Loyalty programs are an integral part of any successful CRM strategy. While most of the brands we work with are 100% sure they need a loyalty program (namely one equipped for the demands of a mobile-first world), many marketers are faced with great uncertainty when it comes to their loyalty program design.
And for good reason: the loyalty landscape is complicated. There are so many different tactics, methods, and terms to decipher, it can leave even the most decisive marketer at a loss. After helping hundreds of brands design, manage and optimize loyalty programs that simultaneously support business objectives and make customers happy, we’ve weeded out the superfluous jargon and boiled it down to the fundamentals to get you started.
Types of loyalty programs
There are two major types: coalition or branded. Let’s explore what each one entails and how to know which type is right for you.
Coalition partner programs
With a coalition partner program, you’re looking at a network of noncompetitive partners from different industry sectors collectively co-sponsoring and marketing loyalty programs to its users, providing them with universal loyalty currency that can be redeemed with any participating brand.
A coalition partner program might be a fit for you if:
-Your frequency of purchase is low and transaction size is high (think: automotive, mobile devices, home appliances, etc.)
-Your market is highly commoditized, and you want to find a way to differentiate your brand
-You’re disintermediated by a distributor from the end-customer
-Your margins do not allow for or warrant sophisticated one-to-one personalization and marketing at scale
Branded enterprise programs
A branded enterprise program functions and is managed independently by an individual company. The opportunity to earn depends on how frequently a consumer interacts with a brand and/or how much they purchase.
A branded enterprise program might be a fit for you if:
-Your frequency of purchase is high (as is your engagement with the consumer through subscription or non-purchase), so you have the ability to widely market
-Your market affords consumers many choices, so you’re looking for differentiation through a value exchange
-You want complete control over the branding and to leverage the program to drive specific business outcomes
-Your brand’s margins allow for and warrant sophisticated one-to-one personalization and marketing at scale
-You’re looking to increase “switching costs” of moving to a competitive service or product.
Loyalty models
You’ve got your loyalty program types covered. Cool. Now it’s time further define them by the application of a loyalty model. There are two of those too: transparent or opaque. Let’s define them and talk about the pros and cons of each.
Transparent model
The transparent model delivers value to consumers in the form of cash back, points, or a similar token (i.e. get $1 back for every $10 spent).
Pros
There’s a clear, published value proposition that’s easy to explain to customers, and they generally get to decide how the value of their points is redeemed.
Cons
For starters, it’s much harder to A/B test various recognition scenarios across customer segments. There is some potential liability carried from some percentage of total points, as well as complexities around changing transparent economies once they are published (i.e. likelihood of customer complaint or negative feedback around changing the value of a specific behaviors that has already been published).
Opaque model
With the opaque model, the value back to the consumer is rendered in the form of surprise & delight, status, levels, tiers, badges and other methods that combine qualifying activity to determine eligibility for value back.
Pros
As opposed to strictly offering points, your loyalty program can offer recognition through a variety of means, such as surprise & delight or tying certain activities to a tier. As a result, the projected liability is typically easier to manage than. It’s also easier to shift the value of a particular behavior without negative feedback and to A/B test various recognition scenarios across customer segments.
Cons
Consumer choice tends to be more limited than with transparent programs, and program success is highly dependent on whether the recognition mechanisms are perceived to have high value by all potential members.
That covers your crash course in the essentials of loyalty program design. Of course, there’s a lot more you’ll want to consider when setting out on this endeavor, so make sure to check back for our deeper dive into each of the program types and building a points economy model or get a demo today.
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