Rewards System Models — If applied correctly increases customer loyalty
Recently i visited a famous beverage chain along with my friend who wanted to have a fresh drink. He was the one ordering and a regular customer to that chain. Therefore, he has a membership with that brand to gain points for each order and may redeem those points for future consumption. At final stage of the order, he realized that he forgot to redeem his points for this order and felt annoyed. However, he did not want to holdup the line so he just completed the order.
While waiting for his order, he expressed his dissatisfaction on that beverage chain’s way of redeeming the points and asked me about this inefficient process. In order to understand better about this redeeming process, I asked him to go through redeeming procedure. After this I understood that they used a products-for-points model. I explained the chain’s approach on this model to my friend and realized how the wrong selection of rewards redemption model can lead to dissatisfied customers.
It’s worth understanding why merchants use rewards and different redemption models to exchange value with them.
The main motivation for rewards is to bring repeat customers and become loyal to that brand. Also it encourages them to buy upscale/up-size or cross-selling products. This is highly valuable to their business and gives their customers membership benefits. These benefits come in various forms based on the redemption models the merchants chooses to use within their selling ecosystem. Among many, the popular ones are discount coupons, referral coupons, members-only products, flash promotions, points-for-payments and products-for-points.
In my friend’s case, the beverage chain has chosen to use the products-for-points model. This model requires two separate catalog called Rewards Catalog and the Order Catalog. It uses a two-step process.
Step 1: They redeem their points for equivalent product(s) from the redeem catalog in the form of product vouchers.
Step 2: They will use these product vouchers at the point of checkout and avail it there.
In order for this model to work, the merchant maps eligible points to their products in beforehand to maintain the rewards catalog. Their chosen model is to offset the points-for-products in order to push more products out. Moreover, this is an efficient model in the perishable or short shelf-life goods.
One big disadvantage of this model is maintaining two different catalogs. As well as using the rewards redemption at the order checkout will confuse customers. Usually this model engages two different touch points for handling the Order Catalog and Rewards Catalog.
Based on my friend’s experience of pain-points, I felt the beverage chain could have used a different model. The most appropriate could be points-for-payments model. The customer will use his points to offset on the final order amount. On the beverage chain’s end, it has set the dollar value to points-for-redemption and points-to-dollar value for orders.
For an illustration:
$4 spend — 2 points will be awarded.
10 points — $1 can be offset or value of goods can be bought.
So based on the above walk-through it seems that choosing a wrong rewards redemption model will put the customer experience in jeopardy. In the worst case they would stop using the membership and may switch to other brands any time. This puts the business in a vulnerable position as their competitors are ready to attract such customers effortlessly.
In conclusion, if an appropriate rewards redemption model is used, customers would have a seamless experience. This puts customers at ease to buy more and stay loyal to that brand.
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