3 Mistakes Loyalty Programs Make Using Bonus Points
By Robert McClarin, Vice President, Strategy
Bonus Points: Three Common Program Mistakes
Loyalty strategists know that bonus point opportunities can be a great way to drive traffic, lift frequency, improve basket size, or celebrate key relationship-building milestones. As Brierley+Partners evaluates loyalty programs or consults with prospective clients, we see loyalty programs tend to make one of three common mistakes in their eagerness to deliver value for their Members and ‘move the needle’ on sales for their companies. The three mistakes or misuses of bonus point events are: Misaligned Goals to Structure, Messaging Missed Opportunities, and Overuse.
So, let’s break down each of these mistakes and talk about remedies.
Misaligned Goals To Structure
The first misstep Brierley sees most often with loyalty programs is the misalignment of goals to how the bonus offer is ‘structured.’ Let me give you an example:
Company X decided to run a 2X Points Bonus for Members during a traditionally active seasonal shopping period. Client didn’t want to exclude any store or Member from the event, so no control group. The marching orders were to drive traffic, but the post analysis complaint is the lack of incrementality.
So, while the event drove a good amount of traffic compared to previous weeks it only matched last year’s seasonal results with no significant lift in Member transactions or revenue. Since it can be hard to hold out a control, there’s no measure for the impact the 2X had during this seasonal event; without it, traffic may have been down and thus it might have driven incremental revenue. Additionally, if the seasonal event is strong it likely didn’t need the additional 2X Bonus event on top of it. Lastly, infrequent shoppers who didn’t show up are often oblivious to traditional communication channels, aren’t seeing the in-store signage, and may need more than a 2X bump to overcome inertia.
How do you fix this? Clearly define the expectations for performance up front, agree on the success metrics, and then engineer your bonus point event to meet and measure those objectives. We can’t tell if the above campaign drove the needed traffic, because no control was held out. And, lack of specific and measurable objectives meant the team didn’t identify where that incrementality would come from, or how to structure it to drive that additional revenue.
Messaging Missed Opportunities
There are several loyalty programs that feature bonus events as key benefits associated with the program or tiers. Yet, those programs often overlook the importance of communicating these events in three ways: Awareness, Exclusivity, and Personalization.
Awareness. At any one time, 50% of your Members are likely unaware there is a bonus shopping or point earning event coming up. Programs relegate themselves to producing a nice email, maybe creating a sign or two, and hoping for the best. Loyalty Program managers don’t take the necessary steps to ensure Members are aware of the upcoming event—why not use SMS, PUSH, App pop-up, closed-loop advertising, social media, web, or even test a direct mail piece. If it’s a key benefit of membership, do everything you can (including a programmatic email to your opt-outs) to ensure Members get value from the program.
Exclusivity. One of the strongest psychological drivers of behavior is Loss Aversion—the ‘pain of missing out on something one is entitled to’ is twice as powerful as the ‘joy derived from gaining’ that entitlement. More programs should use this when communicating an upcoming bonus point event. “Don’t Miss Out On Your 2X Bonus Weekend” can be stronger than “This Weekend Members Earn 2X Bonus Points.” Additionally, the status that accompanies the message “For Members Only” helps reinforce recognition which is a key component of engendering emotional loyalty.
Personalization. Rather than continually offering flat bonus multipliers to your entire membership, work on messaging contextual and relevant bonus opportunities for each member. Try allowing members the opportunity to pick their own bonus day. Test variable multipliers based on level of activity or to stimulate growth in different products and dayparts. In direct communication about these personalized bonus opportunities use phrases like “Because you are part of our exclusive membership …” or “Because of your status …” or “We are inviting a select group …”—this helps drive home the feeling that the program is treating them as an individual.
Sadly, we’re seeing loyalty programs overuse a strong motivational mechanic which may, in the long run, weaken its impact across all programs. When used too frequently you may be hurting your program in multiple ways.
Overuse may weaken the value of your program currency. Earning a regular point may become underwhelming for your Members. And, you may condition them to wait for your next bonus point event.
With the new accounting rules around points and loyalty (see Mind the GAAP: New Rules in Loyalty Liability), every loyalty manager should know how they’re diluting revenue recognition with every bonus point event they launch. There should be a reasoned business pro forma evaluation as part of the run-up to each event.
Repeated use accelerates earning and reward redemption. While these two programmatic lifecycle events are critical to improving retention, too much of a good thing will increase your reward dividend percentage and hurt the profitability of your program. If you find you are overusing bonus points to drive traffic and change behavior, look for other ‘levers you can pull’ or begin the normal process of evaluating your program’s core proposition.
Here’s the “Too Long Didn’t Read:” Brierley+Partners have found some loyalty programs to be misusing the power of bonus point events. Three common mistakes are:
-Misaligned goals to structure—if you start with a clarity around success metrics you can better structure your bonus point event to get the results you expect
-Messaging missed opportunities—ensure you’re making Members fully aware of bonus earning opportunities, use the power of exclusivity to move them to action, and consider personalizing bonus point events to maximize your results
-Overuse—be informed on the accounting rules and impact of your bonus point promotions, avoid hurting your profitability by making the rewards payback too rich, and use bonus events sparingly to maintain behavior-changing impact
When In doubt consult with your local loyalty strategist, or give Brierley+Partners a call.