How do I reward customers appropriately?
When developing a loyalty scheme, a question you'll face is how to reward customers appropriately for identifying themselves? One question you might ask to help figure this out relates to the extent to which customers can anticipate and know that a reward is coming their way.
Predictable vs. Surprising rewards?
You may wish to set certain thresholds for customers to reach, which make them more important customers to you. But do you want to openly advertise these thresholds, these 'status tiers'? What impact does that have on the longer-term structure, credibility and cost of a loyalty scheme? Is it preferential to manage such status rewards in a more aloof way. This can allow for the element of surprise?
Predictable reward options require commitment. They can be copied easily, but can be very easy to understand by customers.
Here are some examples:
- Preferential pricing – It's an easy one to copy and neutralise and can subsidise purchases heavily. It's simply a loss of margin to get customers to identify themselves in exchange for getting an overall discount on their shop. It's all well and good, as long as you do something with the data!
- Points / Loyalty Currency – Like preferential pricing, this approach can be costly. It can be tricky to manage 'the float' if people decide to redeem points for discounts all in one go. Seems to work better with frequent smaller purchases e.g. Costa Coffee Club, where you can see the points build up. Frequent flyer schemes can work for the frequent flyer, but for the infrequent less so. So this has lead to coalition schemes like Avios, which allow you to earn points in several places and swap points with other schemes too.
- Stamps - Still a favoured choice by many, whether they be virtual (Starbucks or Nando's) or physical (Caffé Nero). Again there’s a frequency dynamic that makes it work. These loyalty schemes don’t pretend to be anything other than a way to drive frequency of purchase. Physical card and stamp based schemes clearly have zero ability to understand customers’ behaviour.
The softer, treat-based way of rewarding customers certainly offers flexibility in being able to manage the cost of rewards. Though they do require a customer to trust that they will get a reward of some sort. The value exchange has to exist in some form, which makes purely treat-based rewards potentially difficult to succeed.
Here are some examples:
- One-off discount offers or gift cards - Out of the blue 'thank you offers' are among the most powerful rewards. In fact some businesses get away with just a heart-felt thank you without any reward to go with it!
- Free products - when given away as gifts this can be a powerful reward mechanic. However the product must be relevant. It must also be something that isn't obviously available to all other customers. So the customer needs to feel like the thank you is genuine, personal and unique.
- Exclusive offers - In some instances simply the chance to experience something that others won't is enough for some customers. Being the first to try, hear about or buy are the most common. Equally exclusive prize draws can work well too as the customer feels they're in with a better chance.
- Access to other shopping or lifestyle rewards with partners - Not only can these be an original way of rewarding customers it can also grow brand equity. If strong alliances are built with partner brands, customers can create positive associations with your brand. Take Chase Bank in the US and how they offer their customers experiential rewards through their sponsorship of Madison Square Garden.
All the treat-based rewards above can be predictable rewards too of course. This is certainly the case with the Chase Bank example. Getting the right blend of hard and soft rewards is important. It can be difficult to generate ROI if it’s either one or the other.