October 30, 2011

Reward program tips

If executed correctly, loyalty and reward programs can encourage customers to return to spend again and again. Here’s how.

Neil Joseph, CEO of the rewards program provider Endless Rewards, shares his top five tips for rewards program success.

Tip 1: Know how to measure the return on investment (ROI) of your rewards program.

At implementation phase, a rewards program is a strategic investment. Yet once it has gained momentum, it should become a reallocation of marketing and advertising spend. ROI should be measured against individual marketing campaigns throughout the year and then at the end of the year as a whole. The ROI is the increase in marginal revenue versus the additional cost (if any) of the campaign.

Tip 2: Consider rewards program outsourcing.

Businesses standing to benefit from an outsourced loyalty and rewards program are those with lower staff levels that prefer to focus on daily operational tasks and have someone else handle the additional workload of a complementary rewards stream. This category tends to include franchised organisations, coffee shops, newsagencies, single owner/operator retailers with up to 30 outlets in major cities and regional towns, and single-store retailers with an online presence.

Tip 3: Regularly test to ensure your rewards program is on target.

At the outset, establish what the spend per transaction/customer is, and then measure this statistic every month, every six months and every 12 months. This will tell you if customers are enjoying the program and if they’re spending more each time they shop. Ask customers what they think of the program and what can be done to improve on it. Act on their comments.

Tip 4: Know where to allocate money to make your program work.

Rolling out a program requires an initial capital investment and after that, profits should be reinvested back into the program. Set-up costs generally depend on the number of locations the program needs to be implemented in, and variable costs include the physical plastic cards, point-of-sale material and any additional presence on your website. Also, there may be training costs and process changes.

If the rewards program is outsourced, it can be charged as either a fixed cost and fee, a success-based fee where the company to which it’s outsourced takes some of the risk of success, or a fee over a period of time.

Tip 5: Know the benefits of rewards programs versus online discounting.

Online group buying companies, such as Groupon, Cudo and LivingSocial, have generated massive short-term interest. However, loyalty is a long-term strategic investment and involves getting the customer to come back to spend more. Rewards programs are NOT about discounting; they’re about developing a long-term, engaging relationship with a customer. Technology may affect the method in which we interact with a customer but it shouldn’t affect the desire to communicate with the customer and the ability to make them an offer that they’re interested in.

Case Study: Priceline rewards program success factors

The program works for three main reasons:

Company commitment

Every staff member, from junior level to the CEO, is committed to the concept of customer relationship management (CRM) and this is woven into the fabric of the company through scorecards, bonuses, research, benchmarking etc.

Seamless data collection and ensuring data is used

Stored scan data is merged with the data warehouse and customer information to create psychographic profiles (information on personality, values, interests or lifestyles) for marketing use. That data is then acted on.

Strong leadership

Rewards programs need a capable and committed senior manager at the helm to make sure the customer experience online and in store supports the program goals and that staff are motivated to promote it. Such a person is usually a Marketing Director or a Customer Relationship Director possessing solid staff motivation and engagement skills.