Why Loyalty Points Still Work

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By: Wise Marketer Staff |

Posted on June 1, 2018

Many Executives still believe that their customers don’t want points. Nevertheless, most programs still need a mechanism for value exchange, whether it is points, stars, miles, stamps or magic acorns!

By: Adam Schaffer, CLMP, Managing Partner, Ellipsis & Company

The question they should be asking is: what is the most valuable way to convert stored value (however captured) into a proposition which is meaningful for the customer and meets specific business objectives.

The simplest mechanism to convert stored value into an attractive customer proposition is to offer cash, or at least to make the cash value of points transparent. However, we believe it is not a good idea to follow the 'points = cash' idea too slavishly.

Do you also have this twinge of loss when you spend your points and your balance makes you look like a mere Bronze member, not the Platinum you rightly are?

Some programs do sometimes only offer 'cashback' rewards, and should if a large enough portion of their members are loyal by habit or their engagement is dominated by their 'rational brain', not the desired 'head and heart' relationship that is most robust.

But there are at least 4 good reasons why many programs do not make their loyalty currency fully fungible…

  1. Emotional engagement: The strongest relationships are built by the investment of intangible, personal resources – more easily captured through flexible points-based interactions
  2. Personalised experiences: If your points are not thinly disguised cash, you control the rewards members can achieve. Furthermore, cashback rewards are quickly spent and soon forgotten, whilst the first-class ticket is appreciated for a long time and gets the deepest engagement and strongest advocacy.
  3. Changing behaviour: Point reward thresholds work. Members will work harder for a reward the closer they are to reaching it. It's just not possible to subtly change behaviour in this way with only the rather blunt tool of cash.
  4. Stored value and loss aversion: The real cost of a point is opaque, but members understand they are their property and valuable, and members with a positive balance will go to some effort to grow their assets and avoid loss.

The redemption experience

The magic occurs at the moment the member exchanges points for rewards. It is such an important program engagement event that we recommend operators actively manage redemption rates, especially for high value members. In everyday retail programs for example, we aim for 90% redemption from members qualifying for a reward each year.

Redeemers spend more, shop more frequently, and stay active longer than their peers of the same value. And we have seen significant increases in NPS® for member groups following a redemption.

Expiring points on anniversaries is one way to encourage redemption. However, members do not like points expiring, so allowing points to roll over so long as at least one reward is taken per period seems to be a good alternative- particularly in high volume B2B programs. Creating limited-time redemption offers, such as double or triple value rewards, can also drive redemption activity.

Fundamentally, you should use points to treat different customers differently, what we call Customer Science®. This is the only way to convert stored value into a proposition which is individually meaningful for each customer, and which, at the same time, is carefully calibrated to achieve your specific business goals.

Find out more: www.ellipsisandco.com

This content is sponsored by Ellipsis & Co. Ellipsis specializes in Customer Experience Management and Loyalty Consulting. We help our clients become customer centric, because we believe getting this right is crucial to creating value.