Category Archives: reward programs

Planning A Points System (part 2)

The last time I looked a the general principles of any good Reward Program. This time I wanted to take a look at specifics of implementing those criteria. In particular I want to look at two types of Rewards you can offer and then at how you can implement them.

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.

Examples

We have put together some examples of Reward Programs based on these types and implemented by clients. The first two charts show a general implementation of the two program types shown above and then there are some examples for specific business categories.

Business Type General Retail (option 1)
Type Example
Award Points per band (excluding delivery) 5 points for every 5 Euro spent
Redeem Defined Discount based upon points gathered in 1 year.

Points accumulate throughout the year and reset on January 1st.

The more a person spends in a year the larger the discount they get for the rest of the year.

100 points gives 1% discount on all purchases for rest of year

500 points gives 2.5% discount on all purchases for rest of year

1500 points gives 5% discount

2500 points gives 8% discount on all purchases for the rest of the year

5000 points gives 10% discount on all purchases for rest of the year

Promotions Extra points on high margin products

Extra points for higher value purchases

Business Type General Retail (option 2)
Type Example
Award Points per band (excluding delivery) 5 points for every 5 Euro spent
Redeem Defined value discount.

Points reset on use.

Percentage higher discount the more points accumulate means people may aim for the next level.

100 points = €5 discount

250 points = €15 discount

500 points = €40 discount

Promotions Extra points on high margin products or clearing stock

Business Type Restaurant
Type Example
Award Points per band 10 points for every 10 Euro spent
Redeem Tiered with sales
  1. Free Coffee after dinner
  2. Free Desert
  3. Free Starter
  4. Free house wine with dinner
  5. Second Dinner is free
Promotions Extra points on quiet nights, high margin products 50% extra points on Wednesdays before 9pm

Business Type Takeaway
Type Example
Award Points per band (excluding delivery) 5 points for every 5 Euro spent
Redeem Tiered with sales
Promotions Extra points on high margin products or large orders Extra point for orders containing starter plus main meal

Business Type Taxi
Type Example
Award Points per completed telephone booking 5 points for every completed booking
Redeem Tiered Discount based on booking made. Discount can be limited. 50 points: 2% discount

180 points: 5%

300 points: 10%

All up to limit of €10

Promotions Extra points on bookings made the day before or regular booking
Business Type Video Shop
Type Example
Award Points per rental 5 points for every rental
Redeem Tiered with sales 50 points: 1 free rental

75 points: 2 free rentals

100 points: 3 free rentals

Promotions Extra points on high margin products 2 points for popcorn
Business Type Hairdresser
Type Example
Award Points per band 5 points for every €20 spent
Redeem Tiered with sales 5% discount for every visit after 1000 points

10% discount for every visit after 5000 points

Promotions Extra points on high margin services or on products.
Business Type Bar
Type Example
Award Points per pint 1 point per drink
Redeem Tiered with sales Every 10th drink free (with a price limit)
Promotions Extra points on high margin products
Note: This model allows quick transactions but limits the application for meals etc.
Business Type Off Licence
Type Example
Award Points per band 5 points for every €10 spent
Redeem Tiered with sales 500 points gets 5% discount

750 points gets 8% discount

Promotions Extra points on high margin products
Business Type Cafe
Type Example
Award Points per band 5 points for every €5 spent
Redeem Tiered with sales 100 points: free muffin with coffee

150 points free coffee and muffin

Promotions Extra points on high margin/promotional products
Note This allows more flexibility than the standard “every 10th coffee free” option and also encourages purchase of additional items but is slightly more time-consuming to enter points.
Advertisements

Stamped Cards

The most common Loyalty Card implementation in Ireland is the “Stamped Card.”  This is the the cardboard card which the retailer stamps after every purchase and which entitles you to a free item when all the stamps are completed. While this is most common in coffee shops they are also used in various other businesses.

The reason stamped cards are used so widely is primarily because of the benefits they bring but also because of the difficulty and cost of a technological solution. We will address the benefits of a technological solution later but for now lets look at the stamped card on their own terms.

