Time for another loyalty program tip. Newsflash: Points are a pain.
Yes, when we think of rewards, we usually think of points. OK, so technically they are “currency” programs, but ever since the airlines created their point-based programs, this strategy has become synonymous with rewards. However, points-based program come with inherent complexities that can be a burden to many companies. Just ask the CFO.
While it has become much easier to track and manage points, you still need to track all purchases across channels, deal with returns and discounts, manage points accounts accurately, and comply with accounting practices regarding liabilities. Points have excellent benefits and may be the right strategy. However, here are a number of alternate rewards program strategies that you may want to explore.
Reminder…this is not trying to steer you away from a points-based rewards program. It is simply meant to provide alternative strategies that may be a better fit.
If you have the ability for upgrades, add-ons, and special treatment, a soft benefits program may work for you. In this strategy, program members have the ability to enjoy special benefits instead of accumulating points for free products. There are also special discounts on product associated with this strategy. Usually special products are available at a discount for members only.
Preferred Hotel Group’s I Prefer program, which recently switched to points, began this way. Their strategy was to provide members with immediate guest benefits such as free wi-fi, free use of the spa/health club, and room upgrades. Ikea’s program (Ikea Family) also uses this strategy. They feature special amenities such as longer warranties and special discounts on certain products.
This strategy simply tracks customer purchases and provides a reward based on the purchase amount within a given timeframe. These put a smile on the CFO because they are typically finite, meaning that liabilities to customers only last one quarter, or one year at most. It still requires precise tracking of purchases and returns, but is very easy for customers to understand and easier for most businesses to implement.
These programs are probably the most popular. Staples Rewards and California Pizza Kitchen’s Pizza Dough program are two examples. Staple’s offer 5% back on all purchases, and CPK gives you a $5 rewards for every $100 you spend.
Now, let’s pause for a moment and look at the two examples above. They bring up an important consideration in loyalty program strategy. The Staples program and the CPK program seem like they both offer a 5% reward value, right? Not really. Staples uses a “slope” strategy, meaning you get 5% back no matter how much you purchase (yes, this is simplified for purposes of this example). CPK uses a “step” strategy, which only rewards you for hitting each $100 milestone. Spend $100 and you get $5 (5%). Spend $195 and get $5 (2.6%). Just something to consider when develop a program.
If you don’t want to hassle with tracking actual purchases, tracking visits is another strategy. In this case, a generic “purchase” is tracked, without regard to what was purchased. Think about a punch card. Most of the new loyalty platforms popular for small business work this way. Data is easily collected at the checkout counter and visits are tallied. Usually customers can earn free product after a certain number of visits.
Many QSR’s and coffee shops use this strategy. Starbuck’s is an example.
Surprise and Delight
This is a strategy where the benefits are not clearly stated. The company does have a strategy and process for rewards, but customers know that they may come in and have a nice surprise by getting a discount on their purchase that day or a free add-on product. Panera Bread uses this strategy effectively.
Now, one thing to remember is that points-based programs provide great flexibility of choice for both the member and the company. Points can easily be used for a variety of rewards, both physical products and valuable services. They can be integrated with outside partners.
Points programs make sense for high transaction frequency industries and programs where there is a great deal of choice for redemption. But there are many options to consider for loyalty marketing programs, so be sure to make the best choice for your business.
For more tips on loyalty marketing, please download our presentation, 10 Tips to Improve Your Loyalty Program – Plus 5 Reasons to Kill it from our Resource Center.
– The JAY Group team