Rewards: Types and Methods

We spoke last time about the block many businesses have in defining a point system. We also highlighted the main aspects to consider in doing this. I’d like to take a little time to discuss the principles behind the main ways these are implemented before going on in later posts to give specific examples.

Reward Types
There are two main types of Rewards you can give to customers: a discount (or cash) or a free product.

  • Discounts: Discounts can be redeemed for points or can be flat after a certain number of points have been reached. The discount can also be percentage based (10%) or cash based (€5).
    Examples of the first are when a person is entitled to a 10% discount from their next purchase when they reach 100 points. The points are then deducted and they start earning to gain the next discount.
    The alternative to this is to award people a constant discount once they have reached a point level. For instance a person earning 1,000 points is entitled to a 2% discount on every purchase for the rest of the year. Once they reach 5,000 points they are entitled to a 5% discount on every purchase and so on.
    The main difference between these two models is in the expiry of the points. In the first points are deducted after every use while in the latter the points are cumulative and reset every period (usually a year). This in turn dictates the level at which the discounts are earned.
  • Free Products: The other most common method of providing rewards is to provide the customer with a specific product when making a purchase. For instance a restaurant providing a free bottle of wine with dinner for 2. This invariably involves the deduction of those points from the customers account.
  • Reward Methods
    A business typically chooses one of two methods for redeeming points.

  • On Purchase: The most common method involves the customer presenting their card at the time of purchase and the points being deducted at that stage. This is the most efficient method and involves the least amount of administrative work.
  • Voucher: It is possible to issue vouchers to customers at intervals based upon their points balance. This is administratively cumbersome and is only suitable for the discount method of reward. The advantage is in the marketing result – the arrival of the voucher creates a renewed awareness of the business and the vouchers themselves seem more real and valuable to the customer than points.
  • Innovation
    These are the most common methods used and are a good starting point to designing the Reward program. Once they have the basics up and running a business can slowly refine and customise it (while bearing in mind the rules such as keeping it simple, discussed previously).
    Even within these four methods however it is possible to be innovative. For instance two or more business can agree to provide discounts to each others businesses instead of or in addition to their own. Both businesses gain from the marketing benefit and the possibility of new customers. Of course they have to agree in advance the redemption level in order not to be caught giving away too many discounts.

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