Loyalty or rewards programs have become an essential part of any direct to consumer business. Loyalty programs are specifically designed to reward customers for past purchases or incentivise them for future purchases.
Loyalty program are not new, they have been around since the nineteenth century. Modern loyalty programs have been around since 1930 with varying degree of success. The airline, banking, insurance and hospitality industries have seen some very successful programs, while the retail and telecom spaces have seen mixed results.
That makes one wonder – are loyalty or rewards programs more suitable for certain industries? Can we broad base the loyalty programs for other industries, if so what are the aspects of the programs are that make loyalty or rewards programmes successful?
Let us try and understand why are loyalty or rewards programmes working in the airlines and/or hospitality industries. Why is the value one gets from participating in these programmes perceived as high?
- Tiered structure of the program gives differentiated benefits starting with minor benefits to the ones who have just enrolled to the program.
- Privileges extended like – preference in check-in, boarding, higher baggage is seen as differentiator to other passengers
- Surprise upgrades and the instant gratification it brings is actually going beyond satisfaction to actually delighting the subscribers.
- Benefits programs designed to extend benefits seen to have exponentially higher benefits with increasing accumulations of reward points.
- Lounge access on airports, differentiated basis class of travel and or reward points accumulated, comes across as great convenience.
When we look at hospitality industry we see similar kind of benefits being extended, subscribers of the program get preference in choice of room, your choice of food and beverage is stocked in the room, preconfigured temperature, special spa treatments, books and video of your interest and upgrades to better rooms/suites.
Tiered structure of the program, differentiated privileges, instant gratification basis surprise upgrades, and exponentially higher benefits keeps subscribers interested in the program. These industries are able to fork out 3 to 5 per cent of the revenue to the Loyalty/Rewards program. Some of the retailers are also able to build significant Loyalty/Rewards programs in spite of working with wafer thin margins. The ones which are successful are offering instant gratification in form of discounts, other benefits like free parking in a mall for shopping with a specific retailer, addition discounts during end of season sale, earlier announcements of new arrivals and sale to loyalty program subscribers and convexity of benefits for higher spend.
When it comes to telecom companies, we have seen several challenges in running a successful loyalty program. The subscribers have limited share of wallet for telecom products, they feel they need to wait for eternity to accumulate points, the expiry of points is a factor for increasing dissatisfaction. Some telecom companies have engagement programs which are working for them – should telecom companies then look at points based Loyalty program or just stick with their traditional engagement programs?
I strongly believe that points based loyalty/rewards programs can be successfully offered to telecom subscribers as well. To do so, the telecom company should clearly articulate what is the purpose of the program
- Is it to acquire the subscribers
- Is it to engage the subscriber
- Is it to increase spend of the subscribers or
- Is it to reduce churn of the subscribers
Each or combination of these objectives can be a positive business case for a telecom company. Each of these objectives requires the communication of the program, distribution of points and program for redemption of points to be differently laid out.
In case of acquisition – you run referral programs and points are given to user for referring a candidate and significantly higher points given if there if the referred user accepts the offer. The referral programs are win – win program for telecom companies and the subscribers. These provide users an opportunity to gain from the program without affecting their telecom spend. Here the communication of the program is critical. You need to identify the viral influencers and kick start the programs with these individuals.
Engagement improvement programs need to engaging large number of subscribers in a given program. Programs like bid to win, participate and stand to win grand prize/face time with celebrity/tickets to exclusive events etc. In short gamify the program. Again these programs can be tiered with more chances to people having higher number of points accrued. Telecom companies can offer non telecom products for redemption through tie ups with retail/ecommerce partners and avoid the discount syndrome.
Increase in spend programs have to be extremely personalised . The solution should be able to process recharge/payment, usage and subscription details. Personalised and contextual offers are key to the success of up-sell programs. Referrals can play an important role in cross selling products. Take an example of person who recharges three times in a month. In an up-sell scenario it would be beneficial to offer higher points if the third recharge is of higher value than (average of) first two. This program should be communicated to the user when the users balance reduces below the threshold level after second recharge. Simple to understand programs are generally more successful than more complex programs.
Understanding of loyalty/rewards program, perceived value of the rewards and possibility of gaining enough points to get meaningful rewards keeps people engaged in loyalty/rewards programs. It would be especially important to have a well designed loyalty/rewards program where we see multi- SIM behaviour. Tiered program with benefits ranging between 1 per cent to entry level subscribers to 3 per cent to high net value subscribers have been able to successfully engage and retain the subscribers. Having clearly defined objectives and creating a meaningful rewards program can go a long way in managing customer lifetime value through right intervention through programs for acquisition, engagement, up-sell, cross-sell, dormancy and churn management.