Why Should You Consider a Points Rewards Program for Your Business?
Today’s business world is full of competitors who are ready to outpace you at a moment’s notice. Markets are saturated and customers have limitless choices. While the freedom to choose has brought power to the customer, attracting and retaining those customers is at an entirely new level.
You know that in order to make customers choose you, you need something extra special. But what can you add to your business that attracts customers and keeps them coming back as effectively as the smell of Grandma’s freshly baked chocolate chip cookies?
In rolls a customer loyalty program.
Now thankfully, here is where you’ve got the power. You choose which program matches your specific business and brings value to your target audience.
If your business involves frequent purchases, a wide range of products and services, and you need a way to differentiate yourself from competitors with similar products, then we’ve got an answer for you.
Drum roll please…
It’s called a Points Rewards Program.
With this specific type of loyalty program, you give your customers that particular reason to purchase from you due to a higher level of perceived value. The value comes from a specific incentive, which in this case is a virtual currency like Points (or another name of your choice ) that unlocks a world of benefits.
Once they’re enrolled in your Points Rewards Program, this creates a direct bridge to communicate, engage, and build an emotional relationship – all while you collect comprehensive data to target your desired customer segments with the right promotions.
It’s easy for customers to understand, it’s one of the most popular and effective types of loyalty programs, and of course it is known for having a positive ROI.
In essence, here is your answer to stand out from competitors and drive sustainability across your entire business.
Have we piqued your curiosity yet? Great!
Now let’s get into the nitty gritty details of how such a loyalty program works.
How to Create Your Points Rewards Program with Loyalty Prime
First of all, which features do you need to look out for in a Loyalty Platform to technically enable a highly successful Points Rewards Program? We have summarized the full list of features you’ll need below. All of these are of course delivered by our award-winning Loyalty Program Platform Prime Cloud!
Everything You’ll Need in a Loyalty Platform to Power Your Successful Points Reward Program
A great Points Rewards Program needs to be powered by a high-notch tech stack to unfold its true potential. Prime Cloud, the Loyalty Program Platform trusted by premium brands around the globe, has got you covered:
|LOYALTY PLATFORM FEATURE||HOW PRIME CLOUD HAS GOT YOU COVERED|
|1. Loyalty Points Platform Set-up
|2. Loyalty Business & Reward Rule Configuration
|3. Loyalty Points Management System (Points Engine):
|4. Loyalty Reward Types
|5. Loyalty Marketing & Promotion Engine
|6. Customer Behavior Tracking & Incentivizing
|7. Loyalty Member Account Management
|8. Customer Service Functionality
|9. Reporting & Data Analysis Functionality
|10. Accounting Functionality
|11. Loyalty Platform Integrations
|12. Loyalty Platform User Interface
|13. Loyalty Platform Rights & Roles Management
|14. Top-Notch Technological Quality
|15. White-label Loyalty Frontends
Why Global Brands Choose Loyalty Prime as Their Loyalty Platform for a Points Reward System
Loyalty Prime is a global expert in Loyalty Programs and we’ve got the satisfied clients to prove it. With ‘Prime Cloud’ as the powerful engine of your Points Rewards Program, get ready to launch a whole new level of business longevity!
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How Does A Points Rewards Program Work in Detail?
Now that you’ve got a summary of what features you need to implement a Points Rewards Program and how ‘Prime Cloud’ works, let’s go over how this type of loyalty program works in more detail.
A Points Reward Program is your tool to reward customers for their loyalty and efficiently drive the customer behavior you seek. It’s based on the simple premise that your customers sign up to participate and then earn a virtual currency based on certain types of behavior. Once they have accumulated a certain amount, they can exchange their currency for different types of rewards.
Points Rewards Programs have been around for while (you might’ve heard of Starbucks stars or Chase credit card points). But over time, they have become much more holistic and powerful as they:
- Are Data-Driven: you can incorporate the insights delivered by customer behavior tracking to conduct highly efficient loyalty marketing.
- Incentivize Non-Monetary Member Interactions: it’s not just about transactions. You can incentivize other valuable behavior such as writing product reviews, referring friends, sharing profile information, or social media engagement.
- Offer Rewards Beyond Discounts or Free Products: modern customers today expect other options like money-can’t-buy experiences, early access to new products, donations to charity, or opportunities to participate in auctions for exclusive merchandise.
Whether a Points Rewards Program involves basic earning and redemption or covers a broader scope, the core principle remains the same: provide incentives to foster the behavior(s) you seek!
Start by asking yourself three questions:
- Question 1: What do I want my customers to do?
This could be transactional, such as purchases or bookings, or non-transactional, such as social media engagement.