 

The Benefits

Stamped cards have some very strong benefits for a business;

  • Speed: Implementing a stamped cards system is very quick. Just decide the terms of the program – what the points are given for and what you get back. Make a final decision on the design, print the cards and distribute them.
  • Branding: A stamped card is allows a business to brand itself easily and cheaply.
  • Flexibility: It’s easy to change the terms of the program, for instance to include another product
  • Cost: Each card is cheap itself (though this is partly offset by the large numbers required)
  • Simplicity: This program is simple for the customer to understand and for staff to implement.
  • Value Checking: Stamped cards contain their own built-in point display that lets a customer know exactly how many points he has and how many he needs to get his reward.

 

The Downsides:

The downsides to the Stamped Card exist not in their own terms but in comparison to the greater benefits  offered by alternatives.

  • Lost Points: Stamped cards are seen as disposable items whose points are lost if the card is lost. Because of this they have minimal influence on customers who often forget to bring the card with them or leave them in their pocket during the wash.
  • Lack of Customer Data: A stamped card goes out the door and you never know anything about the customer. You canʼt tell if they use it again, how many cards that person takes, how long between uses or any of the other information that would help you run your business more effectively.
  • Business Image: Cardboard cards are instantly forgettable. Yes they are branded but because they are so common people tend to forget them and because they are simply cardboard they tend to go into a  pocket where they are squashed and crushed. Other media such as plastic cards project a better image and are also retained for longer.
  • Flexibility: Points can only be awarded in multiples on a stamped card. This limits your ability to fine-tune your program so that it gives different ranges of points to different products or time of day.
  • Cost: Cardboard cards are individually cheaper than the high quality plastic cards. However the churn rate is high which requires the re-issuing of multiple cards and, because they don’t collect any data they become a cost rather than a benefit for the business.
  • Forgotten Cards: Because the card is the only membership identification in a stamped-card scheme they must be shown by customers when they visit. There is no facility to use name, phone number or email to award or redeem points.

 

 

Stamped cards have a place and, for many businesses, they are the ideal option. However their limitations  do eventually come to inhibit a lot of their users. What happens then is that the cards are left at the end of the till but they are not promoted or changed and the whole program grows stale for both business and customers. More advanced systems such as those provided by myrewardcard.ie can overcome these problems as we will see at a later date.

The 4 key design parameters of myrewardcard.ie

myrewardcard.ie was developed to help independent businesses, chains and groups implement professional reward programs cost-effectively. It had become clear to us that Reward Programs fell into two categories: the comprehensive, detailed and expensive versions operated by the likes of Tesco and the basic stamped-card type (operated most visibly by coffee shops).

Stamped Cards are the most commonly available Loyalty System in Ireland for a number of reasons: they are cheap, easy to understand, and quick to administer. Any solution we developed had to meet these criteria but also do more.

It quickly became apparent that any solution had to do four basic things;

Brand the Business

A business is its name and we had to design a service that acknowledged this. After all no business wants to promote us when they can promote themselves. For this reason myrewardcard.ie is low key in both its look and operation. The business issues their own card with their own design and myrewardcard.ie is simply a central place to manage their points. In this way the cardholder carries the business in their wallets. They know which businesses offer them Rewards and they have an address and other contact information handy if ever asked to recommend a place.

Be Simple and Flexible

We wanted the system to be simple and available to everyone so we designed it to require no special hardware and to ensure that there was no software to download or keep updated. The business can choose many different ways to operate the system, from scanning barcodes to manually entering card numbers. The system can be run through any browser and there is no time or complexity involved in expanding the number of terminals in use.

This simplicity and flexibility extends to the customer side. Not everyone in Ireland is comfortable with the Internet or has an email address. myrewardcard.ie gives these customers the opportunity to use phone numbers to activate their account…and those who are not comfortable with the internet can even have their account created instore. Even better, if they have already created an account it is a 5-second job to register a new card to it. And if they have a group card (such as one from a town) they only need to carry one card to access programs from multiple different businesses.

Be Cost-effective

From the outset we knew that we wanted the benefits of a professional reward program to be available to all businesses, large or small, stand-alone or part of a chain. This meant keeping costs as low as possible and led directly to our central management design. By centrally hosting the software we can make the service available to all businesses, chains, or groups without having to customize each installation. As a result of this central management we can keep our costs  – and price – low.

Not only is the price kept low enough that the normal benefits of a Reward Program quickly allow the system to pay for itself but it also helps reduce costs by providing data that allows more efficient and targeted use of advertising budgets. The range of reports allows the business to see where the customers come from, how often and in what patterns they visit and to use this and other information to target  advertising. You can also see what advertising results in visits from lapsed customer and which brings in new ones, and which results in single-visit customer and which generates repeat visits.

