Rewards Programs have been an extremely popular and reliable way for retailers to continue engaging their customers.
With around 84% of customers stating that they prefer to support brands that offer rewards programs, and 66% saying that earning rewards influences their spending habits, a rewards program is a must-have thrust for retailers.
But a good program involves looking at the different types of rewards, and matching those with what voice and products/services that your brand offers.
To get a good picture of which categories of rewards fits your business, let’s take a look at four of the most commonly used types of rewards strategies.
1. Point-based Programs
The first and one of the most common program types is the point-based program. This involves retailers giving a set number of points per value of purchase.
Point-based programs are great at attracting consumers who have not tried your products before, but need reasons to consider them. The psychological effect of knowing that purchasing your products automatically gives consumers value is powerful.
However, the ratio of points in relation to purchase costs are oftentimes very low, and that’s why reward programs based on points are used more as a way to attract consumers to making their first purchase, rather than to drive retention.
The upside to points-based rewards is that you’re able to strategize on the ratio – balancing the value you give to your consumers with the prices of your products can be tricky, but a good points system can help encourage existing consumers to make repeat purchases.
2. Cash Back
Cash back programs work very similarly to point-based programs in the sense that customers are being given value with each of their purchases, but instead of consumers using items such as loyalty cards, cash back programs usually involve purchases made on credit cards.
One main difference to consider your strategy around cash back is that although it offers value in terms of money in a ratio similar to points, cash back works with rebate.
This makes cash back more flexible than points-based programs because consumers will simply earn a percentage of cash back from purchases that they made instead of points that can only be redeemed in limited places.
Since cash back revolves around credit cards, you have to consider the spending habits of your customers. Points-based programs, while they may look small on the onset, usually offer a slightly higher “cash value” than cash backs because points are more exclusive.
Bear in mind that if your consumers don’t have a predictable pattern of spending, or are conservative in their shopping habits might not be the best audience for cash back rewards. Go for consumers who have a structured spending habit on credit, and those who would rather receive cash upfront rather than browsing for rewards catalogs for redemption.
3. Tiered Programs
A tiered program focuses on exclusivity and segregation. Consumers are categorized, and receive different types of benefits depending on their category – hence “tiers”.
Each tier is designed to reward customers based on their level of membership. You will have to define the disparity of each tier, and the differences of the rewards provided by each tier.
This helps entice consumers to increase the frequency and quality of their purchases/membership level. Consumers who know that they’ll be given exponentially more value based on their tier in the program are attracted to stay loyal to certain brands in order to rise through the ranks.
One attractive characteristic of tier-based rewards programs is that by segmenting your customers into tiers, you’re not only able to provide scaling benefits to them but also refining your data collection strategy – you get to do two things at once.
4. Value-based Programs
Value-based loyalty & rewards programs highlight and taps on the consumer’s emotional and empathetic sides.
In contrast to points-based or cash back programs, the concept behind value-based rewards is to engage with your consumers in ways that are not necessarily monetary.
One example of this is by including philanthropic strategies to your brand – by offering your consumers options to donate and give to charitable organizations or causes, you’re able to connect with your customers on a personal level.
Since there are no tangible/material benefits provided to your consumers, value-based programs are best applied if you want your brand to have a certain voice or personality, and you want to attract like-minded consumers to create not only a market but a community.
Examples to take note of:
Sephora has been one of the world leaders in executing a diverse and effective range of rewards strategies. They have a tiering membership involving a subscription model for exclusivity-seeking consumers, a robust points-based mobile rewards program for online shoppers, and they offer unique privileges such as access to exclusive products or individual appointments to classes conducted by key leaders in the makeup industry.
The brand also ventures into value-based programs, such as turning rewards points into donations for the National Black Justice Coalition.
With over 17 million members in North America alone, Sephora’s loyalty programs are said to garner around 80% of their sales, indicating how well Sephora treats their consumers and engages with their existing customer base.
The Designer Shoe Warehouse brand has been using both a tiered rewards program that is based on annual spending, and a points-based program tied to their tiering strategy.
DSW’s VIP program is completely free to join, with consumers merely signing up at their website in order to become DSW VIP members. Upon signing up, they get access to a hybrid strategy of tiering and points-based rewards – consumers are enticed to find appropriate levels of annual spending in order to get access to tiered rewards, while also being granted with points with each purchase on the way.
The membership includes perks such as free shipping, birthday discounts, 365-day returns, and access to other special offers and promos. On top of this, DSW keeps their consumers on their toes by allotting special “earning days” – consumers can earn more points if they purchase on certain time periods.
At present, the coffee giant’s rewards program has over 19 million members. This large base of loyal customers account for nearly 50% of the brand’s revenue. Since Starbucks has prided itself on customer experience, it makes sense that they put an emphasis on their rewards program.
Starbucks rewards their customers with “stars” that work similarly to points. By earning stars, one of the immediate benefits that customers get is free coffee and/or starbucks-themed products.
Depending on how much stars a customer earns, they can avail of a wide range of drinks offered by Starbucks, and as well as merchandise such as planners and tumblers.
The inclusion of brand items helped Starbucks reward existing customers, and generate visibility to non-customers, enticing them to buy from the brand.
Small separators on the execution of rewards strategies on Starbucks’ end also helped highlight their focus on personalization: an example of this is by using “stars” instead of the word “points” – this helps differentiate and individualize the experience of being a member of Starbucks’ rewards program as opposed to any other company.
See how Omnichannel strategies can help you create more effective rewards programs here!