From Points to Perks – the Evolution of Loyalty Rewards
As loyalty offerings continue to evolve and additional programs saturate the market, it is getting more critical for brands to consider the rewards they are offering their loyalty members. Today’s consumers are no longer satisfied with a one-size-fits-all reward scheme; they want personalized rewards, meaningful experiences, and unique ways to engage with the brands with which they do business.
Loyalty360 spoke with supplier members for their insights and perspectives on how brands should best incorporate rewards into their loyalty programs, including how often to make updates and how brands can use rewards to differentiate themselves and build a deeper connection with their customers.
The Evolution of Loyalty Rewards
Elisabeth Keller, SVP/Chief Client Officer at Brierley, explains that the decision to evolve benefits/reward offerings is based on market needs, customer interest, and potential to drive incremental spend and positive ROI.
She says, “All program evolution ideas are run through our design process where ideas are pressure tested against segmented research and financial modeling and often a test/learn approach to gain real-world response to the offering. In this, we have successfully introduced new benefits/rewards that have yielded results that far surpass any expectations.”
However, she has seen examples where clients think a benefit or reward is a great idea only to have research and modeling prove out that the benefit wouldn’t drive any change in behavior or positive ROI, so the idea was not implemented.
Padmashwini Raghunathan, Product Manager, TCS Customer Intelligence & Insights™ for retail, has seen its clients focus increasingly on bridging the gap between the evolution of their brand and their loyalty program.
She explains, “While brands are moving to purpose-driven messaging that resonates with their customers’ personal values, their loyalty programs are still stuck delivering rational versus emotional benefits. Our retail clients strive to align their loyalty programs with their purpose-driven brands to form emotional, value-based, and hyper-personalized connections that build enduring loyalty.”
Tenerity has seen not only an evolution in offers and rewards that provide immediate value, but clients are looking for the opportunity to deliver their customers a vast selection of mechanics to deliver those rewards (i.e., not just points, but cashback, discounts, sweepstakes) along with a vast amount of choice.
Says Eileen Peacock, VP, Global Strategic Content Partnerships at Tenerity, “We just completed some proprietary research around banking rewards and when we asked consumers what type of rewards and benefits they prefer, naturally, the top response was cash. However, more than a third of customers surveyed indicated that they also want value benefits tied to their favorite brands; gift cards, card-linked offers, and coupons.”
“It has become increasingly more difficult to capture attention and wallet share from inflation-strapped consumers– everyone wants a piece of the pie,” says Cassie Preston, Director of Client Services, CRM & Loyalty at Baesman. “Cash-strapped brands are going back to basics and avoiding extra expense on rewards that just don’t move the needle.”
The company sees brands think about the customer more holistically – offering incentives for engagement with the brand and in some cases offering points for actions taken before the customer even makes a first purchase.
Preston notes that today’s consumer is demanding more value out of the loyalty programs in which they participate, and brands are coming to the table with benefits that meet them where they are, saying, “It’s all about value.”
“The two biggest evolutions we’ve seen are toward flexibility in rewards currency and breadth of travel rewards on offer,” adds Jeff Zotara, Chief Marketing Officer at arrivia. “Our clients want the ability to incentivize members, whether that’s an initial sign-up bonus or an extra discount ahead of achieving a new membership tier.”
However, these rewards can be challenging to deploy with a static, point-per-dollar loyalty currency structure, so arrivia has seen more companies embrace a flexible currency model to facilitate these strategies.
“We’ve also seen clients expand the travel options available to members, both to better meet their needs and expectations and to capitalize on the recent surge in travel demand,” Zotara explains. “So, we now see more travel portfolios that include cruise inventory, exclusive resorts, or alternative lodging options, keeping members engaged with the loyalty platform and spending within our clients’ ecosystems.”
Raghunathan also cites the need to differentiate travel rewards. She says, “While overall we have seen our clients move towards more responsible and purpose-led loyalty programs, we have seen differences based on industry-specific demands. For example, in travel, our clients have had to reimagine their loyalty programs because their current programs have become saturated.”
Seeing as a large percentage of existing customers have already moved up to the highest tier, perks like ‘earn and burn’ and ’skip the queue’ are less compelling. TCS’s travel clients are realizing they need to develop engaging loyalty programs that are integrated into the customer’s end-to-end experience, permeating and adding value to the totality of a customer’s experience.
