Join Plum to drive behaviors that power business results, with rewards and incentives made simple. Choose from the widest global catalogue of 20,000+ gift cards, perks, experiences, merchandise and benefits. Submit a request to see our platform in action right away!
SCHEDULE A DEMO NOW
.png)
To gain the loyalty of your customers, you may feel rewarding is your way out. However, if you start your reward point system with this notion, you are probably beginning on the wrong note.
So, how do you retain customers? How do you gain their loyalty?
To gain the loyalty of your customers, you may feel rewarding is your way out. However, if you start your reward point system with this notion, you are probably beginning on the wrong note.
And, the first obvious idea that strikes your mind is finding, studying, and replicating one of the successful reward point systems. But that might not work either.
So many companies would not have failed miserably to gain loyalty with such systems if it were so easy to design reward point systems for customers.
We can tell you step-by-step how to build a successful reward point system for customers, but that won’t help you either.
What you need to learn is how to create a long-term relationship with your customers.
Are there certain brands that you keep re-purchasing from quite often? And you have been doing it for years? You even tell your friends also about this brand.
We are sure you can recollect a few of those.
Frequently repurchasing and not falling for alternatives means you are in a loyal relationship with those brands. And in this relationship, the benefits are mutual. You love their products/services. You are happy with the way the brand treats you. In fact, it has become a habit for you to buy from these brands. And the brand is benefitting from your repeat purchases.
To give you an example: It’s been 1.5 years that I have entered into a relationship with Amazon fresh. It has become a habit for me to order groceries from it every 3-4 days. Here is why I am loyal to Amazon:
A strong relationship with customers demands excellent product/service with time-to-time rewards. Three conditions determine a strong relationship:
If your product/service meets these three conditions - a carefully crafted reward point system can act as a catalyst in retaining customers for a longer time. To devise a strategic reward point system for customers, let’s make the best use of human psychology.
In general, incentives that lift the status attract humans and the opportunity to elevate their status. Conferring an elevated status to customers may thus motivate them to behave loyally. For instance, while being at the airport, ever observed passengers in the priority queue? Aah! Their expressions tell how much they enjoy that priority treatment.
If your product/service and attractive rewards keep bringing customers back to you, they develop a habit of buying from you. And, habit creation should be our ultimate goal here. For instance, PayTM made QR code scanning a habit in India. Paytm has pioneered QR based mobile payments in India, democratizing the payments sector by enabling merchants to accept digital payments at zero cost. I personally love a lot of things about PayTM. Most prominently the intuitive user interface and user experience. Last week, my 60 years old mother-in-law booked a flight ticket using PayTM. She was uber happy. And a cash back of 1000 INR made her even happier.
Factors that play a key role in initiating a solid relationship include:
The impact of the relationship is even stronger when consumers develop a relationship when the program rules seem fair. For instance, CaratLane has managed to create relationships with its customers (urban), just the way people used to have with their family (trusted) jewellery shops. Certified jewellery, exclusive designs, time-to-time offers and benefits for customers, thoughtful packaging, secure payments, etc are a few things that have contributed to the giant’s huge success.
Customer reward programs should be:
The reward point system for customers should be well structured, easy to understand, and membership-based. Well-structured programs make the best use of human psychology to drive success. Easy to understand systems increase customer engagement. Membership allows you to collect some information about the customers. Such information could help improve the relationship between you and them. For instance: Let’s take a look at the most recent reward point system by Starbucks.
Consider reward point systems as a long-term strategy as they are expected to form a long-term investment for both the provider and the members. Amazon prime has nailed it with their ‘Prime’ program. As per Statistica - ‘In the United States, industry sources estimated a subscriber count of 147 million in 2021.’.
The loyalty programs should stimulate customer retention and customer share development and foster attitudinal and behavioral loyalty.
Attitudinal loyalty may be measured via:
Behavior loyalty may be measured via:
The loyalty programs should reward customers for their loyalty based upon their current or future value to your brand. Rewards may, for instance, consist of discounts, gifts, or preferential treatment. For instance: Thai Airways recently did something brilliant. Airlines usually reward their frequent flyers with miles. Thai Airways did quite the opposite. It rewarded their ‘Royal Orchid Club’ members with 1 million miles for staying at home. #EarnMilesStayHome
Air travel is one of the worst-hit sectors from the Covid-19 pandemic. But pandemic is not going to stay forever. Hopefully, air travel shall resume in full bloom after the majority population gets vaccinated. So, with a futuristic approach, Thai Airways actually hit two birds with one stone:
Amazing! Isn’t it?
Besides knowing what to do, you must also check out what not to do. Majorly, the following five reasons lead to the failure of reward point systems:
Do customers feel fair or cheated about the rewards presented for money, time, and effort they spent?
