by Jill Goldworn and Denis Huré
There is no doubt that loyalty programs are on the rise today. In the U.S. alone, there are 1.8 billion individual memberships in loyalty programs1, everything from airlines to convenience stores to movie theaters. In light of this huge number, the general perception is that consumers are happy to join loyalty programs, eager to enjoy the added rewards that come with loyalty programs. The reality, however, is that they’re not. Confirming this expectation gap, a recent survey by the Chief Marketing Officer Council found that some 32% of consumers surveyed felt that participation in loyalty programs holds “little to no value.” Ouch.
What has emerged as a result of this disconnect is a new direction in loyalty programs: instant reward redemptions. In the past, instant rewards have been limited to cash or discounts at the register; maybe a free item of very low value. Technology, thankfully, has given rise to this new breed of instantly redeemable rewards – the digital, downloadable kind. These instant rewards promise to finally eliminate some of the traditional problems associated with loyalty programs, like engagement and delivering value.
Problems with Traditional Programs
According The Journal of Retailing, “the rewards associated with loyalty programs provide a means to establish reciprocity between the customer and the company.2” But problems that have plagued this interaction, or reciprocity, throughout the years and usually stemming from the delay between collection and redemption by loyalty program members. Whether a program’s threshold for redemption is too high, or the redemption process is too cumbersome (which often the case; ask any FFP member), traditional loyalty programs suffer from program inefficiency. And here’s where instant redemption provides instant relief, specifically in two areas:
In the past, a big problem has been the loss of “low-threshold” consumers. For these consumers, who maintain a low accumulation of points (or whatever program currency), the traditional loyalty program concept fails: if the point threshold is too high, the program has become irrelevant because the consumer feels the reward is not obtainable3. In such cases, the loyalty program is actually hurting the brand. It suffers because the consumer disengages from the brand before they have received an added “reward” for membership.
Instant reward redemptions provide companies a very affordable alternative to offer these low-threshold consumers an easy way to burn low point accumulations. Loyalty program managers also benefit, as studies have shown that these “light buyers” represent a large increase in spending and purchase frequency post-redemption4. In other words, they’re not a segment to be ignored.
Another area of concern with loyalty programs is cumbersome redemption processes. Regardless of the delivery method, timing is of the essence in loyalty programs. In fact, the timing is (almost) everything. The longer the delay in collecting a reward, the less powerful the loyalty creation5. Here, instant rewards reduce the delay between collection and redemption and, therefore, a larger chance for loyalty engagement success.
Digital Content: The Ultimate Instant Reward Redemption
Digital content, offering loyalty members downloadable content (such as the latest selection in music, movies, software, books, games, magazines), is emerging as the premier medium for the delivery of instant reward redemption. The sheer selection of digital content that is available, along with its monetization potential, makes it an excellent vehicle for instant reward redemption programs. Consumers want instant rewards, and digital content is the next logical step. Research from Mintel confirms this fact:
47% of consumers surveyed said their choice of loyalty program would be influenced by instant redemption options, such as cash or discounts.
So with this information acquired from recent surveys and obvious positive consumer sentiment, the next question seems to be: is digital content a good substitution for cash or discounts?
In a word, yes. According to Mintel’s study, 61% of respondents said that lower overall cost for merchandise they would have purchased anyway is an important attribute of a loyalty or rewards program. It’s feasible to assume then, that relevant content, content that the consumer is likely to purchase regardless, is a good substitute for cash or discounts. And considering that 65% of internet users have paid for intangible digital content, there is a huge market for relevant and engaging digital content waiting to be developed6. In the UK, a recent YouGov survey showed that among those aged 18-34 who had engaged in digital activities, 22% spent more than £5 on digital books, the digital content category receiving the highest spend7.
Digital content presents a win-win strategy
Digital content gives businesses the chance to burn points off their balance sheet, while offering the entire spectrum of loyalty program participants the opportunity to redeem points for merchandise in which they are interested or already purchasing on a regular basis.
In essence, instant digital rewards have bridged the gap between reality and perception. By making rewards instantly redeemable, businesses can give their customers the value that they seek: relevant rewards instantly and anywhere, loaded onto the devices they use in their everyday lives. Instant digital rewards, it seems, have created a new trend in loyalty programs:
Programs that work for everyone.
Loyalty: Looking Forward
Featuring latest statistics and defining characteristics of various industry loyalty programs presented by the first club™, “Loyalty: Looking Forward” can help program managers grasp emerging loyalty trends and their digitized, instant future.
Original document from EHotelier.
- Kumar, V., and Denish Shah. 2004. “Building and sustaining profitable customer loyalty for the 21st century.” Journal of Retailing 80, no. 4: 317-330.
- O’Brien, Louise, and Charles Jones. 1995. “Do Rewards Really Create Loyalty?.” Harvard Business Review 73, no. 3: 75-82.
- Liu, Yuping, and Rong Yang. 2009. “Competing Loyalty Programs: Impact of Market Saturation, Market Share, and Category Expandability.” Journal of Marketing 73, no. 1: 93-108.
- Dowling, Grahame R., and Mark Uncles. 1997. “Do Customer Loyalty Programs Really Work?.” Sloan Management Review 38, no. 4: 71-82.
- Jansen, J.. December 30, 2010. http://www.pewinternet.org/Reports/2010/Paying-for-Content.aspx (accessed February 13, 2011).
- Mintel data provided in the PR Newswire piece Instant Redemption Opportunities Lure in Loyalty Program Customers, Reports Mintel
- -CMO (32% hold “little to no value”) taken from “Loyalty: Looking Forward.”