Rewards drive behavior, whether you’re training your dog to sit, potty-training your toddler or encouraging specific buying habits from your customers. By rewarding the behavior you want and not rewarding the behavior you would like to discourage, you can generally predict the direction a behavior will trend.
Perhaps the most crucial part of customer loyalty programs are the rewards, and a good reward will accomplish many different things. We’ve provided a list below detailing the different functions of a good reward. We suggest you evaluate your rewards individually to determine if the rewards you’ve employed in your loyalty program are fulfilling their overall purpose.
1. A Good Reward Provides Your Customers a Reason to Participate. Your loyalty program would be useless if no customers see a benefit for them. Make sure your rewards appeal to the group of customers that would be most valuable to your business. The rewards you select should be exciting enough to engage these customers and to maintain their interest and continued participation in the loyalty program.
2. A Good Reward Says “Thank You” to Your Customers. Many of your customers will see the rewards you offer as an expression of gratitude for their continued business. Carefully select rewards that will not be insulting. Consider the customer-perceived value of each reward. Put yourself in their shoes and ask, “What’s in it for me?” Choose rewards that will show your customers that you value them and their business.
3. A Good Reward Encourages Customers to Supply Useful Data. The data gathered through a customer loyalty program is much more than just their email address. The rewards you select should be designed to encourage your members to identify themselves every time they make a purchase. For example, customers will want to be “tracked” if you have a program based on acquiring and saving points towards large rewards.
4. A Good Reward Changes Customer Behavior. One primary purpose of a rewards program is to increase sales by increasing loyalty and retention. Rewards can be used to encourage your customers to increase both their purchase size and their purchase frequency. For example, Payless ShoeSource uses BOGO (buy one, get one) rewards to encourage the purchase of more items. Department stores like Kohl’s offer in-store cash rewards when certain purchase thresholds are met, encouraging both increased purchase sizes and repeat visits.
5. A Good Reward Retains Existing Customers. A reward that is interesting or exciting enough to keep your members’ interest will aid in customer retention, the primary goal of any loyalty program. Aspirational rewards can take a long time to earn, and the closer a member is to earning the reward, the less likely they are to defect to the competition. Points-based systems are effective in much the same way. Once members have earned soft rewards – customized benefits earned after certain transactions or cash thresholds (e.g. Marriott offers better rooms to Platinum Rewards members) – they are unlikely to sacrifice them, making soft rewards effective retention builders.
6. A Good Reward Attracts New Customers. An exciting reward with high customer-perceived value can play a key role in attracting new customers (e.g. sign-up bonuses). However, be careful to avoid rewards that appear to give a better deal to new customers than to your existing members. Many mobile phone providers have learned this the hard way, seeing that many customers jump to a new provider with a better deal once their contract is up.
7. A Good Reward Differentiates Your Business From Your Competitors. You don’t want “just another rewards-based loyalty program.” Pick rewards that set you apart. Ask your customers what they value and provide rewards that reflect what your customers want. Offering rewards that can be redeemed at local businesses is a way some auto dealers have found to distinguish their programs from their competitors.
8. A Good Reward Improves Your Relationship with Your Customers. Soft rewards – service above and beyond what is expected – are often the best rewards to drive advocacy. You want your customers to leave ready to tell their friends and family about the excellent service you offered. Soft rewards provide the positive customer service experiences that are remembered longer than most other rewards.
Some rewards are better at fulfilling certain functions than other rewards. What patterns have you seen in your own business?
What rewards have you found to be the most effective overall?