Elements of a rewards (loyalty) program

Many readers here may be interested in knowing my article on rewards programs here generated a far amount of discussion, much of it has to do with the basic theory of what is a rewards (loyalty) program?

What happened is that I went to a conference where many major retailers, e.g. 7-11 went were among other things rewards programs was discussed. So I learnt a lot of the theory besides the practical stuff that I already knew plus gained a valuable perspective how the big boys use it.

The first point is what are you trying to do with a rewards program, I would suggest what you are trying to do is to gain a greater share of customer spending by rewarding people for shopping in your particular store.

As a general rule these reward programs offer.

  1. A concession on selected products in your shop
  2. A point reward system which members can then redeem for goods.
  3. Increased service level say silver, gold, platinum, etc.

The members of a rewards program are today usually given a card generally a cheap plastic card with a magnetic strip or barcode signifying a member's identification number. Its sole purpose being to record customer transactions.

Its important to realise that customer loyalty is just one benefit of setting up a rewards program; the fact is that as a member purchases something, the information about the item, its price, place of purchase and date is recorded to the member number. Over time, the information about members becomes substantial and as it bigger this information becomes more commercially valuable.

As the rewards program has received *consent* to send email and marketing materials to its members. Simple promotions like first rights to a special during a certain period can be sent through email. Since it has considerable demographs of the members, it may try something more complex, e.g. targeting women who have brought a product XYZ. .

By using this information, an organisation can more accurately target offers to customers, explore their marketing methods and potentially sell information to their suppliers. That is why size does matter in a rewards program as the bigger they are, the more the information is worth.

For this reason, people say that rewards program should be better described as *rewards and information programs* because that is a more accurate description.

Okay where does this leave the small retailers, well with us fairly good as he can collect and use this information. Given the wealth of information available to retailers rewards program promotions are only limited by the imagination of the marketers.

Where does this leave the discount voucher system, I do not think very well at all? They are paying the price but not getting the information.