Finding the Right Rewards for Your Customers
The types of rewards brands offer their clients depend on many factors, including the industry, the nature of the transactions, and the customer involved. A customer at a gas station may be highly satisfied earning a five-cent reward on gas, but a high-tier travel consumer may require a highly personalized experiential reward in exchange for loyalty. How can brands know which rewards offerings will succeed and which will fall flat?
Mladen Vladic, General Manager of Loyalty Services FIS Global, sees a tremendous focus on expanding loyalty programs beyond transactional loyalty in the post-Covid environment. He says, “Due to the disruption in the banking space, brands are more focused on solidifying a holistic relationship with their customers to compete against the new breed of competition effectively.”
Zotara agrees, saying, “Ultimately, the rewards that resonate the most are the ones that hold a lot of value and speak directly to a members’ wants and needs.”
Because travel is both inspirational and aspirational, it holds a lot of value as a reward, especially when a provider can demonstrate to their members that the travel points or miles they’ve accumulated can be redeemed for a great deal they’d otherwise not have access to.
“What we see working the most for brands is when they give their members a lot of flexibility in how they earn and spend their travel reward points,” he adds. “For instance, not limiting them to one or two travel options but the full spectrum, from air and car rental to cruise, which is increasingly becoming a sought-after travel product and one which many rewards program overlook.”
Preston stresses the importance of differentiating, saying, “Every brand’s loyalty offering needs to look different to encourage loyal behaviors from their customers. What works for brand A, doesn’t necessarily work for brand B, and so on. It’s important for brands to continue evolving their loyalty program over time as the consumer mindset changes (and it’s changing quite a bit these days). It’s best to not let your foot off the gas as it relates to creating a data-driven, customer-centric loyalty strategy. Always be evolving your engagement strategies.”
Raghunathan is seeing similar trends, saying, “While rational/transactional rewards are prevalent in many of the brands we work with, we are seeing a move towards more emotional, purpose-driven rewards. Clients are beginning to create ecosystem plays where customers can get ‘journey’ benefits across their day-in-life journeys that are meaningful and relevant.”
“Our experience shows that a brands’ own rewards (discount, free item, etc.) resonate most with their members and earning toward a brand-owned reward is the carrot that best engages members with the program and the brand,” states Keller. “Augmenting a reward catalog with other items is a great way to expand the core value proposition of the program, but we see it as an augmentation of the core brand-owned rewards rather than a replacement of those rewards. The key is finding a mix of hard and soft rewards/benefits that resonate with members – a combination of benefits and rewards that creates rational loyalty via the hard benefit they are receiving and emotional loyalty through how their interaction with the brand makes them feel.”
The Value of Charity and Crypto Rewards
Some brands incorporate charitable donations into their loyalty rewards programs. Others take a different route entirely, offering Crypto as a new reward option. These rewards may work very well in specific sectors but knowing whether they work for your brand is more than a guessing game.
“Regardless of the industry, we see redeeming loyalty points for charitable donations as a viable option as long as the loyalty program aligns with the brand's purpose,” says Raghunathan.
Rather than force-fitting charitable donations as a reward feature into their programs, she recommends brands ask themselves if the feature supports the brand’s values, and if its customers are interacting with the brand because they share the same values.
If the answer to both questions is yes, she is confident that charitable donations will only reinforce the brand's value and help build stronger emotional connections.
“Consumers really value a brand and regard them more highly when that brand espouses the values those consumers care deeply about,” observes Preston.
One way for consumers to participate in that higher purpose value a brand offers is to donate their points during a transaction with the brand.
She says, “We see these types of charitable donations work well across all types of retailers, from grocery to specialty retail, department stores to big box. If your brand has the technology to support this kind of offering, without introducing friction into your customer’s experience, it’s a great option to show your customers you care about a higher purpose that they may care about, too.”
Cryptocurrency, like points, could be an offering that gains traction with members of specific brand’s programs, but it’s not likely to take off in a meaningful way in the next couple years.
Preston cautions, “With the recent crashes in the crypto exchange market, the currency is under even more scrutiny than it once was, and inflation-burdened brands and consumers alike are prone to be leery.”
While the big brands may invest in testing cryptocurrency offerings within their loyalty programs, Preston says it’s likely to see fewer brands taking the bet on crypto due to recent events.
The Next Big Thing in Loyalty Rewards
Brands would do best to keep an eye out for new and innovative types of rewards. But what is the next “big thing?”
