Are you using the right reward mechanism?

13 January 2011

Whenever the word loyalty programme is mentioned, the connection is usually with a points based programme. More recently point's programmes have had some bad publicity within some consumer groups, however the root cause of this negativity really comes down to how the programme is designed and executed - rather than the mechanic itself.  What is key is how brands translate points or rewards into true customer value.

These points programmes are often seen as an effective strategy for identifying, growing and retaining profitable customers and have been a standard feature of the airlines' loyalty programmes.

Whilst point's programmes are often the largest and most publicised, they are not necessarily the best fit for all companies. Reward & Recognition programmes can also be extremely successful. These are more covert and usually linked to discrete special treatment, often on a more personal basis. As a result they are not often widely publicised - which adds to their lure of exclusivity and 'specialness'.

Naturally there are advantages and disadvantages to each programme type, and this depends on several factors - such as industry sector, product or service offered and the target audience. Once launched, it is extremely difficult to change the reward mechanism - so it is vital to ensure the right programme or balance is made early in the process. Of course both types can be effectively combined to ensure that the right balance of tangible, transparent rewards are achieved whilst providing an element of surprise and delight. Build this around customer insight about what they feel is valuable, then you have a winning formula to loyalty success.

Before we look at some of the best examples of brands operating both types of loyalty programme, let us first consider some of the most important elements that should be considered:

Points well matched to volume & transparency: Companies who deal in very high volumes of transactions, such as airlines, hotels and retailers, are well suited to points-based programmes as it offers the consistency and scalability that they need, often to implement the programme on a global level. Currency transparency is also critical - everyone in a points programme knows exactly what they can earn and how many points they need to achieve a specific level of reward. It therefore gives customers the ability to control the value that they want and in a relevant way.

Focus on low-cost, high perceived value: Companies need to identify rewards that are of low cost to them but high perceived value to the consumer. For the airline industry, for example, they offer empty seats (low cost to them) to frequent flyers, which historically have been perceived as a high value proposition. However, more recently this value differential has been eroded, with frequent flyers today often faced with little or no choice when it comes to redeeming free flights - and when they do they still have considerable taxes to pay - so it becomes low cost and lower value!

This value principle works equally as well with recognition programmes. A hotel, for example, this might be as simple as offering free breakfasts, late check-outs or tailoring room options based on preferences. These can all be very low value costs to a hotel, but to the customer they are highly valued. This comes back to how 'value' is interpreted by the customer, and each brand must work hard to continually and regularly evaluate what this means in their business.

Recognition as a loyalty driver - surprise & delight:  Programmes that are geared around recognition can often be the most effective loyalty strategies, and what are sometimes termed 'substantive' loyalty programmes because they drive loyalty via innovative methods of surprise and delight, as well as more general methods of making the customer experience noticeably better.

With such programmes, the rewards are different because they influence longer term loyalty behaviours as opposed to points which tend to be more of a tactical and 'expected' incentive. Giving airline customer's access to preferred security lines, free upgrades, better customer service, and access to business lounges all encourage more permanent loyalty behaviours. These behaviours help to build strong brand advocates and ambassadors.

But the best loyalty programmes channel the human desire for surprise and delight with gifts of meaning and significance. This might be a box of chocolates, or a bottle of champagne (house will suffice!) or even just a personal letter from the hotel's manager with an invitation to a complimentary drink at the bar.


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