Essentials of a Good Loyalty Program

Loyalty Programs
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Ignatius D
Manager, India

Essentials of a Good Loyalty Program

🔥NEW A loyalty program is considered good for the company when it can extract maximum value from it. Here it means building a strong customer relationship, building a sense of trust for the brand so that customers feel your brand as the first place to go to while buying something.
The following are the important aspects of a good loyalty program and these aspects in a loyalty program make it truly worth for the customers as well as the company.
  • Customized offering based on customer value: If a loyalty program includes benefits based on the tiers, then it must classify the customers according to the value they bring in. Suppose if a loyalty program gives Bronze membership at 500 points and these points can be scored by shopping for a certain amount suppose $100 a month. Whereas Gold membership can be obtained by shopping for an amount of $500 in a month. This will ensure the company to give more targeted offers to more valuable Gold tier customers as they purchase more than other customers.
    E.G. Tesco is great at using such loyalty programs where they give customized offers to the cardholders of its loyalty program. 4 out of 6 discount vouchers that Tesco gives its customers are for the products that the customers frequently purchase. Due to this 15-20% of the coupons are redeemed whereas industry average of coupon redemption is around 1-2%.
  • Nature of rewards: Here rewards can be broadly classified into two types, one of which are the sticky rewards which stick in the minds of the customer which will improve the customer and company relationship as the customer remembers that he has been rewarded. Another type of reward is the slippery rewards that are trivial and tend to slip from the minds of the customers and they may not even remember that they have been rewarded. So a company must try to include sticky rewards in a loyalty program.
    Customers love a treat where they won't have to spend their own money, so a loyalty program must try to include less functional rewards and more pleasure providing rewards.
    E.G. In a survey Walmart found that customers are more excited when they get fine dining at best hotels and restaurants rather than when they get free products.
  • Divisibility of rewards: This means the number of opportunities provided to redeem a reward in a time span. Suppose, a program that allows customers to redeem gift cards at 200 points is 5 times as divisible as the one which allows them to redeem gift cards at 1000 points.
    Usually, managers and customers have opposite views in terms of the divisibility of rewards. A customer will prefer high divisible rewards as it will allow him to redeem rewards quickly rather than waiting more time. Whereas managers dislike highly divisible programs as they are less effective for customer lock-in.
    So to make a loyalty program effective, an optimum level of divisibility factor should be introduced.
  • Combined currency flexibility: In this type of program, customers are allowed to use points along with the hard currency. One of the best examples is Flipkart plus where it allows us to use some amount of supercoins (points obtained earlier) in combination with actual money. E.G. A product worth $100 can be now bought for $92 and 80 supercoins. This brings in flexibility and also can increase the perceived benefit by the customer without any cost to the company.
Sources:
"3 Fundamentals of a Good Loyalty Program", Cin7. Com
"The 6 elements of an effective customer loyalty program", womply. Com

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