Value in Loyalty Programs

Perceiving Value

Any loyalty program introduced to market must of course add value to a merchant’s brand. To gain traction, however, it’s required that consumers perceive value in the program as well.
Consumers typically choose where to shop based on quality, convenience, service and price. In a recent survey conducted by Colloquy, consumers cited understandability and relevant rewards/offers as the top reasons they continue to participate in loyalty programs. For those of us in the consumer engagement space, it can be a tremendous challenge to design a loyalty program for which consumers perceive enough incremental value to choose your brand over competition, while at the same time appeasing Accounting.

Crunching the Numbers

When a consumer earns currency by transacting, but does not redeem that currency, liability accrues on a balance sheet. This liability will of course limit flexibility and profitability. While 75% US companies operating a loyalty program yield a positive ROI from that program[1], there is an argument to be made that loyalty is not right for every organization— for some companies, the ROI simply won’t be there. Consumers are buying goods as-is, without a loyalty program in place, and to introduce a new factor may jeopardize the consumer experience.
The advantage that a merchant has when building a loyalty strategy is that they can specify the exact amount they wish to spend on a rewards or loyalty campaign. The investment is controllable. With the right KPI’s in place, it will be evident whether the organization should taper, increase or maintain their investment. When evaluating, it’s important to remember there are certain factors at play that cannot be measured with tangible figures— as an example, loyalty programs may create barriers to existing consumers moving to a competitor’s product when a natural barrier to switching may not exist.

A Closer Look

Of course, all of this means nothing if customers don’t perceive value in your program. Let’s take a look at how the customer may perceive value to be added or detracted from their experience in well-known loyalty programs:
loyalty-graphic
In the Starbucks example, if a consumer values free giveaways and a mobile loyalty experience more than that consumer is bothered by the loyalty revamp or impersonal push notifications, the consumer will likely opt to engage with the Starbucks loyalty platform. If not, the consumer will likely disengage.
When designing your loyalty program, it’s important to consider not only how the consumer will interact with every feature in your offering, but also how the consumer will react to features that are not included in the program. Ultimately, it will be the consumer who judges the effect that a loyalty program has on your organization’s ROI.
For further information, please contact Daniel at dkahan@wcapra.com.
[1] SelfStartr