Category: Research Insight

5 Criteria for Assessing Your Loyalty Program Value

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To encourage customers to actively participate in your loyalty program, they need to see value in doing so. From a program management perspective, it is important that you regularly audit the value provided by your program in order to create sustained engagement with your current and potential program members. This is especially critical if you have recently made changes to your program or are about to implement changes. A classic loyalty program article in the Harvard Business Review suggests a really useful framework that lays out five criteria for assessing loyalty program value. I would like to explain these five criteria here and offer an illustration of how several well-known loyalty programs fare on these criteria.

Criterion #1: Cash Value

This first criterion should be a no brainer. It refers to the financial value consumers receive from participating in your program. You can determine your program’s cash value by calculating its reward ratio. That is, how much does a member receive in terms of free rewards for every dollar spent? Take Starbucks Rewards as an example, consumers earn 2 stars for every dollar spent (without promotion). A free reward is issued every 125 stars accumulated, or $62.5 spent. Assuming consumers redeem the free reward for the more expensive items on the menu (say, with an average price of $5), they would receive a cash value of $5 for every $62.5 spent, or 8 cents per dollar spent. That is the reward ratio for the program. To calculate your program’s reward ratio, use this more general formula: reward ratio = (average reward value/average point threshold) x number of points earned per dollar. In the case of Starbucks above, reward value ratio = ($5/125)*2 = $0.08 per dollar (or 8%). This is actually really high compared with typical credit card reward ratios of 1-2%. If you already know the average value per point, you can also directly calculate your reward ratio as average $ value per point*number of points earned per $1. Continue reading “5 Criteria for Assessing Your Loyalty Program Value”

The Future of Influencer Marketing

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Influencer marketing has been a buzz word for the last few years. It is a highly attractive marketing tactic, leveraging the social influence of high-visibility opinion leaders to spread words about products and persuade consumers. This is similar to the long tradition of celebrity endorsement, but with the added intimacy of social interactions and the approachability of “I could be her too”. Major brands such as Motorola and American Express have successfully engaged in influencer marketing. In this article, I would like to discuss recent shifts in the influencer marketing landscape and where I see influencer marketing to be heading.

Recent News about Influencer Marketing

Two pieces of news broke recently that may have long-term impact on influencer marketing. In one, several brands’ CMOs spoke against influencers at Cannes this year. The criticisms raised included inflated follower numbers and lack of brand authenticity in some cases.

Separately, Girl Up, a United Nations Foundation organization, surveyed Gen Z women aged 14 to 19 in seven countries. The survey found that Gen Z women are less affected by influencers. They are aware of the financial incentives offered to influencers and as a result some of them may not trust these influencers. Instead, Gen Z women are more driven by brands’ stance on socially important issues and by brand authenticity.

Do these developments indicate the end of an influencer marketing golden era? Will influencer marketing become passé? In my opinion, influencer marketing will continue to be part of the marketing toolbox. However, I believe there will be several significant changes in the influencer marketing landscape.

Prediction #1: The Rising Power of the Average Joe/Jane

As newer generations of consumers become wary of mass influencers, brands will need to rely more on the average Joes and Janes among their customers. These customers have actually experienced the brand and will bring more authenticity to their word-of-mouth. Supporting this idea, both Samsung and eBay CMOs mentioned at Cannes the desire to shift their focus to the business’s actual customers.

One concern with relying on average customers is whether they can generate the same reach as mass influencers. Fortunately, even without superpowers, average Janes and Joes can still get the message pretty far and wide. Although the message from these customers may only get to a smaller number of people at first, the amplification effect through social networks can still lead to a large mass. If one person tells ten people, and each of those ten people tell ten new people, the total reach after 10 rounds will be an astounding 1 billion. Of course the number in reality is generally much lower because you and I may share some common people between our respective networks. My own research shows that a moderately diverse group of people are best for maximum message reach.

The implication from the rising power of average customers is that brands need to see each consumer as more than a single consumer. It is no longer simply a brand-customer dyad. Instead, brands need to be conscientious of the consumer’s network of social connections. To use an analogy, when you marry someone, you are also marrying his or her entire family. I suspect this ability to deal with circles of customers will be crucial to competitive advantage once the current efforts at improving individual customer experience maxes out in its potential. The best brand loyalty will be brand loyalty shared with friends. Continue reading “The Future of Influencer Marketing”

Should You Shorten Your Loyalty Program Expiration Policy?

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For many loyalty program providers, program financial liability is a serious concern. Since members can redeem their points for rewards anytime, the business carries liabilities toward these potential future obligations. Such liabilities can be quite large. For example, American Airlines’ 2017 10-K filing reports $420 million worth of loyalty program liability. For Hilton Hotels, the guest loyalty program liabilities are valued at $889 million, according to the company’s form 10-K. With new accounting guidelines for loyalty programs about to take effect, liabilities will become an even more salient issue for loyalty program providers.

One common way of limiting liabilities is to set a point expiration policy so that points automatically expire after a set period of time (or a set period of inactivity). If your program points do not expire or expire after a longer period of time than you’d like, you may want to consider tightening up the expiration policy. But how will that affect your customers? Should you make the switch? Let’s look at the pros and cons for such a policy shift.

Pros of a Shorter Loyalty Program Expiration Policy

  • A shorter expiration time reduces the number of redeemable points in the long run and decreases program liabilities.
  • Because of the time pressure, a shorter expiration policy discourages your customers from shopping elsewhere. If they want to earn enough points for rewards before the points expire, they may need to put all their eggs in one basket.
  • According to motivation research, cutting the expiration time may motivate members to work harder, either because of the increased challenge level or because of their desire to regain control.

Continue reading “Should You Shorten Your Loyalty Program Expiration Policy?”