Why digital rewards could save traditional loyalty programmes

Source: www.Utalkmarketing.com

By Denis Huré, CEO, and Jill Goldworn, president and co-founder of the first club™

There is no doubt that loyalty programmes are on the rise today. In the US alone, there are 1.8 billion individual memberships in loyalty programmes (source: Colloquy.com), everything from airlines to convenience stores to cinemas. In light of this huge number, the general perception is that consumers are happy to join loyalty programmes – eager to enjoy the added rewards that come with loyalty programmes. The reality, however, is that they are not. Confirming this expectation gap, a recent survey by the Chief Marketing Officer Council found that some 32% of consumers surveyed felt that participation in loyalty programmes holds “little to no value.” Ouch.

What has emerged as a result of this disconnect is a new direction in loyalty programmes: instant reward redemptions. In the past, instant rewards have been limited to cash or discounts at the register; maybe a free item of very low value. Technology, thankfully, has given rise to this new breed of instantly redeemable rewards – the digital, downloadable kind. These instant rewards promise to finally eliminate some of the traditional problems associated with loyalty programmes, like engagement and delivering value.

Problems with traditional programmes

According The Journal of Retailing, “the rewards associated with loyalty programmes provide a means to establish reciprocity between the customer and the company.” But the problems that have plagued this interaction, or reciprocity, throughout the years and usually stem from the delay between collection and redemption by loyalty programme members. Whether a programme’s threshold for redemption is too high, or the redemption process is too cumbersome (which often the case, ask any FFP member), traditional loyalty programmes suffer from inefficiency. And here’s where instant redemption provides instant relief, specifically in two areas:

Low-threshold consumers

In the past, a big problem has been the loss of “low-threshold” consumers. For these consumers, who maintain a low accumulation of points (or programme currency equivalent), the traditional loyalty programme concept fails: if the point threshold is too high, the programme has become irrelevant because the consumer feels the reward is not obtainable (source: Harvard Business Review). In such cases, the loyalty programme is actually hurting the brand. It suffers because the consumer disengages from the brand before they have received an added “reward” for membership.
Instant reward redemptions provide companies a very affordable alternative to offer these low-threshold consumers an easy way to burn low point accumulations. Loyalty programme managers also benefit, as studies have shown that these “light buyers” represent a large increase in spending and purchase frequency post-redemption (source: Journal of Marketing). In other words, they are not a segment to be ignored.

Delayed Redemption

Another area of concern with loyalty programmes is cumbersome redemption processes. Regardless of the delivery method, timing is of the essence in loyalty programmes. In fact, the timing is (almost) everything. The longer the delay in collecting a reward, the less powerful the loyalty creation (Sloan Management Review). Here, instant rewards reduce the delay between collection and redemption and, therefore, a larger chance for loyalty engagement success.

Digital Content: The ultimate instant reward redemption

Digital content, offering loyalty members downloadable content (such as the latest selection in music, movies, software, books, games, magazines), is emerging as the premiere medium for the delivery of instant reward redemption. The sheer selection of digital content that is available, along with its monetisation potential, makes it an excellent vehicle for instant reward redemption programmes. Consumers want instant rewards, and digital content is the next logical step. Research from Mintel confirms this fact: 47% of consumers surveyed said their choice of loyalty programme would be influenced by instant redemption options, such as cash or discounts. Jackpot.

So with this information acquired from recent surveys and obvious positive consumer sentiment, the next question seems to be: is digital content a good substitution for cash or discounts?

In a word, yes. According to Mintel’s study, 61% of respondents said that lower overall cost for merchandise they would have purchased anyway is an important attribute of a loyalty or reward programme. It is feasible to assume then, that relevant content – content that the consumer is likely to purchase regardless – is a good substitute for cash or discounts. And considering that 65% of internet users have paid for intangible digital content, there is a huge market for relevant and engaging digital content waiting to be developed (source: Pew Internet). In the UK, a recent YouGov survey showed that among those aged 18-34 years old who had engaged in digital activities, 22% spent more than £5 on digital books, the digital content category receiving the highest spend (source KPMG).

Digital content presents a win-win strategy

Digital content gives businesses the chance to burn points off their balance sheet, while offering the entire spectrum of loyalty programme participants the opportunity to redeem points for merchandise in which they are interested or already purchasing on a regular basis.

In essence, instant digital rewards have bridged the gap between reality and perception. By making rewards instantly redeemable, businesses can give their customers the value that they seek: relevant rewards instantly and anywhere, loaded onto the devices they use in their everyday lives. Instant digital rewards, it seems, have created a new trend in loyalty programmes: programmes that work – for everyone.

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