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The State of the Rewards Industry – Part 1

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The State of the Rewards Industry – Part 1
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There are two principal inflection points for a customer loyalty program.

The first is engagement, leading to enrollment. With the proliferation of loyalty programs across every industry, consumer sensitivities to the familiar “give and get” model are finely tuned. Faced with point-of-sale signage, an email invitation, or a pop-up box on a mobile device inviting one to join “the program”, consumers take a decision in an almost instinctual manner. They sense either an opportunity or a time-wasting click and a decision to join or not join takes place in an instant.

The second inflection point is an evaluation of “what’s in it for me”? Consumers quickly scan the core offer in the loyalty program, glance at rewards offered and thresholds needed to reach a reward and factor all of that into a secondary decision to actually participate in the program, or just deposit the membership card in the drawer.

If you meet the test on these two initial hurdles, all that is left is to perform (imagine a wry-smiling emoji here). Like any athletic competition, you have to train properly just to get to the starting line and have a shot at a strong performance on race day. But the real test is how you respond when the starting cannon explodes.

Near the top of the list of loyalty “performance” is reward redemption. Think about what you are asking your customer to do – at least most transactional programs work this way – read your communications to understand the loyalty game created for them, return again and again to patronize your brand and then, one day, cash in the equivalent of a deferred discount with value in the range of single digit percentages. All the while, you’re competing with your loyalty program by publishing temporary promotional discounts in the double-digit range across every sales channel you have available.

Considering this scenario, it’s clear that the reward experience in a loyalty program had better be, well, rewarding. In my days working with Colloquy, our team created a loyalty relationship value chain and gathered data through research that showed the value of program members was highest once a reward redemption had taken place. That value increased with multiple redemptions.

We saw that delivering a strong performance on “reward day” was key to the success of a loyalty program and led to higher member satisfaction.

What has happened to the rewards business today? It is struggling to deliver enough value to delight customers and keep their attention. Looking through rewards catalogs received from my favorite airline and hotel programs over recent months, I could not find a single merchandise item that would be considered a “good deal”. If you tend to think of reward points as “free”, then maybe you are satisfied with reward catalog content. However, if you value your points and truly view them as an alternate currency that carries tangible value, you probably share my disappointment that most items can be found cheaper online or even in many brick and mortar retail stores. While I could redeem for cash or a gift card, but there’s no leverage in either option. I spend one dollar of points and receive one dollar in currency. Whoopee.

From this perspective, it’s not surprising to understand the trend where consumers accumulate points while shifting attention away from the program. We’ve heard many people in focus groups say “they don’t know what to redeem for”, an attitude that can lead to brand disengagement since the perceived value of the program is sliding south.

It’s time for an evolution in the rewards business, and loyalty providers and the brands they serve need to invest time towards discovering a solution.

15th Century Italian politician and philosopher Niccolò Machiavelli once said “The promise given was a necessity of the past: the word broken is a necessity of the present.” That sums up the state of the loyalty marketing industry at present, rewards redemption in particular.

There are signs of innovation in the industry and Part 2 will highlight the “zero-liability” models developed by Deluxe Rewards.

We had the opportunity spend time recently with the team at Deluxe Rewards, and think you’ll agree they have found a way to deliver excitement and value to program members while carefully managing the liability associated with the underlying points currency.

That approach is not at all “Machiavellian”, but just plain ground breaking. We’ll have a closer look at this and other rewards innovations in Part 2.

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