Being able to target the advertising not only to groups but to individuals  is the most cost-effective marketing solution available and not only generates business but reduces costs.

Bring Benefits to Customers

A system that only brings benefits to businesses is not much use. It also needs to bring benefits to customers if it is to be successful. myrewardcard.ie was designed to do this. As mentioned above it is possible for those who already have a myrewardcard.ie account to register cards from multiple businesses in seconds. They can also manage all these cards in one place. This includes seeing their points balance and transaction history. This reduces the friction involved in accepting a new card, making it more convenient and likely that they will accept yours.

Once they have registered their cards your customers can also be reassured that their points are safe even if they lose their card. Not only can they transfer points from lost cards to new ones but crucially (and, as far as we know, uniquely to myrewardcard.ie) they can protect the points even before they get  replacement! They simply ‘suspend’ the card and then collect a replacement in their own time.

These are the four basic ideas we knew myrewardcard.ie must satisfy. The served we offer now does not only this but much more. We’ll go into detail about the features we have in later posts as well as outlining the simple things that go to make a successful Reward Program.

Tagged

Loyalty Card helps Tesco gain market share

There was an interesting article in The Guardian last Wednesday (November 11).  According to this report Tesco increased its market share in the UK for the first time in two years thanks to its Clubcard scheme.

Tesco-stores-001

This program has been running for some time but they recently relaunched it and doubled the points they were offering and saw their market share grow by 4.7%. The doubling of points cost them money but they made it up in the market share. By increasing their market share they are also positioning themselves well for when the recession ends.

Tagged

reward programs and quick fixes

With the new year many businesses are considering ways to improve their profitability. Reward Programs of all types are among the most effective ways to do so both in terms of cost and results. Many businesses will look at implementing them for the first time and a large portion will be expecting immediate results. The belief that simply implementing a program will result in success is a common one that leads to many abandoned efforts. Because of this belief a majority of businesses implement a program and sit back expecting results without any further tuning or promotion.
A successful Reward Program may not be an instant fix but neither does it require a lot of work. All it needs is some promotion and monitoring. From our experience with businesses we have identified 5 simple things that a business can do to make their program a success:

1. Define

A Reward Program does not have to be complex but is most effective if you have a clear idea of what you are trying to achieve: is it to increase awareness of your brand, compile a mailing list, get your brand on the street, encourage the sale of more profitable items? Or is it all those and more?

Knowing what you are trying to achieve with your program will help you decide the following:

  • which type of program to install (a simple stamped crd or more complex information gathering system)
  • where and how to assign points ( per transaction or per profitability of the product)
  • whether to use someone else brand or your own

2. Simplify

It is possible to come up with complex points and reward schemes that graduate the reward people get according to every action. This will confuse both you and your customer, and while there is nothing wrong with special offers to promote specific products (such as 50% more points on a specific day or bottle of wine) the general rule, as with most things, is Keep It Simple.

3. Communicate

You cannot expect a customer to see the cards you provide, or to understand what you are offering them without explanation. Communication about the program is essential. The simplest and most effective way is to have your staff ask every customer if they have a card and offer to provide them with one if they don’t – while also explaining how it works. The next most important action is to provide some information on the program along with the card – a simple A3 sheet or brochure gives the customer something to read and allows them to see what is in the program for them without feeling like a fool by asking staff again.

4. Repeat

As the most successful users of Loyalty Programs have discovered, repetition is important. You and your staff must ask every customer if they have a card – and do so for every transaction. This will create awareness – leading to a higher uptake on the cards themselves – and will also ensure that regular customers use the cards rather than leaving them in their wallets. Not everyone is comfortable asking for points, especially on low value transactions, and the fact you offer the points is welcomed by the customer.

5. Review

Situations change and if they do your program needs to change along with them. A review of your program and how it operates should be an important part of your business review, especially in the early days when you need to tweak the points system. But even when you have a system you are happy with you should review it on a regular basis to ensure it is working as you want and achieving what you need. This will include reviewing customer usage, points, and if staff are still asking customers if they have a card.

A review does not have to be a lengthy process and twice a year is more than enough.

These are simple steps but following them can dramatically improve the performance of any Reward Program.

Advertisements