The vast majority of customer loyalty programs do little to engender customer loyalty. Companies decide by themselves what loyalty means to them. Sadly, very few of these companies give customers the choice of deciding what loyalty means to them.
“Loyalty” can’t be defined until customers have reached the advocate-for-you stage. For example, buying extra warranties or add-ons, referring them to family/ friends, tweeting about them to your network, or even offering feedback to improve some of their features – all are signs of loyalty. Only being recognized for their purchase makes customers feel undervalued – because their “value” only extends to their worth in a dollar sign. And that is not a good sign in a world that is spending billions of dollars to generate loyalty.
Let us understand some of the customer loyalty program models:
A) Point-based program
You earn points for each time the customer purchases. It is the simplest model of loyalty where the points translate into some type of reward such as a discount code, freebie, or another type of special offer. This becomes complex for the customer since they have no visibility on the points and rewards earned.
B) Total purchase value
This is the total number of units purchased or the total number of dollars spent over a specified period. Dollars speak directly to the topline and reward customers more for buying more things or spending more.
The more you spend, the more you earn.
For example, if you spend more than $1000 with us this holiday season (a specified period), then you will earn [reward]; and if you spend more than $1500, you will earn [reward++].
Variations of this model that can be described as innovations and that drive total purchase value are:
- a model that positively reinforces cart non-abandonment. In another world, it might have been easier to take away points from a customer for abandoning their cart, but nobody wants to do that. You can always award points for not abandoning carts
- contests or sweepstakes where the purchase requirements to play/ be eligible are attainable and higher spending imply higher rewards
- offering non-monetary rewards based on customer’s values. The more you spend, the bigger the donation to your preferred charitable organization or cause
C) “Big spender” model (average transaction size)
This doesn’t depend on the amount spent in a period, but when they make a purchase, it’s a big purchase. The highest average spend is rewarded more.
D) Number-of-transactions model (frequency of purchase)
This is the punch card model. After a certain number of transactions, you are rewarded with an extra meal or a free haircut or a free car wash, and such. It is popular because it is easy to implement. Small retailers and small restaurants make a beeline for this. This also brings into mind the recency factor, does it not?
Let’s look at a derivative of the transaction model – It’s the frequency model or the number of transactions over time. It is time-bound. The customer is rewarded for how often they do business with you over a period of time. It is the best PROXY for loyalty.
Some of these are growing in popularity, but all of them are one-dimensional. Some customers try to adhere to these models to get some rewards, but there’s no universal measure of gauging customer loyalty.
What’s the way out of this loyalty conundrum?
How do you give customers a choice?
A simple example is of giving customers three paths to earning those points:
- Total spend
- Average purchase transaction size
Let them decide what they perceive to be the value of their relationship with you.
See how Bob and Mary here chose two different paths to get to the same number of points.
How can you implement choice in loyalty programs in reality?
Let us take a look at the United MileagePlus Program to understand this.
To begin with, perks on this program range from complimentary checked bags to club lounge access and upgrades to same-day flight changes with no fee to free flights.
🌟 MileagePlus is free. There are no membership charges.
🌟 There are four levels of elite status you can attain to earn more miles per dollar spent. Different perks are available at varying levels of status. United is especially known for its easy award redemptions.
United plays its customer loyalty program from multiple angles-
- United miles are more valuable than competitor miles. You earn 1.6 cents/ mile. The average mile value comes to around 1.3 cents/ mile.
- United miles can be earned on partner airlines and redeemed for high-value awards, such as luxurious first-class flights on Lufthansa
- United is famous for its “Excursionist Perk.” It allows you one free one-way flight embedded within a multi-city award ticket. So you can visit two or more cities for the price of one
Multiple redemption options
You can redeem United Miles through-
- Car rentals
- Experiences and events
- Hotel stays
- In-flight Wi-Fi
- Magazine subscriptions
- United Club membership
Well, there’s the United MileagePlus shopping portal. The MileagePlus shopping portal gives you access to several stores where you can earn and redeem United miles.
You may find offers of up to 10 or more miles per $1 spent or see offers for a certain number of miles for signing up for a service or subscription. For example, you can earn 3,200 miles when you sign up for Verizon Wireless and 650 miles by getting Hello Fresh meal service.
Do you see the number of ways in which United lets the customer define what loyalty means to them? Giving customers this choice and control can improve the impact of your loyalty program.