Rewards Programs set to boom

If you thought you'd seen a huge increase in the number of fly buys, loyalty programs, frequent flyers and rewards schemes, well, brace yourself because you ain't seen nothing yet.

Loyalty and Rewards programs are here to stay and set to boom even further.   Reward and Loyalty programs started becoming popular in the 1980s. Essentially, they are a marketing tool that serves one or more of the following purposes:

Motivate participants to build points by purchasing more products or services from the sponsoring company.
Own the top of a consumers mind so that the sponsoring company is the first business considered when the consumer is purchasing goods or services. As a thank you to the customer.
As a way of pushing customers up the loyalty ladder.
As a way of separating the company from its competitors.
As a way of gathering referrals.
As a method of gathering feedback from its customers.
As an opportunity to “clean up” their database.  
As an opportunity to segment their database and categorise customers into different groups so that communication can be better targeted.  

Loyalty and rewards programs are a behavioural tool that companies use to influence customers into behaving the way they want them to. If you want your customers to purchase goods that are slow moving in your range, just double the points for those products and see what happens! If you want to get more referrals, then do the same.    

Around the year 2000, a lot of programs that were predominantly paper based, moved online. The advantages of doing this were compelling: more flexible, cheaper to set-up, more interactive, better, faster and cheaper communication with customers, easier to track effectiveness of the program, easier to extract feedback from customers. In addition, through its intrinsic spyware, companies could track how popular its incentives were.  

So why do we say “Loyalty set to boom?  

Following the release of his book The Ultimate Question by Bain & Co consultant Fred Reichheld, boardrooms and marketing departments have rushed to apply the mantra. The ultimate question is “ How likely would you be to recommend us to a friend?” People who score 9s or 10s are promoter. They generate the growth in business and make employees proud to be there. Passives are those that give you a 7 or 8. They're perfectly satisfied for the moment, but they'll switch to a competitor if something better came along. Then there are those who score 0-6. These customers are detractors. They complain and will eventually defect. If you take the percentage of your customer base who are promoters, subtract the percent who are detractors, you will come up with the NET PROMOTER SCORE or the net worth of your customer base.  

Research by Fred Reichheld claims a positive correlation between NPS and the growth of a company. The best example of this is General Electric (GE) who have adopted NPS throughout the world. GE, in 2005, reported billions of dollars in revenue from increased market share due to the implementation of NPS and has passed on their expertise to GE customers to help them improve their market share as well. In 2006, GE shared the NPS methodology with 100 car dealers that use 11 of its products. After using the NPS system, the car dealers market share rose, also increasing GE's sales to them.  

It's all well and good for a company to work out what their NPS is but what are they going to do about the results once they know? What is Ford in Australia going to do with an NPS of – 25 while BMW has a score of +59.  Or Acer with a score of -40 going to do to improve it's customer experience against Apple who have an NPS of +29? What about Ninemsn with – 38 as opposed to Google with +30?  

In the end, these companies have to come up with strategies that will improve the customer satisfaction. That brings us back to loyalty programs. With its ability to deliver a heightened customer experience, loyalty (rewards) programs are in the best position to improve a company's NPS. Think about it. The sponsoring company rewards you every time you buy something, give them referrals or offer feedback that will improve their business.  

Off course there are other techniques for improving the customer experience but rewards programs cover the whole gamut of objectives that a company seriously tries to achieve.  

If applied properly, it is the most comprehensive approach and also has the best return on investment.