The great loyalty debate: to reward or recognise?

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By: Wise Marketer Staff |

Posted on December 5, 2005

As long as there is so little definitive data on the exact combinations of recognition and rewards that are most effective in loyalty programmes, marketers will continue find it difficult to get their value proposition just right for their target audience, according to the latest white paper from US-based loyalty consultancy Colloquy.

In the comprehensive and detailed white paper entitled 'ValueTalk: The Great Value Proposition Debate', author Terri Gaughan provides practical answers to the questions that sooner or later every marketer faces: Which marketing techniques and rewards really change customer behaviour? Which value propositions are most effective: loyalty points, discounts, or meaningful dialogue and communications?

Research results
The white paper details the results of a research project for a US$4 billion US retailer that tested five distinct value propositions in test and control markets that were designed to be statistically parallel. More than 75 stores participated in two consecutive six-month tests, where over 60,000 customers from the retailer's credit card file were auto-enrolled in one of five loyalty programme scenarios:

  1. Reward cell
    The reward cell offered loyalty programme members the ability to accrue points they could redeem for in-kind merchandise (products already sold by the retailer). The rate of accrual was set at 2% - 4%.
  2. Service cell
    The service cell offered members discounts on selected items at up to 50% off along with other soft benefits including special checkout lanes and preferred parking.
  3. Combination cell
    The combination cell offered both the points accrual model of the reward test and the special privileges (but without discounts) of the service test.
  4. Rebate cell
    The rebate cell offered members a 2% - 4% rebate on all identified purchases that they could take as cash back or a balance reduction on their private-label credit card account.
  5. Awareness cell
    The awareness cell was a communication-only strategy that used incremental, targeted and personalised direct mail to reinforce existing services offered by the retailer to the private-label cardholders.

At the end of the test period the results overwhelmingly favoured the blended value proposition of the Combination Cell (number 3). This was not surprising to the paper's author, Terri Gaughan who explained: "What our theoretical evidence told us would win out, actually did. The combination test market, with both hard and soft benefits, generated the most positive revenue lift over the control group, followed by the Rebate and Reward groups. The combination cell also had an improvement in the rate of customer attrition even though it carried higher execution costs."

Download (free)
The ValueTalk white paper also explores the application of a proprietary Customer Value Score methodology to determine the overall value of members in each test cell; methods of establishing control groups to quantifiably identify incremental lift, and the attrition benefit of loyalty programmes; and an analysis of the financial implications of each of the test scenarios.

The full white paper has been made available for free download from the Colloquy web site - click here (348Kb PDF document).

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