- Question 2: What is this behavior worth to me?
You then assign an amount of currency based on each behavior type.
- Question 3: What do my customers want from me?
Based on this, you identify the specific rewards and benefits that motivate your target customers and assign a value to each.
Then there is the second half: determine which rewards are appealing enough to attract and keep your customers.
You may need to do some customer research to understand what motivates them. Broadly speaking, loyalty breaks down into two categories:
- Behavioral loyalty is straightforward: it is primarily a transaction-based quid pro quo, where “If I do this, I get that“.
- Emotional loyalty is more complex and appeals to how a customer feels about a company.
Even though Points Rewards Programs are by nature based on doing something to earn a thing, that thing can be on the emotional part of the spectrum. The reward could be a special experience, an exclusive product, or early access to new merchandise.
Points, Miles, Stripes or Pixie Dust? Get Creative in Naming your Virtual Currency!
Of course you as a marketer can get super creative with naming your virtual currency! We recommend a name that both matches your brand identity and sparks excitement. Common names include YOUR BRAND NAME + Points, Stars, Miles, Bucks, Credits, Stripes – but it could be something as unusual as Pixie Dust if that speaks to your target audience 😊!
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How Do Businesses Benefit from Points Rewards Programs?
Points Rewards Programs give your business a USP (Unique Selling Point). In fact, according to a study in January 2019 by iVendi Retail , 58.7% of internet users worldwide cited earning rewards or loyalty points as one the most valued aspects of the retail shopping experience.
Furthermore, 69% of consumers say choice of retailer is influenced by where they can earn customer loyalty/rewards program points.
When more customers voluntarily give you their data and continually choose you over your competitors by joining your Points Rewards Program, this improves your financial performance, grows revenue, reduces costs, increases shareholder returns, drives the most valuable customer behavior for your business, and keeps customers coming back over the long run.
Because you have a holistic overview on customer data, you become capable of full-scale business optimization, including optimizing your prices, products, promotions, and place (the famous 4Ps of marketing), and most importantly, how you strategically remain innovative.
In a nutshell, a Points Rewards Program propels your business towards sustainability and longevity, while simultaneously satisfying your customers.
So let’s take a deep dive into the great benefits of Points Reward Programs for your business:
Builds a Unique Selling Proposition That Delights Customers and Makes Them Stick
A well-designed Points Rewards Program utilizes an incentive structure that delivers high value to your customers in a way that makes you stand out from the competition. If customers know that they will not only receive their desired products but also earn a virtual currency that unlocks exciting benefits, they have another great reason to choose you.
The beauty of Points Rewards Programs is that they also speak to the human “hunters and gatherers” instinct: watching your points account grow over time delivers a form of satisfaction in itself that no one-off discount can measure up to. Just consider the plethora of consumer forums out there that help members maximize their frequent flyer miles – some get so excited that they make “hunting” for virtual currencies a passionate hobby!
It’s with this method that a Points Rewards Programs sustainably gets members invested with you: they have a bank account of points that lead to rewards, adding an element of “stickiness.” They see how many points they’ve built up, and what they need to do to achieve that next reward, which in turn motivates additional transactions. Similarly, if they stop purchasing from you, they lose the value that they have accumulated. Real money or not no one wants to lose their bank account, so that becomes another perfect reason to stay!
Turns Customers Into Your Accomplices in Building a 360° Degree Customer Data Base
To effectively drive customer behavior, you need to understand your customers deeply. Which customer segments are the most valuable for your company? Who will likely respond well to which types of incentives, campaigns and promotions and over which channel? Which products are best suited for which customer segments to up- and cross-sell?
Points Rewards Programs give you access to this exact gold mine of answers:
Firstly, customers usually happily share their permission to collect, store and use their data if this is a condition for program participation and if they trust you to use it to their advantage. In many regions (such as Europe with GDPR), this so called “opt-in” is a mandatory prerequisite for customer data usage.
With a Points Rewards Program, customer data privacy regulations shouldn’t be something you’re afraid of as a business, but rather you should consider how to use the “opt-in” process to your advantage. Your members have chosen to enroll, so they want to hear more from you. Just make sure to act accordingly!
Secondly, a well-designed Points Rewards Programs turns members into accomplices to continually grow your data base:
- Members sign up and share their contact info.
- Members become intrinsically motivated to identify themselves at each transaction (even with the traditionally untrackable paid cash at a brick & mortar POS), as well as for other relevant interactions with your company (such as leaving a product review), as only then they will collect their virtual currency!
- You can also offer your members points incentives for sharing additional information in their member profile, completing customer surveys or taking part in customer focus groups, for example.
