“Rewards” is a bad word – but it means so much more than discounts.
Thanx recently participated in Mediaplanet’s Loyalty and Rewards initiative: industry thought leaders united to shed light on customer satisfaction and how to create beneficial merchant / customer relationships. You can pick up a copy of the Loyalty and Rewards publication in the March 13 edition of USA Today.
For our contribution, we set out to unpack the nature of customer rewards. New technology has made it possible for merchants to give their customers a personalized, non-generic experience by varying the types of incentives used – an ideal strategy for businesses evaluating new ways to improve customers satisfaction.
Customer Incentives In Their Current Form Do Not Work
As we discuss in our article, “How to Design an Innovative Rewards Program in 2015,” recent stats reveal “frustration” to be one of the prevailing sentiments about existing customer rewards. A COLLOQUY survey found that 93 percent of customers rate the types of rewards offered as either “very important” or “somewhat important” to their participation, but a whopping 54 percent of U.S. consumers feel dissatisfied with loyalty programs based on the reward offerings.
This frustration stems from a disconnect between two types of brands and their respective customers:
- Brands that choose to discount their products often appeal only to promiscuous price hunters (rather than loyal, high-value customers).
- Brands that choose to NOT discount their products still need a way to make the customer feel appreciated in order to make sure they come back.
Interestingly, both types of brands need to do the same thing improve their customer relationships: think through the nature of customer loyalty.
The Nature of Customer Loyalty
Have you ever gotten cash as a birthday present? Don’t get me wrong, it’s pretty cool. But, let’s be honest – way less cool than something tangible, personalized, and thoughtful.
Brand / customer relationships work in a similar way. Though cash for cash’s sake affects customer behavior, it’s only on a surface level. Customer loyalty actually goes three levels deep:
- Hand: customers make a snap decision to purchase from a brand (e.g. “This brand seems to have cool packaging and a low price”).
- Head: customers make a logical decision to purchase from a brand (e.g. “This brand seems to have the best product available”).
- Heart: customer makes an emotional decision to purchase from a brand (e.g. “This is my brand and I love it”).
Rewards fail when they only address the first level of loyalty. Just like the cash birthday present, discounts can only get a merchant so far. To foster a closer relationship with customers, brands need to think strategically about rewards and offer new incentives.
Breakdown of New Incentives
There are actually three types of incentives that affect customer behavior:
- Monetary: customers receive cash (e.g. 10% off)
- Item-based: customers receive a specific thing (e.g. a free bag of chips)
- Experiential: customers receive an experience (e.g. a meet and greet with the CEO)
By varying the types of incentives offered, brands can foster much closer relationships with their best customers.
The Best Ways To Improve Customer Satisfaction
Using all three rewards types will improve customers satisfaction – on one condition: effective execution.
All three rewards types require the same three tactics to be successful:
- Simplified redemption: customers have to jump through as few hoops as possible to redeem rewards
- Personalized content: rewards communication has to be relevant to the customer
- Tailored rewards: rewards have to be appealing to the customer receiving them