March 2009

How to break through with your
rewards program during a recession
Many firms are conducting extensive market research to optimize their rewards. It’s a good thing. By Mark Laver and Gailynn Nicks

In an era when the average consumer is trying to squeeze more pennies from their dollar, more and more companies are rolling out rewards programs. Furthermore, those companies with programs in place are making refinements in attempts to make their programs more successful. However, a proliferation of rewards programs makes differentiation between competitors difficult, if not impossible. Rewards programs tend to serve one of three purposes, they are Strategic (i.e. a grocery store card that collects data for analysis and profiling to leverage one-to-one communication, cross-sell and up-sell), Tactical (i.e. stamp cards in coffee shops - no data collection, but rewards high spenders) or Relationship based (i.e. airlines and hotels, where the aim is to strengthen the relationship between the consumer and the brand).

Second tier benefit
Yet, normative data collected by Ipsos Reid from around the world suggests that satisfaction scores for rewards programs are low across countries and sectors. Perhaps this is not surprising, given that rewards programs tend to show up as second tier benefits compared to the basic offer and price. Typically, they show up as a driver that contributes five percent or less to overall loyalty, although this may be higher where the program significantly influences the customer experience (think Air Canada Super Elite members or Starwood Platinum members).

Not surprisingly, many companies are conducting extensive market research with their customers and the general population to optimize their rewards program as a way to generate additional market share, and thus, profits.

• The research process for rewards programs can encompass several steps.
  Exploring the characteristics of the sector in question, including number and diversity of offers/value propositions in the market.
• Qualitative research to explore concepts and test reactions, to ensure loyalty initiatives are relevant, and have the right tone and content for marketing communication.
• Concept and proposition testing to prioritize and optimize features of a potential or current program.
• Critically, all research into, or measurement of, rewards programs should address the specific business objectives of the program, both financial and brand-related.

Lessons learned
Research and development conducted by Ipsos Reid in the rewards program area suggests that companies considering a new rewards program, or refining their rewards program, should consider the following lessons learned.

1. Rewards programs should “first do no harm.” They should be an opportunity to remove barriers to loyalty and then to build positive customer experiences. This is not always the case in reality.
2. Rewards programs need to understand the context of the category to build the right program. The rewards program requirements for an ISP or other subscription-based sector are different from a retailer or other high frequency sector, where customers have to make the decision to choose the brand on each usage occasion. Companies should take into account the competitive and customer context.
3. Rewards programs should be an inherent part of the customer experience and build both emotional and rational elements of the relationship.
4. Rewards programs must align brand and company strategy – successful rewards programs are part of a company-wide customer-facing agenda, not just a set of financial giveaways.
5. A means to an end – rewards programs should be aimed at improving the company’s ability to give each customer exactly what they want in the most efficient way. For example, to optimize the exchange of value between a company and each customer, either at an individual level or through segmentation, profiling and targeting. Ultimately, a successful rewards program should build greater revenue for the company, greater relevance of offer for customer and establish and strengthen relationships with customers.

Successful rewards programs should aim at driving both behavioural and attitudinal loyalty. They should make a real difference in the customer experience and positively impact perceptions of the brand – the experience of a frequent flyer who has access to the lounge, pre-boarding, upgrades, and extra baggage allowances should be very different than the consumer who flies once a year. The value proposition of the program is based on both tangible and soft benefits.

Rewards are most effective when hard and soft rewards are linked together (say and do).
For example, a thank you message with free texts or an apology for an incorrect bill with a corrected bill/refund attached are far more effective in delivering brand messages than either “say” or “do” are on their own.

Obviously, all rewards programs need to offer value to both the company and the consumer. The company needs to apply a rigorous cost management of the program to maximize the financial value of rewards to members. The benefits of the program must be both desirable and achievable. People want something that is desirable to them and would be regardless of the program. Rewards must also be structured so that customers at all levels can attain a benefit.

Lastly, programs should also be perceived as having “easy value” – this is a program that is easy to use and get rewards. The simpler and more transparent the program, the more accessible customers perceive the rewards to be. But this must not be at the expense of the other aspects of the program, such as financial management. Being transparent and accessible is often difficult for many programs. The average consumer simply isn’t that well versed in all the nuances of the program. Thus, when it comes time to redeem, they become frustrated. Further, it often becomes difficult for those running the reward program to put themselves in the shoes of the average consumer, given their intimate knowledge of the program.

As more and more companies roll out rewards programs, the proliferation of them has made it very difficult for the average consumer to understand the differences. For the company that manages to break through this quagmire with a relevant, easy to understand program with value orientated rewards, comes increased market share, and a higher level of profit.

Mark Laver is an associate vice-president with Ipsos Reid. Mark focuses primarily on the areas of Customer Loyalty and the Technology and Energy sectors. Gailynn Nicks is the Ipsos Global director for Product Development and Innovation. Ipsos Reid is a global survey-based market research company. A leader in the Canadian market, Ipsos Reid specializes in five key areas: Customer Loyalty, Advertising, Marketing, Media and Public Affairs research. Our industry specialization model means we have an intimate understanding of your brands, your consumers and your marketplace.