments have revealed that, while a bigger reward reinforced the desired behaviour better than a small reward, when the rewards were discontinued, those who had received the big rewards were more likely to return to the unwanted pattern of behaviour than the group who had received the small reward. So the warning is there.
So never let your best customers feel that you are withdrawing privileges from them, and try to ensure that customers become loyal to the product or service, and not simply to the reward.
In most cases, much of the profit that an organisation makes (up to 70%) comes from just relatively few customers, and that most of the losses can be attributed to a relatively small group of worst customers. Clearly, the loyalty programme should be designed to retain the good customers and to attract new customers of a similar profile, and not to give those at the other end of the scale any good reason to stay.
Keeping it 'real'
In order to have any effect at all on customer engagement, the reward you offer must be desirable enough to actually stimulate a change in behaviour. It also has to be affordable, and balancing the two sides of the desirability/affordability equation is tricky.
Rewards vary tremendously in shape, form and size. There must be thousands of variations, and they all can serve a purpose. The skill lies in finding the right one for the purpose that you have in mind.
Clearly, the importance of the desires and needs of the target group of customers cannot be over emphasised. A decade or two ago most customers were satisfied with simple rewards. This is no longer true. In general (particularly among "best" customers) they are now more affluent and, instead of simple gifts or small discounts, they would rather opt for rewards that save them time and make life more convenient.
The more often that a customer interacts properly - mentally or emotionally - with a loyalty programme, the more effective it will be. The simple handing over of a card at the point of sale is not really significant interaction; neither is receiving a letter every three months informing them how many points they have collected. A really good loyalty programme would involve them in actual thought or at least consideration every time they visit.
Options for reward models
One way of doing this is the method used in 'Access Pricing', where the customer needs to decide, every shopping trip, whether to spend reward points already earned on specific highly discounted products. The reward programme is then "top of mind" during the whole shopping trip and the reward is instant and obvious.
Another very effective reward structure is that used by TCC in its BCM (Best Customer Marketing) programmes. These programmes sort the best customers from the worst without having to resort to database segmentation; they reward the best more than the worst; and they actually drive customers up through the segments during the course of the programme.
At the other end of the scale, US retailer Neiman Marcus offers rewards that are truly staggering - in return for very large numbers of points.
These examples are all good and valid rewards - they all serve a useful purpose and are all equally ingenious, and are no doubt appreciated by the customers who redeem points for them - but there the similarity ends. The important point is that rewards at both ends of the scale reflect the value of the customer to the programme, and the rewards meet the customers' expectations.
The aim of the reward
It has been said that any programme operator could get most customers to be loyal if the reward is big enough. The art is to find the point of balance where:
- The reward is enough to entice the customer to keep participating;
- The reward is not so big that the customer becomes loyal to the reward and not to the business or brand;
- The reward is not so expensive that it makes the programme uneconomical;
- The reward is structured so that it can be altered, reduced or even withdrawn without alienating too many best customers;
- The reward is able to attract new customers of "best customer" profile;
- The reward encourages the customer to interact with the programme frequently.
The real reward of any loyalty programme is not the gift or the discount: it's the improved service and stronger relationship that comes from using the information that the loyalty programme generates. The gift or discount keeps the customer interested in the programme and allows information about the customer to be gathered. It is in fact a trade-off for the information that the customer supplies.
Always remember: the reward is the main bit of the loyalty programme that the customer sees and touches, and it is therefore a key opportunity to increase customer engagement, not only with the loyalty programme itself but with the brand as a whole.
What must the reward actually achieve?
The reward should serve the following functions:
- Provide a compelling reason to participate.
- Say 'thank you' - it's not just "something for nothing".
- Encourage the customer to supply useful and complete data - the reward should be attractive enough to encourage them to identify themselves at every contact. Some programmes offer extra rewards if registrants provide more complete personal data.
- Encourage customers to modify their behaviour. The Continuity Company, by pitching rewards at carefully chosen levels of purchase, modifies both purchase size and frequency during the course of the programme.
- Attract new customers. Rewards that could be used to do this include sign-up bonuses (e.g. 'Earn 100 points by signing up for our loyalty programme') and cash-back on credit cards (e.g. 'Earn 1 point per 1 spent, plus 50 points for signing up'). However, it is vital not to create the appearance that new customers get a better deal than existing customers.
- Differentiate a business from its competitors.
- Retain existing customers. Soft rewards are very effective builders of retention - once worthwhile privileges have been earned, customers are unlikely to sacrifice them. A high level of service also drives retention. In fact, this is an example of a reward achieving its purpose without even having a formal loyalty programme behind it.
- Increase purchase size.
