Us Aussies love our points and prizes! We collect points when we use our credit cards, when we buy our groceries, when we travel, when we stay in a hotel, just about every chance we get. Partly because so many organisations give them to us.
Which raises the point of this post; why do organisations run these potentially expensive programs? Research I have seen suggests that the main reason retailers run loyalty programs is "because their competitors do" (Leenheer&Bijmolt).
But even in markets where programs are seen as a cost of doing business, only noticeable by their absence, we contend that you can do a better job of producing a return from your program if you take the time to build a strategy first.
The framework we use is deceptively simple - find the answer to 4 questions:
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Which customers? Working out what types of customers your program will be aimed at is the first step. Unless all of your customers are identical, there will be differences which you can utilise to make the program more effective. Do not assume the target should always be your most valuable existing customers; their volumes typically mean they will be well rewarded anyway. For example, the Journal of Marketing found light buyers responded better to a retail program and recommended '...a need to consider consumer idiosyncrasies when studying loyalty programs and illustrate consumers' co-creation of value in the marketing process.' (Liu 2007). Get your customer analytics team involved right up front.
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What behaviours? What actually do you want the target customers to do? Reward that. Nothing else. Sounds really obvious right? Then why do credit card loyalty programs reward behaviour that is the least beneficial to the issuer (spend big, pay no interest) and airline frequent flyer programs best reward customers who fly the most miles for the least money. Be clear what you really want the customers to do.
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How much money? If the target customers behave the way you want, how much incremental profit will you make? Time to do some numbers, starting with the 'size of the prize' if the program is effective at causing the behaviour you are after. Clearly you should aim to spend less on the program than it incrementally can produce if you get everything right.
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How do I include partners? Few organisations can provide the ubiquity of points earning opportunities that will make a program irresistible for members. What other brands would logically support the program to mutual benefit of member, partner and you?
With clear consensus on these 4 points, it is much safer to then move into detailed program design.
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