Vladic states that giving customers the ability to redeem their loyalty currency in real-time should be the main objective for brands. He explains, “Customers are looking for a bank program redemption experience to mirror the interaction experience they have with all other brands. It has to be frictionless, and it needs to be immediate in order to matter and in order to encourage engagement.”
Many big named brands have been exploring the world of Web3 as a new means of customer engagement, but few have mastered the arena. Preston says, “While some brands may be exploring some of the newer technological experiences like the Metaverse, we don’t expect to see that take off across the board – it’s too new and brands haven’t really discovered the unlock yet with this new technology.”
Instead, Baesman expects to see two ‘big things’ in the coming years. One is brand investment in the digital transformation – whatever that may mean for your brand.
“The pandemic really accelerated digital experience demand among consumers and many brands are still operating on antiquated systems that don’t allow for a seamless, frictionless experience across channels,” Preston states. “We expect internal investment in systems and technology to accelerate brand loyalty programs.”
Partnerships are the second area where Baesman expects to evolve over the course of the next year. Brands are looking to provide their customers with lifestyle-encompassing experiences that they can’t necessarily offer without the help of a meaningful partner.
“We’re seeing some of the bigger brands make these moves and they’re paying off big time,” notes Preston. “The consumer gets to experience all the brands they love and have an affinity for in one single experience, while the partnering brands get the benefit of shared marketing and operations expenses, data sharing, and if done correctly, increased top line sales.”
Keller stresses the need for engaging rewards, saying, “I see a lot of programs in the marketplace that are essentially just another discount promotional channel for the brand – it’s critical to have rewards that are designed to drive engagement and incremental spend. Understanding the next best action (note I didn’t say “next best offer”) to drive a deeper connection with the customer is critically important – these may be in the form of a reward, special benefit, or simply a thank you, etc.”
She also predicts the expansion of experiential, early/special member’s only access, especially for those that are advocates for the brand, will continue to elevate program exclusivity for members. Plus, expanded use of badges, which are in a way their own reward – with a special benefit tied to accumulation/achievement – will become another valuable program currency unlocking additional rewards and benefits.
The Importance of Personalized Rewards
“Everything is about personalization these days,” says Zotara. “With so much noise in the world, consumers want products to speak to their specific needs and desires.”
Brands with rewards programs have a distinct advantage over those that don’t because they already have a lot of information about their members. This allows them to tailor that member’s experience from A-Z, from their email marketing communications to what they see when they log onto the provider’s portal.
“For instance,” Zotara explains, “as a travel rewards provider, you have a member who is single, in their early 30s and without children who has either told you they prefer long weekend city getaways or made that clear through their past interactions with your brand, you can create specific discounts, deals, and offers that highlight this kind of trip. That way, when the member receives an email from you or logs onto your portal, they feel like they are being served relevant content, increasing the chance of conversion.”
Peacock warns brands against the misuse of personalization, stating, “Personalization is exceptionally overused, so if you really want to talk about personalization, it should be focused on treating individuals as individuals – and focus on their behavior, not just their demographics, being responsive to the diversity of behavior, of thought, of timing, of context.”
Preston recommends that personalization be part of an overarching data strategy that starts with the point of collection and follows through to the consumer’s changing mindset and preferences.
She says, “As brands continue to transform their digital marketing stack, and privacy regulations change the platforms we use to reach our customers, it will become increasingly important to collect first-party data and leverage it responsibly to serve the customer at the right time, in their right place, with the right messages to serve their lifestyle.”
Raghunathan agrees, stressing the importance of personalization in establishing an emotional connection with customers. She recommends brands incorporate personalization across every customer interaction, not just “reward” interactions.
“However,” she adds, “delivering reward offerings based on a deep understanding of customer’s values, tastes, and preferences enhances loyalty participation and retention.”
For example, rather than a “one-size fits all” reward, brands need to connect a deal-seeker to an offer, a luxury traveler to a cruise ticket, and a community seeker to an offer or experience that supports their values.
Delivering personalized rewards requires brands to closely interpret customer behavior at an individual customer level based on their stated and implicit preferences,” Raghunathan adds. “This also needs to be executed at scale. AI can help brands uncover such deep customer behavior and implicit preferences.”
Peacock stresses that brands need to be able to present the right mix of rewards for each individual customer (not for a segment) to meet their business objectives (i.e., retention, cross-sell, etc.) ansure that they have the right mix for each customer to make sure each customer is seeing what he/she wants.
With the “right mix” for each customer, each customer will see what he/see wants, bringing value to consumers, and ultimately driving loyalty and engagement for the brand.