For the past few months I’ve been hard at work building out a new loyalty program for my company. We’re working with a great partner (500Friends) and I’ve been doing a lot of extra research while I’m at it (books I recommend: Loyalty Myths and The Loyalty Leap) – but building out a loyalty program is definitely a complicated process.

In particular, what I’m finding to be especially tricky is finding the balance between offering customers a program that’s worth being a part of, while at the same time making it financially viable for the company. One issue of utmost importance has been to determine what behaviors we want to reward our customers for doing, thereby encouraging and guiding that behavior. This, however, has been the fairly easy part. As long as we know what company goals are (this is much more than just rewards for purchases, by the way), it’s fairly simple to determine which behaviors we want to drive.

Where it gets more difficult is in determining what rewards are worth giving out – and here we’re doing a bit of guesswork coupled with our knowledge of our customer (through experience, feedback, etc). It’s easy to reward people with coupons and free product, and frankly a lot of customers are going to want that – so we need to offer it. The thing is though, these have costs associated with them, and those costs are beyond just what the actual product cost is. What’s particularly important to take into account here when determining rewards, and what we’re working on figuring out, is how much cannibalization of additional sales you incur at the same time.

Say, for example, you run a buy twelve, get the thirteenth free program. Isn’t it entirely likely that if a customer is loyal, and has already purchased twelve items, they were going to go ahead and buy a thirteenth eventually? Yes, it’s important to reward and recognize that kind of behavior, but maybe in instances like this you’re better off as a company by rewarding them with recognition as a good customer alone (a thank you email, a badge on their profile)?

One particular quote in the Loyalty Myths book that I am really taking seriously is this:

 “Ideal rewards are those that tie into the sponsor’s products or service or enhance its use.”

So, what we’re trying to do is think beyond the simple rewards that give customers coupons and free product and focus on ancillary products instead. We’re thinking “What kinds of things would our customers love to have, but are unlikely to be buying from us in the first place?” We want to reward our customers with unique items and experiences – in the end it should give them a reward they will appreciate, but also not cause a negative impact on top-line sales by giving away what these customers were already going to purchase in the first place.

Above all, we want to be respectful of our customers with the rewards program – we want to make sure that whatever we’re offering them is something they will find value in and feel is a good reward. But at the same time, we need to make sure that what we’re doing is positive for us as well – otherwise we won’t be able to keep running a rewards program!

Simple stuff, on the surface … but like everything, it gets more complicated the more thought you put into it.

Avoiding Cannibalization in a Loyalty Program
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