Top 4 Successful Loyalty Programs

Published by AYN Brand | Filed under Branding, Direct Marketing, Experiential Marketing, Promotional Products, Strategies, marketing |

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When a loyalty program fails, marketers tend to blame the strategy rather than look into the value proposition of the rewards/incentives offered. It’s frequently the rewards themselves that are to blame: if a person can’t afford the rewards they want, and don’t want the rewards they can afford, why would they want to participate?

Most loyalty marketers agree that a successful program should offer a perceived reward value of 5%. In other words, for every $100 members spend with you, they should earn a reward with a *perceived value* of at least $5. For most programs, this is a minimum threshold. Note the difference between perceived value and actual cost. If you give back five cents on every dollar a customer spends with you, then the perceived value and the actual cost of the reward are identical.

But suppose you offer a promotional currency that allows customers to earn five points on every dollar spent, and to redeem those points for something of value later. Not only do the points act as a deferred discount that builds relationship equity, but the reward may also have a greater perceived value than what it actually costs you to deliver. It’s the classic frequent-flyer program model; A free flight is worth much more to you than what it costs the airline to deliver. The gap between perceived and actual value represents your incremental program profit. And profit, of course, is the ultimate reason to run a loyalty program.

How do you generate the perceived value that makes your customers loyal to your program? Here are a few successful methods:

1. In-kind Rewards. The low cost of delivery makes offering your own goods and services as rewards an easy way to generate perceived value. You can list a variety of in-kind offers in your rewards catalog: groceries, fuel, merchandise, apparel, or whatever else you sell. In-kind rewards carry a distinct advantage over cash-back rewards, because the perceived value of the reward is greater than its actual cost. And because they protect the integrity of your retail price points, they are far superior to discounts. The actual cost of delivering an in-kind reward is often so much lower than its perceived value that you may be able to decrease your funding rate while still delivering compelling hard benefits to your members.

Be aware, however, that customers can experience too much of a good thing. In-kind rewards offer great economic leverage, but they can quickly become boring and irrelevant. Even heavy caffeine addicts can drink only so many free cups of coffee a week.

2. Other People’s Money (OPM). In return for promotional considerations and access to your membership, third-party partners can offer your customers rewards from their own portfolio of goods and services at wholesale. This method gives you more leverage than any other aspect of your loyalty program. The premise is straightforward: Partner A wants access to your members because they represent potentially lucrative new business. Partner A would normally have to spend money to acquire customers by marketing through channels filled with people who have no interest in what he’s selling. You, however, have the audience the partner seeks, and they’re already engaged with your loyalty program. If Partner A wants to acquire customers for a fraction of what he normally spends, all he has to do is put an offer or money into your hands. You pass that on to your members in the form of program value, and you reap the benefits without incurring additional expense.

OPM is an excellent way to stretch the value of your loyalty-program rewards. You give members something to aspire to without paying the full retail price, and you generate more excitement around your program than is possible with just in-kind rewards. Ask a potential partner about his typical cost of acquisition, and then offer him access to your members for less.

3. Merchandise Rewards. If you have the budgetary muscle to afford a full rewards catalog, offering an array of desirable third-party merchandise rewards can really help your program achieve critical mass. Because merchandise price points cover the entire spectrum from inexpensive to luxury goods, from music download cards to digital cameras to golf clubs to rewards travel, you can include a variety of items in your rewards catalog. Variety is important. Some members will redeem quickly for an inexpensive item, while others will save up for something they’ve dreamed about. You can also apply the OPM principle to merchandise. A vendor may want you to push his stuff more aggressively than you push his competitor’s stuff. Monetize it: ask him to help fund a transactional bonus or to cut you a deal on a reward item. After all, you’re delivering customers to him.

4. Experiential Rewards. Everyone  has a secret desire. One may want to become a chef or wine connoisseur. Another may want to celebrate an anniversary at that swank five-star restaurant downtown. Still another may want to go scuba diving off of coral reefs in the Pacific. Experiential rewards appeal to a member’s dreams and sense of personal fulfillment. They’re the most powerful rewards, but they’re also the most expensive to fulfill. Survey your members to learn more about the types of rewards they dream about, and then secure a fulfillment partner to offer them. It may take a member several years of dedicated service to earn that coveted reward, but some will do so. You can help by increasing their velocity of earning with a co-branded or private-label credit card or by awarding the most desirable rewards via a points auction or a sweepstakes. The key here is to listen to your members. Read your database and offer rewards that are both relevant and personalized, and high perceived value will follow as a matter of course.