Rewards program johnmoore
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Rewards program johnmoore Presentation Transcript

  • 1. Does paying cash backrewards really drive consumer Behavior? Learn how paying micro-rewards increased participation ten-fold. How Rainbow Rewards did this and measured it.
  • 2. What makes a loyalty program successful?Developing a successful rewards program:•Does it increase frequency and spend ofexisting customers?•Does it bring in new customers who stickand become recurring customers?
  • 3. Success for the Loyalty Program Operator •Strong and engaged member base •Strong and engaged merchant base •Insights into Customer Behavior/Data •Leveraging brand association with quality Merchants •National network
  • 4. Success for the Customer/Member•Exciting deals•Rewarded and recognized for their loyalty•Save money/make money•Affinity and Brand relationship
  • 5. Success For the Merchant •New customers who stick and become repeat customers •Repeat customers who transact more often and spend more per ticket •Foster long term customer retention •Reactivate lapsed customers •Reduce Churn •Better customer profile
  • 6. Success for the Merchant (continued)•Knowing the customer – more detail•More effect/targeted communication withcustomers•Ability to customize offers to customersegments•Ability to measure success of marketing ROI•Turnkey marketing programs so merchant canfocus on what they do best•Sustainable over the long term and not dilutemargins too heavily
  • 7. The Loyalty/Rewards Landscape Groupon Living Social Airline programs Bank Cards Shop Kick and more…hundreds and hundreds more
  • 8. Cost of Acquisition vs. Retention •In the newspaper biz it costs roughly $50 to acquire a new subscription. •In Cable TV its $525 •Where would you be (Think merchants as well) if you had to spend that much year in year out to retain those new customers.
  • 9. Risks of Deals •New customers who never return •Existing customer converted to big discount •Does not change behavior in long term •Not sustainable over long term •Margin Erosion •Loyalty, what loyalty?
  • 10. Deals vs. Long Term Loyalty Acquisition = Deals •Deals are sexy, attract attention, bring in new customers •Deals need to be customized to fit needs of different merchants (one size does not fit all) •Deals are not sustainable over the long term as they erode margins •Retention = Loyalty •Every Day Cash Back is affordable and sustainable
  • 11. What we testedHypothesis: “Members increase their transaction activity immediately after a rewardpayout”Methodology: We looked at those members who received a payout in 1 month andcompared them to like members who did not receive a payout in that same period*.Test Group: A sample of members receiving a reward payout in August 2010 with a transaction frequency between 11 and 21(328) in order to center the sample around the median for the universe of 16 transactions.Control Group: A random sample of 328 verified members not receiving a reward payout in August 2010; have a transactionbetween 7/3/2008 and 8/31/2010 (to equal transaction date range of test group); have a transaction frequency of between 11and 21 during that date range (to approximate median transaction frequency of 16 for test group); and be verified . Note: TheThanks Again RR member account was suppressed from the sample.Test Criteria: The number of transactions generated in September 2010 following August payouts.
  • 12. Reward Currency –what drives behavior 146% increase Benefits across 353% increase all merchants In the network 141% increase 7% increase
  • 13. A 10x increase in SubsequentSpend
  • 14. Reward Currency –what drives behavior 61% more preferred a check
  • 15. The EconomistConsumers want to be rewarded NOW and will foregosubstantial future benefits to achieve this. Consumersresponded equally to the following offers:• Free delivery now, but no discount vs.• a 50% subsidy (discount) laterWe are „present biased‟ and „time inconsistent‟meaning we tend to accept something „lesser‟ todaythan a larger but uncertain pay-off later..further themore uncertain we are of the later pay-off, the more wevalue the present.The Economist: Economics focus, Jan 2nd 2010
  • 16. Federal Reserve Bank of Chicago•Consumers reacted with a marginal increase of $68/monthin spending and an increase in debt of $115/month whenrewarded with a 1% cash back reward averaging $25.•Card holders who were not active and who do not carrydebt had a larger response.•The effect was persistent over the long run.•Consumers also lowered their spending by a like amountfrom other credit cards that did not offer cash back.• “..rewards are an effective tool to steal customersfrom a..competitor”•Fed Reserve Bank of Chicago, Why do banks reward theircustomers to use their Credit cards? Dec 2010
  • 17. Win-Win for Advertisers and ReadersLet‟s recap: A successful rewards program:Must be a win for advertisers, readers and the provider byoffering:•Customized Deals•Everyday Rewards•Sustainable•Maximizes ROI•Mitigates Risk It works