The 3 essential elements of a winning loyalty rewards programme

The 3 essential elements of a winning loyalty rewards programme

It seems that everyone has a loyalty programme these days – from the “artisanal, single origin” coffee shop down the street to the multi-billion rand bank, who you suspect still charges you a few rand too much for using a competitor’s ATM. With so many programmes out there, how does a business better understand what sort of loyalty programme to introduce, if at all, or whether its current loyalty programme is actually driving desired behaviour change?

Of course, a loyalty programme is not a panacea that can turn a fundamentally poor Customer Value Proposition (CVP) into a good one. What loyalty programmes can and should do is augment a business’s current CVP driving attitudinal and behavioural change in a meaningful way.

What does a good loyalty rewards programme look like?

To better understand what a good loyalty programme should look like think of its structure as a kind of pyramid, where both the customer and the business gain increasing value from each other the further up the engagement pyramid they move.

In line with the schema below the foundation of all programmes is a conditional but nevertheless concrete benefit or reward offering. Beyond that programmes can differentiate between customers, recognising those who are more loyal by structuring or tiering the programme.

Ultimately the objective is to leverage the data and engagement opportunities to personalise offerings for each individual member.

The Loyalty Engagement Pyramid
The Loyalty Engagement Pyramid

We will look at each of these in turn, starting with the Rewards / Programme Offering.

  • REWARDS

“The tenth (or eleventh) coffee is on us”

Economic rewards form the basis of all loyalty programmes. Economic rewards refer specifically to the tangible rewards that customers receive as a direct result of being on the loyalty programme. These may be in the form of free stuff, discounts, competition entries, points, cash back, improved service or preferential access to facilities.

The way we respond to these economic incentives may differ, but there is no doubt they create a response in many of us, rational or irrational.

Many programmes, however, often get stuck at this level of engagement assuming, incorrectly, that economic rewards by themselves are sufficient to drive significant behaviour change and create lasting customer loyalty.

This brings us to the second level of our loyalty programme hierarchy: Recognition / Preferential Treatment.

  • RECOGNITION

“Don’t be blue”

While simple economic rewards may switch the occasional purchase or make a customer spend slightly more at your store, given such a hotly contested loyalty space, programmes may need to offer some form of customer recognition in order to drive long term behaviour change and sustained customer loyalty.

Loyalty programmes can explicitly incorporate recognition by including a tiered structure, where the economic rewards increase as customers move up the programme’s tiers. Customers move up tiers by exhibiting behaviours that the programme owner considers positive.

Standard Bank offers customers who are part of its UCount Programme a tiered loyalty offering, where points are awarded depending on the customer’s tier level. Their tier is, in turn, based on the customer’s banking behaviour and product holdings.

Recognition can also take the form of giving customers who are part of a loyalty programme preferred treatment relative to those customers who are not part of the programme. This type of recognition often comes at low marginal cost for the programme owner but adds significant perceived value to those customers lucky enough to qualify, particularly where baseline service levels are low.

Being part of British Airways Executive Club (Bronze and higher), for example, allows you to skip the long lines and access priority boarding.

*Excuse the Dutch subtitles

Recognising customers in this manner can create aspiration and a desire for upward tier mobility in order to receive richer rewards. Where programme membership is highly visible, for example, as with airlines and credit cards, tiering may also appeal to a need for social belonging and esteem. Conversely, the fear of a downgrade, can help to focus the mind.

While the benefits of tiering are compelling, the proof of the pudding is really in the eating.

According to our research the majority of programme members do not know what tier they are on and do not know what it would take to reach a higher tier.

While recognising customers for their behaviour is a positive first step in creating lasting customer loyalty, what customers ultimately want is to be understood individually and for their need to be spoken to in a way that is personalised, relevant and targeted.

This takes us to our third R: Relevance / Personalisation.

  • RELEVANCE

“I am not a girl, why do you keep offering me make-up? Ok, I am a girl but I don’t wear make-up”

In this age of programme proliferation and spam messaging, it is critical to engage with customers in a way that is relevant and affirming of their own preferences and needs.

Customers want to feel like they are understood – if not by their loved ones, then at least by their grocery retailer – and that their preferences are acknowledged and respected. This is where tools like personalisation and targeted marketing become extremely useful.

What role does data play in your loyalty programme?

Luckily for us, we also live in the age of data and the ongoing refinement of big data techniques. This means that it is now possible to leverage off of an organization’s own data generated by transactions, customer interactions and apps as well as other data sources to create relevant, personalised offers for customers.

While it can sound a bit scary that companies are collecting so much data on their customers, customers can rest assured that companies have watertight data protection policies and mechanisms to de-personalise customer data as they seek more meaningful customer engagement.

Meaningful engagement in turn engenders a true sense of loyalty to the brand.

Not for long though, because chances are your competitor has something up his / her sleeve and is designing a newer, sexier scheme to entice the customer back. Indeed, the game of loyalty has never been quite so cut-throat.

Engagement with a competitor is but one click away.

It is therefore critical to leverage the data not just to communicate and engage with customers, but to create meaningful insights that translate into new and improved product and service propositions – augmented, of course, by a well-designed and closely monitored loyalty programme.

Get in touch to better understand how your loyalty programme can drive real customer loyalty by offering rewards, recognition and relevance to your customers.

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