If the answer to this question is yes, it’s a recipe for failure.
The equity theory states that people should receive benefits or rewards proportional to the relative efforts or inputs they provide. Therefore, perception of equity or inequity directly leads to fairness judgments, significantly impacting the buyer-seller relationship. Perceived unfairness has a strong negative effect on the success of the program.
Critiques say: “The convoluted structure and disparate incentives of Flipkart Plus may result in the failure of its primary task - fostering loyalty.”
Pro Tip: “Keep the reward point structure super simple that even a 10-year-old can make sense of.”
So we showed two reward point systems to a boy ten years of age - Starbucks and Flipkart Plus. We asked him which one he would choose out of the two. He said, “I like the Starbucks one better.” So we asked - “why?”. He said: It’s simple, I don’t have to spend too much money to get points. Also, I don’t want to fill any surveys to earn points.
Here are the two reward point structures mentioned above. Which one makes more sense to you?
What worked for generation X might not work with millennials; what worked with millennials might not work with gen Z. You must keep revamping the reward point system as time passes. To understand this better, let’s take a look at one of the superhit reward point campaigns run by Pepsi in 1996:
Pepsi targeted the ‘Pepsi Stuff’ - a reward point system targeted at teenagers. Pepsi also promoted the program well with a TV commercial. The commercial showed a teen in cool clothes and accessories. And almost every item that teen flaunted was available for a certain number of reward points. The program was a huge hit, will a similar program work today?
No, why?
Program promotion requires as much effort as you put in crafting a strategic reward point system. The various channels can be:
Customers may have certain objections to entering into a relationship with your brand like:
The idea here is to proactively overcome any entry barriers with a thorough understanding of consumer behavior.
The main benefits of a loyalty program include increased customer loyalty, greater advocacy, higher repeat-purchase rates, lower price sensitivity, and stronger attitudes towards brands and retailers
Let’s do some Maths here. Let’s assume your customer retention cost is $100,000 for 100 customers i.e., $1000 per customer. The customer retention costs comprise sales, advertisements, promotions, customer support and care, discounts, gifts, etc. Take out 20% of this budget and redirect it towards the customer reward point system. If you spend $20000 on a reward point system and you retain 50 more customers. The customer retention cost comes down to $100000 for 150 customers = $666 per customer. Increased sales and profitability from 50 more retained customers is a further plus.
Experiment with it and see how well your customers are engaging with your program. Revisit and re-iterate the reward structure if required. Conduct customer surveys to understand customer expectations from a reward point system.
Try to keep things simple like Starbucks ($1 spent awards customers with 1 star). The idea here is to remove cognitive load from your customers. If they are required to process too much information they would rather not engage in your rewards point program.
In rewards, when you just offer discounts or offers only around your products, it feels fishy to the customers. Customers think you just want a bigger share from their pockets than genuinely rewarding for their customers. The best bet here would be to enter into a collaboration with companies providing a humongous catalog of rewards for customers to make satisfactory choices.
There can be a variety of rewards; the only limit is your creativity and imagination.
Also, try to keep the milestones of the reward point system for customers closely placed. So that user feels it easy to achieve the milestones. And with every milestone, the reward should keep getting bigger (So that customers keep coming back for more). The rewards should be a mixed bunch of stuff that makes the customer feel valued. These three things are instrumental in bringing the customer back to your product/service.
While designing the reward point program, make sure to have a robust eco-system that helps you deliver what you are promising.
Instead of going with the full-fledged reward point software, you can start small. For example, you can integrate a RaaS(Rewards as a Service) API with your sales system to reward your customers.
After learning the know-how of the software/API and implementing the reward point system, the next step is full-fledged promotion. If customers are not well aware of your reward point system, they can’t engage meaningfully with it. For example, give reward point system information a prime location on your website, integrate informational pop-ups if you have tech products, use advertisements, etc. Again, the program will be a failure if users are not well aware of it.
Once you launch your reward point system, monitor the engagement of customers with it regularly. Invite them for surveys (tied with incentives) to understand their expectations from the reward point system. Then, based on the understanding of customer expectations, reiterate your reward point system.
Just as you need to learn the alphabet before learning spellings and forming sentences; similarly you need to understand the psychological and structural mechanics of a reward point system.
Psychological mechanics demand that the customers:
Structural mechanics demand that the reward point system should be:
Avoid the following to prevent reward point system from failing:
Once you lay the strong foundation by learning these mechanics it’s time to create the program. Here is the summary of steps required:
“Those who don’t change with time, life leaves them far behind.” With this we suggest that you keep revisiting the engagement from your customers with reward point systems.
“Just like love is the currency of exchange to deepen family relationships, rewards (accompanied with genuine care and value) is the currency of exchange to establish a strong relationship with your customers.”
