Loyalty Tactics: Loyalty Points Programs

Points programs are a popular method of conducting a loyalty program, but there’s no one-size fit all solution for loyalty. Before selecting points as the main value system of your program you should consider the pros and cons. In this post we’ll explore the good and the bad with points systems, and what to consider before selecting a points-based program.

The Good of Loyalty Points Programs

Using points for your loyalty program can be a great way to measure and conduct the value distribution to your customers. The main benefit of points is to create a private currency that only exists within your brand, and has a flexible value.The greatest benefit of a point system is that the value of your point to the dollar can change or fluctuate based on your clients’ behaviors. For example, double points for purchasing a certain item, or by a certain time. The point system gives you the flexibility to drive behavior all tied to one base currency.  In a sense, it creates a better position for a discounting strategy, allowing you to position it as a benefit in addition to a new purchase, rather than “X” amount off the new purchase. The mental alignment of this model is highly favored over a traditional loyalty coupon strategy. Lastly, a points program is going to allow you to make changes to your program value much easier without your customers feeling the impact.

The Bad of Loyalty Points Programs

The negative aspects of a points program come in two ways, the disconnect of value and the ubiquity. The first concern is that earning process and the value of points is a disconnect for many customers. Almost no one can tell you how many points they have at a given time with a program, or what that means for them in terms of value. So the value proposition is lost unless they are at the point of sale or in store. You might have customers who never use the points they have, or worse, never accumulate enough points to equate to the value they perceive about themselves in relationship to your brand.  Being that you had to tie your points to some sort of value, most people tie it to purchase dollars. So if you have a customer who comes in daily and buys one cup of coffee a day, it might take them a week to build enough points for a free one. But someone who rarely visits buys a couple boxes of coffee, now gets more points. His loyalty is unaffected, and you pray the daily visitor is not standing behind him in line. This example really drives home the fact that dollar amount should not be the only way your points are created. This can make a points program backfire quickly.  And lastly, who needs another points program? Everyone is using points, and when you do that you make your points compete with your competitor’s points. Its a no-win for either business.

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The Ugly of Loyalty Points Programs

The ugliest thing about points programs comes when the business does not do the proper work in setting up the program in terms of financial modeling and creates an unsustainable program. We’ve worked with programs where points had no expiration dates creating a huge financial liability with crushing risk. Additionally, the overall administration of a points program takes more overhead. You need more tracking and analysis to project point accumulations and expenditures. You will likely have to create incentives for customers to use the points to even make the program effective. The worst thing that could happen is no one uses the points in your program. So in their mind they have a program that never benefits them. It would be a complete waste of all the effort put into the program. This is where a direct loyalty strategy, or cash-back strategies tend to be more effective because you force the redemption of the loyalty currency.

Are you looking to start a Loyalty Program and looking for direction on strategy and execution? Contact us today for a real conversation about loyalty and how New North can help your loyalty program become a reality. 

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