To promote customer retention to our website, leading to increased revenue due to either of the following reasons:
- Customers buy more when they buy – Using up-selling techniques to include bundles or packages
- Customers buy more frequently – Promote increased purchasing activity
- Customers buy with us and not our competitors – Customers perceive greater costs of switching to another provider
An effective loyalty reward program can act like a funnel, moving customers up progressive tiers, encouraging them to spend more in exchange for greater benefits. We must first segment our customer base in order to identify the customer characteristics that will be driving this type of behavior. For example, the airline industry uses the 80/20 rule to define the 20% of customers (business travelers) who drive 80% of the revenues.
Characteristics of a Good Program:
Based on research conducted by Haas Business School in 2011, a good loyalty program should include the following characteristics:
- Goods are frequently purchased – Loyalty programs work well where customers can make purchases frequently (such as airline tickets or classes) and not infrequently (like houses).
- Customer has a choice between providers – Customers have a selection of facilities and activities to choose from
- Providers have equivalent offerings –
- Customer membership has multiple tiers – optimal program structure has three tiers (top elite, bottom elite, and no status) with a controlled proportion of consumer population in high tier. This structure is said to maximize feelings of superiority among all consumers while also providing another level toward which lower-tier consumers can strive.
- Entry level tier: which all members start with after signing up and can make discretionary purchases to accumulate points
- Mid level tier: This tier drives the majority of revenue and is for frequent users of the service, set at a reasonable threshold and providing rewards, coupled with an elite-tier further up the ‘loyalty-ladder’ that members strive to attain.
- Elite tier: for a small number of high usage members, a differentiated service including preferential choices for classes and differentiated service such as invitations to exclusive events and added customer service. The goal here is to provide visibly exclusive differentiated services to members to encourage loyalty and more purchases
- Unused points should expire – This drives purchasing behavior due to a perceived sense of urgency of the buyer.
- Customer’s experience is materially different in the top tiers – Research shows that Consumers are very influenced by terminology and perceptions of their importance relative to others in a loyalty program.
- Rewards should provide personalized incentives – Customers should be allowed to redeem something that they want and they can choose.
- Members should be able to track progress – A facility should be made available for users to check their progress and make redemptions etc.
- Long Term Rewards – Programs should focus on providing long term incentives (accrued incentives) rather than easily obtained incentives
Types of Point Systems:
- Class Points: 100 points for every paid class attended
- Package Points: +10% points for every package purchased
Types of Rewards:
Successful rewards connect with the lifestyle of the typical consumer – e.g., free shipping for Amazon customers, or discounts on technology purchases for Best Buy customers. We can define a number of rewards:
- Discounts: A Percentage discount on purchases
- Bulk Purchases: Buy n get one free (Packages)
- Complimentary Class Voucher: Participating gyms will allow our vouchers to be used for a class
- Monetary Rewards: Cash Vouchers
- Lateral Rewards System: Combine points with another Loyalty Program (Airlines etc.)
- Experiential Benefits: Participation in organized events, competitions or groups are a great way to participate in the group.
- Elite Rewards: Differentiated items could include a package (Gift items)
Marketing activities should be targeted to achieve the following goals:
- Encourage consumption
- Drive members from Entry to Mid level tiers (harvesting)
- Exclusive one-time benefits for higher tiers to show customers on the threshold of the next tier what they are missing
To get a rewards system off the ground, we should implement a system that is simple, easy to manage and transparent to users. The following recommendations are listed:
- Implement Analytics: We need Analytics to identify which customers to target (Segmentation of Customers)
- Target Buyers and Facilities: Facilities need to support our programs
- Reward customers for referring new users by providing referral systems
- Advertise the system effectively: The loyalty program should be part of the user signup process