How to Improve Your Loyalty Program With Diversified Rewards

January 26, 2017
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People always say that “less is more”.  While it may ring true for ice cream or cheesecake, there’s one place it definitely doesn’t apply: the rewards in your loyalty program. A loyalty program with just a few rewards is like a paintbrush with just a few bristles. The structure is there, and you’ll definitely be able to get some paint on the walls, but the real power comes from all of those bristles working together.

diversified rewards give more opportunities

Rewards in a loyalty program work in much the same way – they give the program its power and purpose and are ultimately responsible for the program’s value as understood by the customer. By adding varied rewards to your program, you’ll be well on your way to building a loyalty program your customers love. So join me as we discover why (at least where loyalty programs are concerned) more is more.

 

 

Why Diversified Rewards Strengthen Your Loyalty Program

1. Diversified Rewards Allow Customers to Find More Value

The most important element of creating rewards for your loyalty program is making sure your customers actually want your rewards. In fact, for something to even be considered a reward, your customers have to value it. While you’re probably thinking that this is pretty obvious, customers actually begin to value your rewards less just by earning them. This phenomenon is explained by the Law of Diminishing Marginal Utility which states that the more of something (like a reward) a customer consumes, the less valuable that thing becomes.

diversified rewards law of diminishing marginal utility quote

For example, let’s say your loyalty program consists of only one reward: a $5 off coupon. The first time a customer saves up enough points to finally receive that reward they’ll be ecstatic. All their saving finally paid off and they can enjoy the fruits of their effort. The next time they earn the reward they’ll still be pretty excited but not quite as much as the first time. Eventually, after receiving the same reward a few times, the excitement wears off and the reward loses some of its intrinsic value. After a while, the reward doesn’t have that shine that made it such a great reward in the first place, which means it no longer seems like a great reward. In other words, the reward has gone stale and what is still a “$5 off” reward starts to feel like it’s worth a lot less.

diversified rewards diminishing return

So how does having more diverse rewards keep your rewards fresh? Including different rewards allows customers to manage their own marginal utility by allowing them to enjoy whatever is worth most to them at that moment. To put this in terms of our example: If they’ve enjoyed your “$5 off” coupon a lot lately, they can try out a free product reward or any of the others your program offers before the coupon goes “stale”.

The best part is that you don’t even have to train your customers to manage their utility. The psychological effect of diminishing returns will automatically steer them towards preserving the value of each of your rewards. As a reward starts to lose its shine, there are many more rewards ready to take its place until it’s shiny as new again.

diversified rewards good versus bad

Building a loyalty program with more rewards helps your most engaged customers continue to find value in your program. The customers that shop with you frequently are the same ones in the most danger of diminishing the value of your rewards. Do them (and your business) a favour: add a couple more awesome rewards and keep your program as fresh as a new coat of paint.

2. Diversified Rewards Allow More Customers to Find Value

Oddly enough, the one thing all people have in common is that each of us is unique. A great loyalty program recognizes the diversity of its intended customers and mirrors that diversity back in the composition of its rewards. Simply put, different customers are motivated by different things and a great loyalty program should be built to capitalize on this fact.

diversified rewards 7 categories motivation

Let’s say your loyalty program’s rewards section was composed of a few percent off coupons. Even though some of your customers will value cost savings above anything else, others are looking for rewards like free shipping to help them get their frequent purchases from the store to their door.  It’s important to make sure your customers find value in your rewards because a customer is far less likely to apply a reward if they don’t feel like that reward applies to them.

diversified rewards reward comparison

By adding varied rewards to your program you’re increasing the likelihood that your rewards menu will include something that truly connects with each of your target customer segments. Take the time to segment your customers, understand their needs, wants and common behaviours, and build rewards that work for them.

A diverse system of rewards allows you to attract customers on the fringes of your target market. Customers groups that find themselves at the tipping point and just need one more good reason to invest in your business or engage with your loyalty program.

 

 

How to Ensure Your Diversified Rewards Add Value

We’ve covered how including a system of diverse rewards can benefit all of your customers, from your most engaged customers to your fringe segments. Let’s move into some things you need to do as you add diversified rewards.

1. Clearly Explain Your Program’s Rewards

While adding more rewards to your loyalty program definitely creates more value for your customers, when not explained clearly. If the rewards in your program are hard to understand, customers may become easily frustrated, leading to an increase in customer churn. In order to avoid this, you need to clearly explain how your rewards work and why they’re valuable. An explainer page is a fantastic tool to communicate the mechanics of your loyalty rewards.

diversified rewards ritual elite

Take Ritual Rewards for example. With eye-catching visuals and simple explanations, Ritual helps their customers start earning faster. They even combine these visuals and explanations to create a step by step example of exactly how a customer can earn their first reward.

diversified rewards ritual earn and redeem model

It’s also important to note that Ritual takes a very conversational tone throughout the explainer page, using phrases like “pro-tip” and including an FAQ. This helps to make the program more approachable to potential customers. By designing something like Ritual’s explainer page, you can describe a value packed rewards program with ease.

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2. Add Rewards Your Customers Actually Want

I know it sounds obvious, but it can be easy to go for quantity over quality when adding more rewards to your program. This shortcut is not only shortsighted – it can actually cause more harm than good.

As we’ve discussed, the key to the rewards in a loyalty program is value. Therefore, adding more rewards won’t help your loyalty program if they’re not valuable to your customers. EB Games has done this extremely well with their Edge Rewards program, where they have fourteen different rewards spread over four tiers of their program.

diversified rewards edge rewards tiers

As you can see, EB Games hasn’t just packed its program full of rewards for rewards’ sake. With the ability to have your pre-ordered games held in store for you, special discounts on gaming accessories, and even a special coupon for your birthday, it’s clear that EB Games is on a mission to reward their customers with exactly what they’re into.

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3. Add Variety to the Structure of Your Rewards

By now it’s clear that offering t many diverse rewards can give your loyalty program a huge boost in overall engagement,  but you can differentiate more than just the style of rewards in your program. Switching up how customers earn and redeem each reward (like the number of points required to earn them, the number of times they can be used, etc.) gives customers some natural variety that helps to maintain interest in your loyalty program over time.

As you add more rewards to your program it is helpful to split them into different customer tiers or limit some rewards to a VIP program  This ensures that you don’t overwhelm your new customers while still continuing to motivate your power shoppers.

diversified rewards sephora rewards

Sephora does a great job of switching up the mechanics of its Beauty Insider loyalty program. Some rewards drop every Tuesday and Thursday, while others are only redeemable in stores. Not to mention they have one of the most coveted VIP programs in ecommerce. Putting these elements together has allowed Sephora to build a loyalty program its customers go crazy over, as is clear from their customers’ reactions on social media.

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This kind of customer affection doesn’t come cheap, Sephora is reaping the benefits of a well designed loyalty program. By differentiating the mechanics in your program you could be well on your way to the same kind of brand love you see above.

 

 

Variety is The Spice of Life (and Your Loyalty Program)

Whether it’s rewards in your loyalty program or, every once in a while, a little extra cheesecake after dinner, it’s clear to see that sometimes “less is more” just doesn’t apply. A system of diversified rewards can go a long way to improving your loyalty program by helping customers find more value and by helping more customers find value. So go nuts! Add a reward, add two, add three! Just be sure you can explain them, that your customers want them, and that you switch up the mechanics to keep them fresh.

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