Drives Your Financial Goals, Delivers a High ROI and Ensures Efficient Marketing Spend
Now all of the above, of course, pays onto one of the key overriding goals of your Points Rewards Program: driving your financial objectives around revenue and profitability.
Points Rewards programs are an extremely efficient way to do so for various reasons:
- Very precisely incentivize the behavior you seek:
As covered above , with a Points Rewards Program you assign a value to all of the customer behavior types you would like to incentivize – and develop a perfectly matching points incentive structure based on this.
For transactions for example, the base points incentive you choose aligns with your average margin so that you can combine it with additional promotional points campaigns and still remain cash positive.
- Reward in a smart, cost-conscious manner:
Rewards can be set up to have a perceived value higher than your costs, so you can deliver value to members much more efficiently than if you gave them direct discounts (which deteriorates your pricing strategy) or cash back.
In addition, points are valued by members as a currency, but do not necessarily equate to direct cash spending because of “breakage” – some points do not end up being used by members.
- Effectively drive behavior in a data-driven manner:
As you track customer behavior on an individual level with a Points Reward Program (see above ), you will know which members are the most valuable and focus more resources on them. A general rule of thumb known as the Pareto Principle states that 80% of your revenue typically comes from 20% of your customers – and that focusing on these as well as customer groups with similar characteristics can dramatically increase revenues and profits.
You’ll also learn which customers segments respond best to which type of points promotions and can optimize your marketing efficiency accordingly.
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Who Is A Points Rewards Program Best Suited For?
Points Rewards Programs are everywhere – from travel and hospitality, to retail, to financial services, to telecommunications and beyond. A well-designed program can help you achieve your objectives in almost any industry, but Points Rewards Programs are better suited for some industries, categories, and companies than for others.
The best candidates for a Points Rewards Program are companies who:
- Have relatively frequent purchases and/or interactions.
- Can offer rewards with a perceived value that is higher than the cost of the rewards.
- Can offer some type of reward that is aspirational, e.g., products or services with high value and/or scarcity.
- Can identify a range of desired behaviors so there is a variety of ways for customers to earn points.
- Are willing and able to develop data tools to make the most of the rich data a Points Rewards Program can provide.
Successful Points Rewards Program Examples
In order to give you a better idea of a few successful loyalty programs examples, let us present to you the concepts of two well-known Points Reward Programs in the US: Southwest Airlines Rapid Rewards and Starbucks Rewards.
Southwest Airlines Rapid Rewards
Southwest Airlines, one of the largest carriers in the US, operates a highly successful Points Rewards Program known as “Rapid Rewards”.
How it works:
- Members earn points in several ways:
- Flying on Southwest – earning based on the type and dollar amount of the airfare
- Bonus points for top tier members
- Bonus points for participating in promotional offers
- Points for spending with numerous partners, including the Rapid Rewards Credit Card
- Members have several options for using their points:
- Flights on Southwest, with a variable redemption structure. For example, if a member is willing to fly on a less-traveled route on a less-traveled day, the trip might only cost a few thousand points. If they want to fly on a popular route during Christmas holidays, they have to spend far more points.
- Give points to another member
- Donate points to charity
- Rapid Rewards Credit Card members can use their points to purchase gift cards, merchandise, and experiences
Why it’s successful:
- Brand appropriate: Southwest emphasizes simplicity, transparency and customer friendliness, which is reinforced with Rapid Rewards.
- Flexible earn and redemption rules: the variable earning and redemption structure is relatively new in the U.S. airline industry, as it was only introduced in 2007. Prior to that airlines had fixed, published reward charts that created some distortions in reward pricing. With its variable reward structure, Southwest can offer some flights for very low point levels, making the program appealing and motivating to a much broader audience.
Starbucks Rewards is another well-known example of a Points Rewards Program. It has gone through several changes over the years – each one an improvement – and is both widely popular and successful as of today.
How it works:
- Members earn “Stars” for their purchases
- Stars can be redeemed for beverage add-ons, free food and beverage items, and Starbucks merchandise
- Members earn extra Stars for using the app for payment rather than cash or credit cards, for engaging with the app, for participating in promotional offers, and for using the Starbucks Rewards Credit Card
Why it’s successful:
- Brand appropriate: rewards align with their target audience expectations with clear earning and redemption rules.
- Incentivizes high frequency, ongoing purchases: incentivizes highest value customers to make repeat purchases over the long term, especially via the app.
- Holistic program integration with the member experience: with the combination of app and credit card, customers earn rewards seamlessly for every type of interaction with the Starbucks brand.
Points Rewards Program Best Practices
Now how can YOU develop a successful loyalty program based on points? Are there best practices that help you leverage all the great benefits of a Points Rewards Program? Oh yes, there are – and we have summarized them for you!
