The Intricacies of Loyalty Program Design - Part 3

How do you set currency, tiers and rewards?

The concluding installment of this three-part series on The Intricacies of Loyalty Program Design. To get the entire story on loyalty program design, you can find Part 1 here and Part 2 here.

This concluding segmentdeals with three of the most interesting aspects of program design

• Currency
• Tiering
• Rewards and Redemption

As specified in the previous two installments, we are not getting into the detailed understanding of each of these concept areas. This is a focus on the kind of decisions that will need to be made with reference to each.

Currency

Program Currency refers to the incentive issued by the brand for repeat and regular custom. The common terminologies include – Points, Stars, Miles, Coins.

Currency is an integral part of most program propositions. It is, undeniably, the tangible hard benefit that is easiest to recall and vocalise.

It is important to define a sustainable currency strategy and structure the program earn such that it is ATTRACTIVE to the member and AFFORDABLE to the brand.

Questions a brand needs to address:

1. Does your program NEED a currency? And will it work for you? Remember that program currency is like a ticker. It needs to keep moving. So, does your brand’s purchase cycle offer the opportunity for VELOCITY of earn? And can you afford to give back to the member at a rate that motivates them to accrue your currency?
2. What should your EARN criteria be? Ideally, you would reward your key business metric – revenue or frequency or volume. But keep earn criteria holistic and multi-dimensional.
3. Which brings us to the next question. How should you STRUCTURE your EARN TABLE? How much is BASE EARN and how much is BONUS EARN? And what buckets of behaviour will you award your bonuses for?
4. How long is the currency going to be VALID for? What are the EXPIRY rules? Set them such that you are able to drive a reasonable accrual and yet not burden the brand with undue liability levels
5. Finally, a point most often compromised on. What is your CURRENCY BRAND? Remember that currency is also a branding opportunity so choose a name that ties in with the program name and yet has a – yes, currency – of its own!

Tiering

Tiers are the most basic segmentation. They are an external manifestation of program aspiration and do wonders for social esteem and the feeling of exclusivity and privilege that program membership brings.

Not every program however needs or warrants tiers. Tiering strategy must fit in with the overall program strategy.

1. Does your program NEED TIERS? The answer lies in the customer data analysis. Are there sufficiently distinctly performing customer segments that warrant being treated differently?
2. What should your TIERING CRITERIA be? Much like Currency, link your tiering criteria also to your key business metric. If you have to drive revenue, base your tiers on revenue. You can have multiple criteria to define a tier – like revenue AND/OR frequency - but the simpler the better. And set your threshold as round numbers – easier to remember and communicate.
3. HOW MANY TIERS should you have? There’s no hard and fast rule. The data tells you how many levels you can split your customer base into. And your internal capabilities will tell you how many tier propositions you can manage to deliver effectively. When you launch tiers, don’t go more than three for sure.
4. TIER UPGRADES AND DOWNGRADES – how often are you going to upgrade and downgrade your members. Best practice is to upgrade as and when attained and downgrade once in a year.
5. TIER-WISE PROPOSITIONS – most critical. Don’t have tiers if you cannot deliver distinctly different propositions as you move upward. Unless you create aspiration to climb higher, the tiers will serve no purpose. And make sure the differentiated propositions are not just on paper - they are actually delivered on-ground.
6. TIER BRANDING - Yet another branding opportunity. Try and go beyond the Silver, Gold, Platinum to names that truly reflect the program and the brand.

Rewards and Redemption

Arguably the biggest moment of truth in any program.

Two concepts to be understood:

• Redemption – when currency is “redeemed” for a gift/reward including against the next shopping transaction.
• Breakage – when currency expires without being redeemed and the savings thereof go straight to the program bottom line making it look “greener”.

Always design for redemption. Not for breakage. You want members to redeem – that’s why you gave them currency. The savings resulting from breakage speak of an ineffective program if they’re too high.

1. What are you offering as redemption options? The simplest and most seamless is against future shopping of your own product. Are you also going to include a redemption “catalogue”?
2. What will feature in that catalogue? What products and services? Are these what your members expect or desire?
3. Will you have partner brands in the catalogue? And will they deliver to your members at this most important moment of truth?
4. How will you structure your redemption? Is there going to be a minimum point balance before you allow redemption? What milestones are you setting?
5. What are the choices you will offer at each milestone? Don’t have too many choices leading to paralysis of decision making. But appeal to HOARDERS and REDEEMERS alike
6. Have you balanced ATTAINABLE rewards with ASPIRATIONAL rewards?
7. What are you doing to drive HIGH PERCEIVED VALUE? Exclusivity, curation, can’t-buy-for-money rewards – all these drive-up perceived value.

In summary

Loyalty Program design is fraught with nuanced decision making. Key areas to cover include:

• Setting your objectives with focus and clarity
• Articulating a holistic value proposition
• Defining clear Eligibility and Enrolment rules
• Setting Membership and renewal guidelines
• A sustainable currency strategy
• A well-defined tiering strategy
• And, finally, an attractive rewards and redemption offering.

Focus on these critical areas first and you will have the nuts and bolts of a great design in place!

About the Author

Mala Raj is a Certified Loyalty Marketing Professional™ and faculty member of the Loyalty Academy™. A Management post- grad from IIM Bangalore, she is an experienced loyalty marketing practitioner having worked for over two decades in the field across clients, audiences, and verticals. Mala has designed many of the successful loyalty programs running in India today. She has authored research on Loyalty as well as been a jury member for Loyalty Marketing awards in India and internationally. She can be reached via rajnmala@gmail.com and +919821041171.