Setting Reward Actions and Rules to Achieve Your Business Goals

Reward actions and rules are the backbone of every loyalty program. Your customers need to know the activities that will allow them to participate in the benefits of the loyalty program. While this step is a chance to get creative with the loyalty program design, it’s absolutely critical that the rewards and rules tie back to the goals and KPIs you set in the previous step. This will ensure that the loyalty program is a success.

What Are Reward Actions and Rules?

A reward action is an action that the customer must take to receive the reward. So, for example, in a typical airline points program, the customer must take a flight to earn the points. In this case, taking the flight is the reward action.

Taking it further, each airline miles program has its own rules about how the points can be accrued. For example, the airline will set rules about how many points are accumulated for each flight, linked to the customer spend. Typically, there will be a rule that long-haul accrue more points than short-haul, or business class tickets often earn more points than economy class tickets.

The airline will have implemented these actions and rules to achieve its own loyalty program goals. In this case, the goals may be to encourage customer retention or to increase the average spend.

So, how do you choose the right reward actions and rules to help achieve your loyalty program goals? Let’s take a closer look at deciding how to reward your customers, and which behaviors to reward.

Deciding Which Actions to Reward

This is perhaps the most fundamental question and should tie in the closest to your goals. For example, if your goal is to encourage repeat business, then offering bonus points for new referrals doesn’t fit well with your objectives.

You should choose the reward actions that most closely match your objectives. If your goal is to increase revenues, then reward bigger spenders and those who bring in new business. If your goal is to increase your brand awareness, then reward social media shares. If your goal is to increase retention, then offer the best benefits to your most loyal customers so that others will follow.

How to Reward Your Customers?

Points-based Schemes

Points schemes work as we described in the airline example above. Customers will accrue points that they can redeem for free or discounted products or services. “Punch” programs operate in a similar way. For example, a coffee shop punches a card with each coffee purchased, and after ten purchases the customer receives a free coffee.

It’s relatively easy to set up a points-based scheme, which makes them a popular choice. It’s also relatively easy to adapt the reward action to different objectives. For example, you could choose to offer points per spend to increase revenue but offer extra bonus points for customers who also refer new users, increasing the size of the customer base.

The drawbacks of points-based systems are that customers may be put off if the rules are not very clear, and the redemption options have to be attractive enough to keep customers engaged. With punch programs, like the coffee shop example, companies may be exposed to user fraud.

Spend Programs

With a spend program, the customer can accrue credit when they spend in your business. For example, if a customer spends $100, they earn $5 back in credit for future purchases. These programs share many of the same benefits as points-based schemes in that they offer tangible benefits and are relatively easy and flexible to set up. They also encourage repeat business.

However, on the flip side, they can be more costly and perhaps worse, they may devalue the product or service in the eyes of the customer.

Tiered Programs

Tiered programs can be combined with other types of programs such as points. They reward customers based on different levels of spending or points accrual. Tiered programs can be a great way of segmenting your customers according to their value, providing the best customers with the best rewards. It also introduces a gamification element, as others are incentivized to join the top tier.

A drawback of tiered systems is that they can be more complex to set up. They also tend to be more attractive to existing loyal customers and are unlikely to attract new business.

Overview of examples for actions and reward options. Please note that everyone needs to define by himself what’s best for his / her company.

Choosing Your Interface

Finally, you need to decide how your customers will interact with the program. Will you give them a physical or punch card? Will you have a website or perhaps a mobile app where they can view their balances and redemption options? The answer to these questions will be a significant factor in the cost and ease of use for your loyalty program. A valuable interface can bring great leverage for your customers and make them use your loyalty system a lot more and refer friends to use it as well.

When it comes to reward options and rules, the only limit is your imagination. However, it’s important not to let creativity override the need for the loyalty program to achieve its goals. At the same time, your customers will embrace a program that provides value while being easy to use. In the next post, we’ll expand further into loyalty program design by looking at the options for reward redemption including what benefits customers receive when they redeem their points, stamps or reach a certain status.