Here is a video explaining how to design a Loyalty Rewards Program based on your objectives

Broadly, there are three types of Loyalty Program Designs:

Earn & Burn Design:

This is the most common format for loyalty programs. Customers can earn points for various activities and they get rewards based on the points earned. There are many other variations possible as well within the format.

You would use this if discounts and promotions are a part of your business strategy. You want customers to keep visiting your website as that may lead to a purchase and you have fairly high margins.

Customers are presented with multiple points earning opportunities across channels. They can earn rewards by redeeming their points. Tiers may or may not be part of the program depending upon the objectives.

Design Objectives and their Strategies:

Increase Purchase Frequency
This needs to be a high engagement program. When customers are engaged, their purchase frequency will improve automatically.

  1. Provide multiple opportunities for earning points both onsite and off-site.

  2. Keep changing rewards offered through the program. Free products work well. Rewards can be used to introduce new products to the customers or clear inventories.

  3. Set an expiry time frame for points which is close to the average time between purchases.

  4. Create promotions round the year using loyalty points as an incentive.

Businesses to which applicable?
Cosmetics, Apparel, Nutrition Supplements. Examples of such a design - Sephora Beauty Insider, Predator Nutrition, The Republic of Team, etc.

Increase AOV
The program should create incentives for customers to place higher value orders.

  1. Award bonus points for orders above a threshold. There can be multiple such thresholds. The bonus points and thresholds can be different for different tiers. When a customer's cart value is just short of any threshold, call out the incentive and recommend additions to the cart to cross the threshold.

  2. Setup rewards that are triggered only when customers spend a certain amount in a limited time duration. When customers are in striking distance of these rewards, recommend purchases that will earn them the reward

Businesses to which applicable?
Gifting sites, customizable products, service businesses selling warranties, maintenance contracts, etc.

Improve Stickiness against Competition
At any point in time these, majority of your customers should have points in their account that are worth something. The customers are invested in your business. This will make the customers choose you vs a potential competitor.

  1. Set rewards that give a discount on the next purchase. The rewards threshold should be such that an average purchase makes a customer eligible for the next round.

  2. Award higher points for first 3 purchases and get customers accustomed to the earn and burn cycle.

  3. Award points for continuous engagement

  4. Setup tiers and give exclusive benefits for higher tiers.

Businesses to which applicable?
Airlines, Travel, Electronics, Seasonal Gifting.

Customer Segmentation Design

In this basically customers are segmented into loyalty tiers based on their annual spends. Also, the rewards are associated with tiers instead of with points.

You would use this design if you brand doesn't associate itself with discounts. You sell through other retailers as well and discounts can create a channel conflict. You may be a premium brand and you customers value experience over discounts. You may also be a B2B retailer and the Earn and Burn design would mean very large kickbacks to some high spending customers.

Tiers happen to be the central component of this design. The program will segment customers into tiers based on their spends and they unlock rewards by attaining a tier. The rewards may be a mix of discounts or add-on services like expedited shipping, early access to sales, priority support, etc. Customer communication is focused on the benefits of current and next tier and what it will take to get to the next tier. Points will still be useful as a means to attain the next tier. So desired customer behavior can be influenced by giving bonus points as an incentive.

Businesses to which applicable?
High-end product retailers, Luxury brands, B2B business.

Low Margin Design

Here points are given to customers only when their orders cross a certain threshold. This way the loyalty payback as a percentage of revenue is very low.

You would use this design if you have low margins or low order values, which makes the kickback look unattractive at the face value. You can also use this if you want to offer a loyalty program but do not want to reveal to the users that the percentage payback is less.

In this design customers will earn fixed points only for orders that cross a certain threshold value. You can award higher points for the first 3-5 purchases to create an interest even if they don't cross the redemption threshold. Between purchases keep awarding small number of points for email click-through, site visits, app opens, etc. This is to keep them engaged. Also, a continuous communication is required to remind them that they are within reach of the promised rewards.

Businesses to which applicable?
Electronic Retailers, Affiliate sites, Groceries.

You can also get the presentation from here:

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