Which type of loyalty program is best for your business?

With the right loyalty program model, it’s possible to drive new transactions, retain customers longer, facilitate a positive culture of value for both customers and employees, increase word of mouth business ,increase your Net Promoter Score (NPS), take business away from the competition, and maybe your loyalty program could become more valuable than your core business.

Of course it’s not all unicorns and rainbows. Choose the wrong type of loyalty program for your business and it can end up being a bottomless pit of expenses where it’s difficult to track ROI, requirements of additional customer support, compliance, fraud issues, discounting your product for no good reason, losing subjective margins, social media complaints … the list goes on.

How do you choose the right loyalty model for your business?

First, we need to understand the 3 fundamental types of loyalty programs and how their individual strengths can assist your overall business objectives.

1. Discount Programs

Companies that offer discount programs will often view their loyalty program as a cost center, but necessary to remain competitive.

It can be difficult to track the effectiveness of the program?—?especially without advanced data insights. This however is the ‘easy’ and ‘go to’ option?—?and what most people tend to think of when thinking about loyalty programs. While great for certain audience types (eg: low socio-economic customers and highly competitive markets where price is the main driver), they’re not always the best choice.  Here are the fundamental core principles of a discount program.

• Low value transaction
• Cashback programs
• Easy to understand the points/reward to a dollar figure
• Spend X, get Y
• Loyal to the discount, not the brand (ie: not likely to pay more for a product if they purchased it with a discount or rebate)

2. Marketing Programs

Marketing programs take a page out of both the discount program and affinity program play-book. Generally having a points or virtual currency of some description, these programs rely on big data and consumer insight to drive revenues by incentivizing specific tasks or qualifying activity. Popularized by frequent flyer programs over the past decade, this type of program is powerful if you have specific data and a wide cross section member base that fit into many sub-segment user types.

• Semi-subjective virtual currency
• Loyal customer base, if done right
• Requires high amounts of marketing volume to keep audience active and engaged.
• Hybrid of both discount and affinity programs, but highly unstable if marketing messages do not align with customer needs.

3. Affinity Programs

These types of loyalty programs have multiple stakeholders in mind and often have clear paths to generating new revenue for all parties, while providing significant and subjective drivers to incentivize members to partake in qualifying activity. Affinity programs tend to attract individuals who place importance of value over price, and thus these customers spend in higher increments and remain more loyal over a longer period of time.

• Subjective rewards for audience
• Generates new revenues for all commercial stakeholders
• Highly gamified with status levels and tiers
• Not likely to attract customers looking for best price

The Subway Club Story

An example of business that used to be a discount program and became a marketing program is the Subway Club. The old Sub Club? stamps program which offered a free sub after purchasing 5x equivalent 12” subs was essentially a discount program that added no real subjective value to the customer. You buy 5, get 1 free. Easy to understand but it didn’t generate new revenues for the business. Fast forward to the current Rewards Card Program and you earn points on each purchase which can be used to redeem for menu items.

The idea behind the new marketing program the lowest item of redemption is a cookie or pack of chips. These items are high margin for Subway, yet didn’t represent a major share of revenue. Now that they are easily obtainable rewards?—?they’re also the most frequently redeemed, and thus customers try the cookie more often and create new purchase behavior. After trying the free cookie?—?the customer is much more likely to want to buy one (knowing how yummy they taste!) whereas in the old Sub Club discount program?—?the customer would have never thought twice to buy a cookie.

No matter what type of loyalty program you have, it’s important to remember what your overall objectives are?—?keeping in mind the customers you attract to your business will be a reflection on the type of loyalty program you create.

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Mark helps companies generate new revenue through innovation in airline, hotel and telecommunications.

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