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Simplicity in Loyalty Programs – Not as Simple as it Sounds

During a loyalty program design session, you will almost always hear the phrase “the program has to be simple.” Marketers firmly believe that consumers want a simple program. But many of the biggest, most popular, and most engaging loyalty programs are anything but simple. How can that be?

It turns out that program complexity exists for very good reasons:

1. Customer needs vary

There is behavioral research that shows that members are more likely to feel loyal to a brand and are more likely to make their next purchase from that brand when they perceive themselves to be 80% of the way to a reward rather than only 20% of the way to a reward.1 Problem is that a single person buys at a different rate than someone shopping for a family, an occasional first class traveler flies less often than a road warrior, the marathoner buys running shoes more often than the 5k runner – how can you make all types of profitable members on your base feel like they are 80% of the way to a reward?

One way is to add a greater selection of rewards that offer each group a reward within reach. In an earlier time, offering a choice of rewards led to ever expanding and complex reward charts such as the major hotel chain with separate rewards for the Level 2 hotel in Des Moines and the Level 5 hotel in Hong Kong. Many marketers still shy away from the “reward catalog” approach as being far too complex.

Fortunately, user experience design has dramatically improved so that the complexity can work in the background. For example, Hilton introduced a sliding scale that enabled every member to pay for any hotel with a mix of points and dollars – in effect creating infinite choices that would have been far too complex to explain in a reward chart. Hilton more than doubled program engagement measures because now almost every member is 80% of the way to a reward. Increased member engagement has driven revenue and profit for them.

The interface delivers simplicity for the customer, even if the work behind it was complex to set up.

2. The same customer has changing needs

When members first join a program, they tend to focus on the core value exchange proposition – if I do this, I’ll get that incentive. That’s one relatively simple message and many programs stop there. However, there is research indicating that incentive-only approaches do not build long term brand equity.2

As customers experience multiple interactions with a program, they come to value the benefits that make it easier to do business with the company such as profiles that short-cut re-orders or express lanes for frequent travelers. Or they value recognition benefits such as early access to new products or exclusive invitations to special events.

3. Programs need to stay fresh by adding new enhancements

When The Wise Marketer recently asked a broad selection of program members what drove them to disengage from a program, there were about the same number of members who said “Program was boring / had nothing new over time” as the number of members who said “Program rules were confusing or unclear.”3 That’s a stunning result.

Simplicity can become boring and might ultimately be as detrimental to member engagement as the confusion of complex program rules.

The lesson is that a static program can become a dead program. The most popular and beloved hotel programs evolved over the past 30 years to address an increasing variety of travelers and to embrace evolving trends. Hotel programs tend to be the most complex programs in market, but the best brands do a stellar job of presenting only the value proposition needed at each point in time – how many nights you need to reach the next tier, what you need to do to skip the line and go straight to your room, and what you earned on your most recent stay.

4. Financial margins create the need for a variety of incentives

If you have very different margins by product line, you may be willing to give very different of incentives. A simple approach would be to set program earning based on only the lowest payout products. However, that doesn’t create an incentive to buy that higher margin item you really want to sell.

Again, behavioral research can help inform how to show the complexity.1 If a customer is buying that low margin product, show them the number of points they’ll earn for that item. If they are looking at the overall program, don’t bother them with a chart that says they will earn 7 points on category A, 10 points on category B, and 13 on Category C; keep it simple and tell them they’ll earn an average of 10 points per $1.

5. Multiple brand programs require cooperation to combat complexity

Many companies struggle with the day-to-day management of a multi-brand program. Each brand wants to own the customer and have top placement at all touchpoints – they often argue for separate programs which really is not simple for the customer.

The companies who do a good job of managing multi-brand programs reduce complexity by focusing on the end to end experience for the member – presenting cross-sell opportunities at the right times and making the handoffs seamless. Most critically, they recognize when the program needs to be center stage for the member – show the member that they need one more purchase for that next reward and then show them that they have a choice of brands that will get them there.

Let’s face it – what marketers REALLY mean when they say they want a simple program is that they want the program to be simple for them.

The best programs make it easy to do business with the brand across a broad range of customers with different needs. They show the member one specific value proposition at each specific point in time. The member experience makes sense, feels easy, and not intrusive. Making it simple and easy for the customer is often anything but simple and easy behind the scenes.

The true guiding principle that marketers need to embrace is, “avoid one-size-fits-all solutions.” It will likely take more work for the marketer, but that work will yield more engaging experiences for the customer and ultimately, a more profitable and sustainable loyalty program.

 

Research referenced:

  1. Illusionary Progress in Loyalty Programs: Magnitudes, Reward Distances, and Step-Size Ambiguity,” Rajesh Bagchi and Xingbo Li. Journal of Consumer Research, Vol. 37, No. 5 (February 2011), pp. 888-901 published by: Oxford University Press. Stable URL: http://www.jstor.org/stable/10.1086/656392
  2. “Models for the Financial-Performance Effects of Marketing,” Dominique M. Hanssens and Marnik G. Dekimpe, (2017), Handbook of Marketing Decision Models, B. Wierenga and R. van der Lans (editors).
  3. “From Transient to Resolute: How Deep does Loyalty Go?” The 2018 Maritz | Wise Market Loyalty Landscape

Author: Kate Hogenson

Kate is a Loyalty Strategy Consultant at Kobie Marketing. She has been launching influential loyalty programs for some time – she can tell you the inside story of how Mileage Plus 100k elite status came to be called 1K. Before Kobie, Kate was a Partner at Metzner Schneider Associates, a boutique consultancy for program design, building the case for loyalty, and customer experience implementation. While there, she was vital to the launch of Virgin America’s innovative Elevate program and the ShopYourWay Rewards program for Sears and Kmart. Kate also has hands-on experience managing the global expansion of Mileage Plus and launching elite benefits for United Airlines. Kate holds a BA from Northwestern University and an MBA from Yale.

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