The Loyalty Mantra: The Power of Reward Redemption

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Some companies in India boast about loyalty programs that generate reward redemption rates of 10-15%. In truth, low redemption rates could indicate fundamental problems with the program. Kelly Hlavinka, Managing Partner, COLLOQUY, explains why, and what companies can do to embrace redemption.

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The Loyalty Mantra: The Power of Reward Redemption

  1. 1. Customer LoyaltyLoyalty Mantra: The Power of RewardRedemption By Kelly HlavinkaY ouve invited good friends to a dinner party numerous times, but theyve consistently failedto take you up on your offer. Theyre that lower redemption rates are a good thing, some companies in India boast about loyalty programmes that generate reward redemption rates of 10 to 15 per cent – or lower. In truth, loyalty offers, its a sign that they aretoo busy. Theyre committed not engaged and not spending.elsewhere. They always give a low redemption levels are not cause Moreover, its a strong indication thatplausible excuse, but they never for celebration. Instead, they indicate they may be ready to move on to formaccept your invitation. It is unlikely the presence of fundamental a relationship with a competitor.that you would view their numerous problems with the programme.rejections as cause for celebration. Weve seen that the more active andInstead, most of us would wonder if After two decades of analyzing loyalty engaged loyalty programme membersthere might be something wrong with program performance in North are, the greater the sales lift, brandthe relationship. America, we know the evidence is engagement, and retention those abundantly clear: Redemption members return to the company. WeSimply put, thats the challenge correlates directly with bottom-line refer to this correlation as theloyalty marketers face when custom- results -- including higher customer COLLOQUY Relationship Chain™. Theers fail to redeem rewards. retention rates and higher customer Relationship Chain is an ongoing set of spend. When redemption rates are metrics that enable companies toAfter examining the financials for a low, the loyalty programme is measure the relative health of loyaltycompanys loyalty programme and underperforming, and is either not programmes and the quality oftallying redemption rates, some designed properly or was not put into customer relationships.marketers might be pleased about play for the right reasons.saving money for their company when There are distinct stages thatcustomers fail to redeem rewards The whole point of a loyalty customers must pass in order forpoints and offers. But thats a mistake. programme is to engage customers companies to maximize their valueWhile it might sound counter- while also showing them youre loyal and profitability. At each stage,intuitive, your company actually to them, too. Loyalty marketing is a retention rates increase. Ultimately,stands to lose money – and competi- long-term strategy, and that means the path leads toward the end gametive advantage – when redemption results arent evident until six to nine of higher retention, higher spending,rates are low. months after launch. It takes time to and more profitable customer forge a relationship with customers behaviours – such as ongoingSome programmes do not promote and build a bond with them that will engagement with your brand.redemption out of financial concern encourage ongoing engagement.that if too many points are redeemed, Yes, earning points increasesthen the breakage benefit will decline. So, when customers dont use customer engagement. But merelyProbably owing to the misconception rewards points or dont redeem other earning points is not the objective of a 112 | November - December 2012 |
  2. 2. Customer Loyaltyloyalty programme and customers channels over an 18-month period cent. And, they smile all the way to theknow this. They understand that confirms two of the tenets of the bank. They know that redemption isamassing points holds no tangible Relationship Chain: that redemption crucial to establishing and maintain-benefit. If customers dont redeem amplifies customer value and ing the bond between their brandsthose points, they will eventually lose encouraging multiple redemptions and customers, and is vital to theinterest in the programme and your can return even greater value. health of their companies. Whatscompany because they do not realise more, those same North Americanthe value you promised. So, it is crucial Our research also shows that loyalty marketers work tirelessly to come upthat you promote redemption, to programme members who have with new ways to nudge customers toencourage customers to obtain the redeemed for rewards are three times redeem even more often, with therewards you told them they would more likely to be word-of-mouth goal of constantly increasingreap as a result of your relationship. (WOM) champions – that coveted title redemption levels. used to describe loyal customers whoWhile it is easy to view redemption bring others to your brand. If a North American organization sawonly as a cost, that is wrong thinking. low redemption levels of 10 per centActively promoting redemption to Redeemers Are 3 Times More Likely to 20 per cent, company executives ascustomers is a financial and competi- to Be WOM Champions of Your Brand well as marketers would be alarmedtive necessity in todays world. because it would signal that the The linkage of redemption andRedemption amplifies customer company and its loyalty programme customer value is also demonstratedvalue, so encouraging multiple are in great peril. in the percentage of programmeredemptions can return even greater redeemers – those who have earned Redemption is an essential link on thevalue. Thats what the analysis behind one or more rewards of any type since Relationship Chain, which can also beCOLLOQUYs Relationship Chain becoming members – who are also described as a series of customerproves: Redemption activity by Word-of-Mouth (WOM) Champions. behaviors that move from increasedcustomers brings companies financial These customers are willing and able involvement in a well-executedrewards, including increased revenue to recommend the brand to a network loyalty programme. The end goal isand long term value of the companys of others. always retention and profitability forcustomer portfolio. In addition, theeffect of increased engagement and the company. As customers move Setting A Healthy Target for Successbuilding stronger bonds with through the links in the chain, theircustomers helps insulate and protect To ensure they reap maximum value lifetime value to the companyagainst competitive poaching of from every customer, forward- increases and so does the companyscustomers. thinking North American companies return on investment in the loyalty encourage redemption and attain program. The four links in theOur study of a retailers history of healthy redemption levels that Relationship Chain are:consumer spend across multiple commonly reach 50 per cent to 75 per Enroll best customers. EnrollThe COLLOQUY Relationship Chain™ | November - December 2012 | 113
  3. 3. Customer Loyaltycustomers who offer the highest value Engage. Next, you must engage these Stimulate participation. Its crucialor potential value to the company. priority customers with regular, that you encourage programmeThat means you must first determine ongoing communications that participation – from completingwhich customer groups are most constantly answer the customers surveys and checking points balancesimportant to you. most pressing question: “Whats in it to entering sweepstakes and for me?” responding to offers. This activity helps customers envision their dreams, setting the stage for “what if…?” Trigger multiple redemptions. At this point in the Relationship Chain, loyalty programme members expect a payoff, so offers that give customers strong rewards that also recognise their status as a valued, best customer help solidify the relationship youve built with them. The more redemp- tions, the more value these customers bring to the table. Redemption is an investment in the relationship with your best customers that pays off as they move along the Relationship Chain. When you issue an invitation to these brand loyalists, they respond by strengthening your company and brightening its future. Leading organizations in developed economies know that redemption is crucial to building customer value and return on investment. Now you do, too. Kelly Hlavinka is the Managing Partner of COLLOQUY – Knowledge arm of LoyaltyOne LoyaltyOne is a global leader on consumer insights & strategy, loyalty marketing and customer experience management. 114 | November - December 2012 |

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