The Pros and Cons of Real-world vs. Online Rewards in Customer Loyalty Programs

Digital Customer Loyalty Rewards on SmartPhoneCompetition for customer loyalty remains as fierce as ever. Last year, we cited a report from the Huffington Post stating that 70% of the world’s 2,000 largest companies would be expected to use some type of loyalty rewards program by 2014.

One way retailers and other #SMBs are staying competitive is through digital rewards for customers. Despite the rising digitalization of everything around us, is digital always the best way to go when it comes to establishing loyalty rewards programs?

Clark Buckner of spoke with several loyalty program experts to get their input on the tangible vs. digital rewards debate. He shared his interview with us below.

Podcast: Rewarding Customer Loyalty in 2014 and Beyond

Ashley Tate, Director of Marketing at BigDoor, and Barry Kirk, VP of Loyalty Strategy at Maritz Motivation Solutions, talked with Clark Buckner of TechnologyAdvice. They discussed the future of loyalty rewards, the impact of the digital landscape on their programs, and factors that help create a positive customer loyalty program experience.

Having been involved in the space over the last century, Maritz focuses on loyalty legacy, while BigDoor, a relative newcomer, directs its efforts toward the digital side. With such a broad range of experience and knowledge to pull from, these two customer loyalty experts provided an engaging interview as both shared concurring as well as disparate insights on the current and future state of loyalty programs.

Shifting to Digital Rewards for Loyal Consumers

The future of rewards treads a digital pathway. Companies are flocking to digital platforms to reward their loyalty program members. Tate illustrated that these types of soft online rewards are most likely going to play an instrumental role in the loyalty space moving forward.

The Future of Tangible Rewards

Although admitting to the fact that the digital landscape has opened up many doors for different types of rewards, Tate nevertheless believes that tangible rewards are definitely here to stay in some capacity.

Kirk harped on the need to take the widest possible assumption of what a reward experience could be. Should it be a tangible item shipped to your house that you open out of a box? Or should it be an intangible reward that’s interesting and exciting? Or a mix of these components?

A concrete example of the mash-up between the two is when BigDoor ran a Starbucks campaign where they offered tangible rewards in the form of mugs as well as digital rewards in the form of a sweepstakes entry.

Financial Liability in Loyalty Programs

Kirk mentioned that when moving into the digital side, it seems much harder to nail down ROI and cost analysis. However, more financial liability exists with tangible rewards.

Tate expounded on the concept of a non-dollar-backed currency where financial liability occurs at the point of reward redemption rather than when the reward is earned. For marketers, this is a great way to offset financial liability and to upsell programs. Physical rewards could cost thousands or even millions of dollars, depending on what the company seeks to give away.

For example, let’s say the company wants to give out 100 mugs, yet only half of the mugs are redeemed. The company is then stuck with a physical, tangible liability they’ve already paid for. Where digital rewards come in to play is that when consumers are rewarded at the point of redemption, this doesn’t hit a balance sheet until the loyalty program member actually redeems their earnings.

Measuring Loyalty Program Outcomes

  • Registration, engagement, and retention: These are the three big metrics that brands running loyalty programs should direct their focus to rather than just considering the rewards being given away.
  • Cohorts analytics: Tracking a cohort can be a huge success marker for loyalty programs. This means creating a separate customer segment who is not part of the customer loyalty program. This allows marketers to look at each segment individually, giving them a general sense of what’s working differently between the two groups. In an era where marketing has become data-driven, analytics are essential to growing a program and making it last.
  • Capturing data: The brands that are winning and standing out these days are those focusing on learning more about their customers:
    • What drives an individual to purchase their product and services?
    • What causes them to connect with the brand through various channels?
    • What makes the consumer the happiest in their customer experience?

Once all of this data is in place, marketers have a unique opportunity to look at customers’ journeys.

To close, Tate sees digital rewards dominating the loyalty space, along with supporting structures such as the non-dollar-backed currency and cohort analytics. Although Kirk acknowledged that digital rewards may play an essential role in the loyalty space, he still believes that tangible rewards will continue to reign supreme.

Ultimately, it’s not about what people are redeeming, but it’s about whether those redemptions drive profitability for the company offering the rewards program.

photo credit: suanie via photopin cc