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The main purpose of every loyalty program is very simple from the customer perspective – they sign up because they want to be recognized and rewarded. As long as a business operates on double digit margins and can provide high value rewards, that is easy. Unfortunately, the redemption process (the loyalty moment of truth) falls in most cases far below customer expectations.
What is the perfect reward? Maybe it will be easier to answer that question if we start with what doesn’t make the perfect reward:
“Impossible, premium rewards”. In many cases, positioning premium brands in rewards catalogs has an aspirational goal. But most customers will start to question the loyalty program after several transactions.
“Low-value but high-spend rewards” – there is nothing more disappointing for customers than understanding the real value behind points. “After a year of being a loyalty customer I have enough points to get a pen” is an example. There are still a few programs with very disappointing point value (such as when a USD 250 spend gives points with value of USD 1).
“Rewards with limits” – if you were collecting miles for a dream-trip during high season, you might be disappointed when the nearest redemption-window opens in a few weeks. That is the most common frustration raised on social media, and the main reason that customers question loyalty programs in general. As premium customers, they’re expecting premium treatment.
Leftovers – forget about rewarding customers with last year editions, damaged or out of warranty products. Even if they are offered at the great price, it doesn’t work, and it’s certain to show the customer a lack of respect.
Virtual discounts – retailers who try to increase prices to artificially inflate a discount, for example just before Black Friday, are caught quickly and easily via social media. Customer trust in the retailer will fall away, and overall perception of the brand will suffer.
Now we are more or less clear about mistakes, what is the right way to reward customers? We can use the following definition.
Value created must exceed cost of value delivered.
That single sentence should help us to better understand the link between the value delivered to customers and the value created for the company. This would be the perfect win-win. Unfortunately, the rewarding aspect of loyalty programs seems in many cases to be disconnected from brand value. Most successful programs always show the connection between rewards and brands. A very good example is BP, which cooperates with producers of toy building blocks to create their own models such as branded gas stations and tankers. Special prices combined with points currency (focusing on the upsell on premium fuels) and a quick redemption process (rewards are available at the stations) creates the perfect customer experience.
If it’s so easy, where is the catch? Liability, of course. As it was reported in the Analysis by Stanford University (Loyalty Program Liabilities and Point Values, by So Yeon Chun, Dan A. Iancu Nikolaos Trichakis), it’s well-known for companies such as Delta Airlines and Marriott International find that points represent 25% of their total liabilities. And American Express’ deferred revenue liabilities reached USD 7.7 billion at the end of 2017.
So what are the options right now? If we don’t want to end up with that kind of liability or cannibalize our brand by giving massive discounts, there are a few options:
Mystery element - there are good examples of brands that engaged customers, such as location-based games (PokmenGo) with fantastic use of augmented reality, and geocatching games.
Auctions – usually forgotten by most of the programs, but still a very engaging option for customers, who can bid with their points without losing them. For brands, this gives them daily engagement with customers, and emotions that won’t cost much.
Next best offers – AI-based and bundle-based offers give mean companies are always protecting their margins and introducing new products .
Choose only one – when customers are asked to choose one reward from two or three options, this emphasizes that the rewards are limited
Instant redemption – it is easy to hide the entire redemption logic from customer, and just surprise them when the time is right.
Money can’t buy – programs can offer customers limited editions and customized rewards. If it’s possible to have customized shoes, it possible to do the same with reward creation.
All this might be difficult without the right technology. However, mobile applications are offering more options that ever, and the main challenge for loyalty program operators today is to adopt the latest technologies. At Comarch, we are working hard to deliver in that respect, especially bearing in mind the latest trends in loyalty, such as:
Lifestyle “money can’t buy” programs
Of course, not all innovations in loyalty have been effective. But, as long as we are using the same channels as our customers, we are on the right track. It’s worth remembering that, in most cases, the line between innovator and smart follower is very thin. For deeper insight into that, we recommend spending few minutes browsing the works of Arthur C. Clarke, who “invented” AI, ipads, smart homes, remote medical care and the Internet, all at a time when 5Mb of memory weighted over a ton.
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