In Loyalty, Breakage Is Bad Business

Don’t alienate or upset your customers by implementing a loyalty program designed to….. well, alienate and upset your customers.

It’s not human nature. It’s poor program design.

We’re all just printing money, right? I can’t tell you how many times I’ve heard, “We’re running 90% breakage” as if it was a good thing. Ah, the “benefit of breakage”.

The inverse of breakage is engagement. Or redemption. But they correlate. So how can a high breakage rate ever qualify as successful if your objective is to grow your business? It can’t. From a consumer’s standpoint, myriad factors contribute to their collective propensity to break: (1) earn velocity — does it take too long to earn anything of value?; (2) quality of rewards — are the rewards worth my while?; (3) program mechanics — how easy is it for me to earn points or claim my reward? There’s a whole lot more, but the point is consumers (or employees) engaged in loyalty or reward programs “break” because the program is designed to achieve exactly that.

So when I hear someone say, “incentives don’t change behavior” it drives me nuts because I know the program being referenced doesn’t drive the results they seek for other reasons. Wellness is a great example: I’ve recently read about a couple studies that show incentives may not influence weight loss. Sure, if you dangle a reward that the brain has been programmed to instantly recognize is completely unattainable, it’s not going to deliver very good results. When you’re in the process of making a decision, the perceived risk (everything you’re being asked to do) needs to be well more than offset by the outcome payoff (what you’ll get after you do it). If you know the reward is unattainable, then you’re essentially pre-destined for failure. The incentive will not work. You won’t even start the process!

Businesses do not want breakage. They want the highest redemption rates possible, within their budgets. That’s the big difference.

Earn Velocity

There’s a monolithic shift taking place in marketing and advertising that is going to help move our collective thinking away from breakage models and toward high engagement models such as one offered by Reward Sciences. With the prevalence of ad blockers, historically low click through rates, and the need for more effective means to digitally engage customers, offering your brand’s currency as a reward for engagement will not only drive improved results, but also enable your customers to earn your currency more quickly, and in more places your brand lives. When your customers know they can earn toward a reward in a reasonable period of time, you’ve accomplished your first primary objective.

Quality of Rewards

It goes without saying, the better and more individually relevant the rewards you offer, the better your program (and currency, by extension) will be perceived. So, partnering with companies who are willing to guarantee the type and quality of rewards you seek is essential. Most companies are simply not equipped to manage that process, so outsourcing is usually the best decision. However, it doesn’t help much if the cost of redemption is flipped back over to you. You’ll only find yourself managing cost and set-asides, and figuring out how to get people from actually redeeming. So, outsource the rewards as your first order of business.

I can’t stress enough how uninspired and unsuccessful your program will be if gift cards and discounts are what you decide is fair value for your customer’s loyalty. Ditch that thinking immediately.

Program Mechanics

Ease of use is essential for long-term engagement. In the early days of loyalty you could pretty much guarantee most of your earning customers would drop-off at the moment they had to lick the stamp. Today, with mobile devices and amazing proximity-sniffing technologies such as NFC and more, earning and redeeming should be as simple as saying, “Hey Siri, I’d like to redeem some points”. But again, you can’t have those ease-of-use user experience conversations if your program isn’t designed to handle the right desired outcome.

High Redemption Yields High Return

Let’s face it, what you want is high redemption. You want your customers to actively seek out more ways to engage with your business, and spend a higher share of their wallet with you. Over time, your customers will come to recognize that you really do value their patronage. They’ll believe you’re spending more to thank them than your competition.

In a world where there is virtually infinite choice, understanding a human’s underlying decision making process and how a simple shift in thinking about your program’s own mechanics can mean the difference between success and failure.

Learn about Reward Sciences and how our easy to use system can get you awarding customer and employee behaviors — and making more money.

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