9 August 2013

Loyalty programs: points alone are not enough

Points-based loyalty programs require significant investment to set up and manage. Are they really worth it?

In this article, we look beyond points – and towards new ways of securing customers’ ongoing loyalty, particularly given the increasingly price-driven marketplace in which consumers call the shots like never before.

Traditional loyalty programs

First, what is a loyalty program? Essentially, it’s a program where customers have to do something – such as make a purchase or take out a membership – to get a reward from a retailer or business. Traditionally, loyalty programs segment the customers (or members) into tiers based on the amount of money spent or the amount of points accrued (which, in most cases, go hand in hand).
It does go a lot deeper than this, though. A loyalty program is a business strategy that is used to help achieve specific goals.

Different businesses will have different strategies for assigning tiers and allocating points. For example, one business may have a strong focus on acquisition, hence will reward new members with extra points or discounts. Another business may see the most value in rewarding the top spenders.

Whatever the strategy, loyalty programs are about delivering targeted incentives to purchase and building a stronger affiliation with your brand.

The problem with points

Pure points-based systems work for some players in the market – like major supermarket chains and airlines – where the purchase frequency is high. But points don’t work in all businesses and retailers, particularly those in which customers are only going to buy from you once or twice a year.

That’s not all. Points-based systems have three major problems:

  • Members calculate the monetary value of their points and value the program accordingly
  • Any direct link between points and monetary value results in a liability on the balance sheet
  • Points-based programs are expensive and complex to maintain

“The airlines are a great example of how points alone are not enough to secure true loyalty to a brand. I’m loyal to the points associated with a particular airline, but not the airline itself. If another airline was to offer points plus something more, I’d happily jump ship,” said Charlie Baker, Bienalto.

Points plus

Beyond points, there are three key ways you can add value and strengthen connections via loyalty programs:

  • Experiences – offer experiences that support and extend your brand or offering, such as cooking classes in a gourmet produce store or something money can’t buy like meeting celebrities affiliated with your product
  • Services – provide value-added services like expert information or events that help your customers get the most from their purchases and transactional services such as free shipping or extended warranties
  • Content – deliver highly personalised content that adds value to the customer experience and keeps them coming back for more

Such strategies can be tailored to help your business achieve specific goals, such as boosting sales predictability, building the customer database, or personalising communications to build loyalty.

For example, US technology retailer Best Buy offers a loyalty program that adds value beyond points in bid to boost sales predictability. In addition to 1 point per $1 spent, its “Reward Zone” program offers:

  • Exclusive access to special events
  • Special member-only offers
  • Ability to upgrade to Premier Silver status for free expedited shipping, free house calls from their Geek Squad agents, and more

Best Buys is a clearly differentiated loyalty program that’s not easily replicated by the competition; yet delivers highly relevant rewards that are appropriate to their target market.

“Building loyalty is not an easy task. It is essential to make your offer or program stand out from the crowd, and to ensure that the rewards you offer are targeted and personalised,” said Charlie.

The new loyalty: start small

“The beauty of building a loyalty program that isn’t based solely on points – apart from fact that it will deliver significant cost savings – is that you can start small and iteratively test which rewards really resonate with which customers,” said Charlie.

It’s important to remember that what works in one location or with one segment of customers won’t necessarily translate to everyone or even continue to work over time. Rewards programs should seek to continually test and evolve. New strategies can easily be piloted before full deployment, thereby minimising the risk of getting it wrong.

Another benefit of starting small is that it is much easier to carefully weave your loyalty program into broader customer engagement activities, and ensure that it is leveraged across the whole customer engagement program – and across all channels.

It’s a more hypothesis-driven approach that builds up over time and delivers insightful member data that you can leverage for further tailoring and personalisation of the program, which then leads to greater loyalty.