Tag: loyalty program management

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”

Building Loyalty Program Partnerships Wisely

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In less than two weeks from today, Plenti, a coalition loyalty program, will officially shut down. Created by American Express three years ago, Plenti had an impressive roster of partners, at one point including Macy’s, ExxonMobil, Rite Aid, Hulu, Expedia, among others. Despite its high-profile start, the failure of Plenti shows the many challenges associated with loyalty program partnerships. If you ever consider loyalty program partnerships, it is important that you do so strategically and judiciously.

The Business Case For Loyalty Program Partnerships

On the surface, loyalty program partnership is a great idea. It allows consumers to earn points from different businesses, making reward earning easier and more relevant to more consumers. This expands the potential market for the program. Running a joint program reduces the operational cost for each business. In the case of a dominant business-peripheral business partnership (such as the partnerships airline frequent flyer programs form with smaller businesses), the dominant business can make good money selling its program currency to its partners. Airlines, for example, are estimated to make between 1.5 and 2.5 cents per mile. With all these benefits, what could possibly go wrong? Continue reading “Building Loyalty Program Partnerships Wisely”

Providing Dynamic Feedback to Motivate Customers

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Whether chasing after a premium tier in a loyalty program, trying to lose 20 pounds with a weight loss product, or vying for the top spot in the leaderboard of a mobile game, consumers often are doing more than just buying or using your product or service. They are also trying to achieve a small or big goal they have set for themselves. In such situations, it is to your advantage as a marketer to keep consumers on track with their goals and give them little nudges toward the finish line. One standard practice used by businesses is to give customers feedback on their progress. In a loyalty program, this could be in the form of a monthly statement telling them how many points they have in the account and/or how far away they are from making the next reward or tier. Research shows that when and how you offer such progress feedback can make a big difference in motivating consumers. You need to offer dynamic feedback based on where people on on their goal path.

Looking Forward or Looking Back

Imagine you are on a path between two points. You can look ahead and see how far you are from your destination point. As you make progress on the path, you will gradually close that distance to the destination until it becomes zero. Another way to assess your progress is to turn around and see how far you have come from your origination point. The more progress you make, the farther you will be from the origination point until you cover the entire length of the path. In a loyalty program context, a forward-looking progress feedback will be the equivalent of “you are x points/visits away from the next reward”, and a backward-looking progress feedback will look like “you have accumulated x points/visits so far” or “you have x points/visits in your account”. Which one of these is more effective? Research suggests that it depends on where people are along the path. When people are in the early stages of chasing their goals, they are still far away from the destination. At this point, they need reassurance that their actions are making an impact. Looking backwards at their achievement so far is likely to make that impact more visible, as going from 0 point to 100 points seems like a big difference (compared with going from 1000 points away to 900 points away from the goal). But as people move more toward the goal and are at later stages of their goal pursuit, they prefer to look forward to see a bigger impact of their actions. That is, they now want to see how they are closing the gap from being 200 points away to only 100 points away, instead of from 800 points to 900 points. The two researchers behind these findings, Koo and Fishbach, call this the small-area hypothesis, where paying attention to the smaller segment of the goal path motivates people more (see the linked document above if you want to read the original paper). Continue reading “Providing Dynamic Feedback to Motivate Customers”