- Increase purchase frequency. Purchase frequency is, according to best customer marketing guru, Brian Woolf, the biggest driver of customer value. Woolf quotes an example taken from a major US food retailer that reveals that the average customer in the top quintile spends about four times as much per visit as the average customer in the bottom quintile. However, when frequency and spend are both taken into account, over a year the average top customer spends some 58 times as much as the average bottom quintile customer.
- Move customers up through the segments.
- Improve relationships. Soft rewards - service above the expected level - increase loyalty and retention by building a stronger relationship. It is often the soft rewards that are remembered for longest. Soft rewards are often the drivers of advocacy - customers derive great pleasure from telling their friends about exceptional service that has been lavished upon them.
Finding the right rewards
A loyalty reward should have many of the following properties:
The reward programme should be flexible enough to cope with both changes in scale of the loyalty programme and with changing conditions. The market will evolve, customers' needs and preferences will change, and so will marketing budgets. A good reward will cope with these changes over time. The reward stimulates initial customer participation; it also influences which customers are attracted to the programme and how their behaviour will be modified.
The reward must be affordable without being insulting. Often, the best value can be obtained from rewards that actually take up spare capacity in the business (as in the case of airlines, hotels, and other service industries which often have spare seats or rooms).
No matter how sophisticated the loyalty programme is, if the reward isn't attractive, the customers won't join it.
This will capture the consumers' attention and provide a point of differentiation. South African loyalty programme eBucks awarded a member the chance to be one of the first 150 space tourists on the sub-orbital space 'aeroplanes' expected to start flights soon. Close to 2.5 million entries were received during the three month competition.
Rewards that are perceived as being 'fun' are memorable and can even be addictive. For example, back in 2007, Moola.com launched its 'Massively Multiplayer Rewards Game' (MMRG), combining a multiplayer game environment with an ad-supported cash rewards programme. Moola enables consumers to win up to US$10 million in cash by playing and winning head-to-head matches, interacting with video advertising, searching the web, referring their friends, and shopping online with its BoosterBar web browser application. Moola players begin with US$0.01 and compete to climb the "Moola Tower" for prizes ranging from US$10 to US$10 million. Players can then grow their account balances exponentially by winning head-to-head matches against other players. Players can also share in the rewards won and collected by their network of online friends. Advertisers seeking new ways of reaching new customers can use the system's video ad delivery format called AdverTrivia. This pairs video ads with a relevant question between each game match, and players must correctly answer the question about the ad before they can proceed. This kind of addictive fun cannot be overrated in terms of engagement and relationship potential.
The challenge for a low-budget programme is to find appealing rewards that are unique and not too expensive. For higher budget programmes, it's easier.
- Seen to be attainable
If the reward is not actually perceived to be attainable, members will lose interest. According to research from Maritz Loyalty Marketing, when consumers leave a loyalty or rewards programme, 70% cited the length of time it takes to build up points as the main reason for doing so. And the number rose to almost 80% for the ever-critical 18-24 age group.
The quality of the reward offered must match the expected quality of the brand. The total reward mix should be difficult to duplicate, incorporate variety and be perceived as having high and aspirational value - and of course motivate customers to change their behaviour and increase spending to reach a certain level. It's important that aspirational rewards must also be set at a reward level that is achievable.
- The right profile
The profile of the reward must match the profile of the company, and also the profile of the customers. What fits best: a discount-based reward, an added-value soft reward, or entry in a lottery? If the reward's profile is not right, the wrong type of customers will be attracted.
The reward should be compelling enough to encourage the customer to redeem. Some loyalty programme operators only consider a member to be truly signed up when he or she has redeemed for the first time. It's a matter for concern that many people never bother to redeem points earned.
- Should encourage interaction
A good reward will encourage interaction with the programme. This is usually the case when rewards - other than a straight discount - are given immediately at the point of contact. The feel-good factor is then linked in the customer's mind to the transaction. Access Pricing does this very well, because the customer actually has to make a choice whether to "buy" a discount or not.
The Loyalty Guide, our comprehensive guide to customer loyalty, explains every aspect of loyalty programmes, best practices, concepts, models and innovations, all backed up with case studies, original research, illustrations, charts, graphs, tables, and presentation material. Find out about the principles, practicalities, metrics, analysis, and bottom-line effects of loyalty, and gain the expert guidance of dozens of loyalty and relationship marketing thought-leaders, worldwide.
It will show you exactly how to use customer data to increase profits, reduce churn, and increase frequency, spend, and share of wallet. See how and why others have already succeeded, what works, and - more importantly - what doesn't work. The report's full executive summary, table of contents, downloadable samplers, and pricing/ordering are all available online - click here.