Here are the top 8 principles that empower you to create your highly effective Points Rewards Program!
Best Practice #1 Use a Sound Strategy
Do the work up front to clarify your goals and objectives – exactly what do you want to accomplish with your Points Rewards Program? Which customers do you want to appeal to? Set up your point structure to reflect what you are trying to achieve by emphasizing and rewarding the behaviors you desire.
Best Practice #2 Base Your Points Reward Program Value Proposition on Customer Research
Research and analyze your customers to understand who they are and what motivates them and build your value proposition around what you learn. For point-earning and rewards, be sure to find the right mix of behavioral and emotional incentives that appeal directly to your target customers.
Best Practice #3 Determine the Right Points & Rewards Structure
It is critical to identify your desired customer behaviors and assess how much value they bring you – that assessment should drive the earn rate you assign to each behavior. On the reward side, look aggressively for reward options with reward leverage – high perceived value relative to their costs.
In many cases, your company may already be offering add-on services or features that could be positioned as rewards for little to no incremental cost. When pricing rewards, set your rates so that members earn quickly enough for a reward to be motivating, but not so quickly that they “cash out”, meaning take the money and run.
Best Practice #4 Implement a Mix of Base and Bonus Points
Keep your base earning rate to a level that still leaves you with a budget for bonus points to drive incremental behaviors. A common practice is to publish an earning rate of 1-2% and offer targeted bonuses to increase the rate for desired customer segments. For example, you could offer a 20% bonus for members who have not shopped in a while, while keeping your base rate at 1% – protecting your program’s finances.
Best Practice #5 Keep It Simple but Exciting
Make your value proposition so clear and easy to understand , that it fits into a convincing “elevator pitch” of around 20 seconds! Build in a few options and variations but don’t go overboard ! Ensure your program stays exciting, by offering bonus promotions, seasonal campaigns and sweepstakes, for example. You can also expand your Points Reward Programs over time by adding additional loyalty program features and introducing new earn and reward options or external program partners.
Best Practice #6 Deliver a Great User Experience
Be customer-centric and develop a user experience that makes taking part in your Points Reward Program a real joy! Your members should be able to interact with your Points Reward Program how and when they choose whether in an app, on social media, online, in-person or through a call center. Needless to say, it should super easy for your customers to:
- Sign up to your Points Reward Program
- Understand how they can earn points and rewards
- See what they’ve earned
- Understand what rewards can be earned next
- Redeem rewards
Best Practice #7 Use the Right Technology
And finally, a success factor that cannot be overestimated: choosing the right technology to power your Points Rewards Program. All of the great benefits of Points Rewards Programs heavily depend on the right tech stack that fuels it.
Look out for a Points Reward System Platform that allows you to:
- quickly set-up your program according to your business rules, mirroring your data structures and seamlessly integrating with your existing IT tech stack.
- run and manage your Points Loyalty Program initiative in an efficient, data-driven and high-performing manner.
All features you must look out for in a state-of-the-art loyalty points management system are summarized above !
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Best Practice #8 Consider the General Loyalty Program Best Practices!
In addition to these very specific best practices for Points Rewards Programs there are a number of useful success factors that apply to any type of customer loyalty program. If you are interested to dive deeper on this, you can do so here .
How to Combine Your Points Rewards Program with Other Loyalty Program Types
A Points Reward Program should excite your customers! It needs to consistently remain fresh and interesting if you want to keep them engaged over the long run. The modern customer has high expectations, so you need to adhere to and even try to surpass those as time goes on. When you combine your Points Rewards Program with another type of loyalty program, this brings the entire program to a whole new level.
Here are a few ways to do so:
- Tiered programs: airlines have long offered not just Points Rewards Programs, but also tiers that include upgrades, early boarding, free bag check, and many other perks (mostly benefits that are on the emotional side of the spectrum). Tier qualification is often based on points earned during a set time period, but can also be based on spend, tenure, or a combination of criteria.
- Surprise and delight: it’s easy to add surprise rewards to a Points Rewards Program. Your selection for who receives a surprise reward could be based on points earned in a certain time period, or you could use a combination of criteria.
- Partnerships and coalitions: You can also expand your Points Rewards Program by adding external partners both in the form of short-term campaigns or long-term partnerships. This not only delivers great new options for your members to earn or redeem points, but also unlocks additional revenue streams for you by making partners pay for their participation in your program.
- Fee-based programs: you can add a fee-based element to a Points Rewards Program, for example, an annual membership fee a member earns points at a faster rate, earns bonus points, or has access to special rewards. Be sure that the member benefits for a fee-based program are valuable enough to make members willing to pay the extra fee.
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