“Should Loyalty Programs always involve points, credits or miles?” The answer is clear: “No, not necessarily”. The most common practices in terms of loyalty programs that we know, all involve certain point structures. No matter if you call it points, coins, credits or ‘miles’, the calculation behind it is based on numbers. This is easy to use and to understand for consumers. Lately, we talk to more and more companies that don’t want to work with a certain point structure. “It sounds ‘cheap’ and not exclusive enough”. So, let’s talk about all possibilities to create an extensive loyalty program, with or without involving a point structure.
Let’s be creative and think about different kind of programs. What do you do when you have a low frequency product, with high involvement at the sale? For example: cars, bikes, insurances but also glasses and mobile phone contracts. In these occasions, it is difficult to work with points as the frequency in purchases is low. Does it mean that ‘loyalty’ is less important for this kind of companies? No. It is perhaps even more important, as there are less touch points and you do want to stay connected, interacted and engaged with these customers. Let’s try to look at the way you come to your best fitting program structure, with or without points.
Loyalty – connect business KPIs with customer needs
For every kind of companies and business, a certain loyalty program is applicable. It is always essential not to use one program for all, so every company should approach a loyalty process and development of a program completely from scratch. Even though a company could fit a program with clear point structure, for business results it could sometimes be better to choose a different kind of setup. Here we should distinguish two sides of the perspective: (1) which activities are you rewarded for and (2) in what manner are you rewarded.
Rewarding purchases and beyond | inside-out
It is important to start from a business perspective when deciding about what type of behavior you want to reward. What are our company goals, which KPI’s do we want to focus on for the long term? And which activities can contribute to our business results on the short term? For all the goals there are fitting practices to include in your program, no matter if it is about sales (e.g. increased AOV; higher purchase frequency; greater total sales volume), marketing (e.g. bigger social media reach; increased traffic on the website; growth of online community) or service related goals (e.g. decrease in number of customer service cases, increase in usage digital service channel). Within this approach, it is also important to decide if you focus on one specific brand / product, or on the combination of your portfolio of brands, products and services.
To start with, there are different ways you can reward purchases:
- Value per purchase – this is the most common loyalty practice seen across markets and borders. Every purchase represents a certain value and is translated for the customer into an amount of points, credits, miles, cash back or any type of ‘virtual currency’. The amount that the customer gets can be redeemed for a certain reward or when a certain milestone of points is collected, it converts into a predefined reward. In the ‘value per purchase’ we do need to distinguish a ‘direct value’ and ‘savings’. In the last case, it is backed by a loyalty structure, as customers need to repeat their purchases in order to
- Frequency of purchases – in other cases, the frequency of purchasing is the main objective and its goals to be increased throughout the year. This is most often seen in businesses, where frequency of purchasing is naturally not extremely high, but the value of products is attractive enough for more frequent purchasing. Think about products and services that are not a daily, weekly or monthly essential, but more of a nice to have or enricher of personal life: products like home or skin care, services as car wash and massages or leisure activities like cinema or restaurant visits. In that case, setting up the structure for a mechanism in which the frequency of purchasing is rewarded, will be an effective one. In this perspective, you can also include other variables, like type of channel, offline or online.
- Total value of services – this type of purchase rewarding is closely related to customer lifetime value throughout a company and wider portfolio of brands and products. Cross-selling of products and services also often involved in this mechanism. By measuring the impact one customer has on the total sales volume within a certain period of time, better business calculations can be made and engagement processes designed on the type of customers. The quality of customers is in this case more important than the quantity, as companies clearly work with a strong focus on the individual contribution. This is not only interesting for B2C programs, but also in Incentive Programs for B2B business programs and sales agents. When setting up these types of ‘challenges’ / goals to reach, it is possible for companies to give targets to agents and to prospect business results based on learnings from the previous months in relation to this target setting. Thorough data analysis is essential in this process, preferably in an automated manner in combination with direct loyalty rewarding activities.
But as mentioned before, there are many businesses that have products with a lower frequency in purchasing. In that case, we need to look at other ways to reward behavior, that directly or indirectly influence the business results. Examples of these kinds of other ways to reward valuable behavior are:
- Social media behavior – reward likes, comments, and shares on social media in case your goal is to expand the reach of your channels and communication. By engaging customers more on the social channels, like Facebook, Instagram and also LinkedIn, you are able to develop a larger community and influence the social media algorithms, which influence the reach of your channels and therefore the effect of your marketing activities.
- Member-get-member – in case you goal is to attract more customers into your community, database or as member, rewarding this activity can drive big success. Through activating automated member-get-member mechanisms, it is possible to grow your base extensively in just a short period of time.
- Community participation – in more and more companies, even in traditional B2C retail, we notice that community platform, interactivity, contribution and self-service have an increasing focus. By rewarding activities within a community, it is possible to develop a qualitative community platform that brings you even more interesting business results in the long run.
- E-learning – in businesses where product development, new features or self service is a common practice and focus, rewarding the commitment in an e-learning environment is contributing to the engagement of the customer or member with the company and steps are taken in the development of the emotional connection that will contribute to loyal behavior, as shown in the VANEIGENS Customer Engagement Flywheel.
Normally, purchase rewarding sounds easier to process in terms of point, perk or benefit assigning. But these incidental rewards are as easy to include in your loyalty mechanism. Through API connections with external systems, calculations can be made based on actions that are being called. In that way, through a web of API connections and full ecosystem can be designed for the best loyalty and even customer engagement programs!
Of course, there are more creatives ideas for incidental rewarding depending on the ecosystem involved around the customer and business. Interested in discovering which business goals you can achieve with an extensive incentive or loyalty program? Reach out for a free brainstorm meeting and we’ll be glad to support you in the development of your customer engagement strategies and incentive & loyalty programs.
Next read in Part 2: Now we have decided which business goals can be touched by rewarding which kind of behavior, we need to decide how we are going to reward the customers. What is in their interest? For the success of the program, we use the outside-in, customer-centric approach, to understand which variables will drive the usage of the program and, with that, the success.