Six Ways to Decrease Liability in Loyalty Programs

July 20, 2017 Catherine Malone

Loyalty programs are becoming increasingly relevant as businesses evolve to meet the demands of today’s consumer. The one thing all brands should keep in mind with loyalty programs is points liability—redeemable member points that could be a future cost to the business.
 
Loyalty programs that offer points that can be redeemed for prizes or discounts are popular for consumers because they clearly demonstrate the value of being a member. Yet, the more consumers engage, the higher the cost to the business upon point redemption. By implementing low liability strategies, brands allow consumers to engage in creative ways while minimizing their overall costs.
 
Crafting A Low Liability Program Strategy
The key to developing a low liability program strategy is to maintain the overall “feel” of the rewards system that has proved popular with consumers, while reducing the program cost to a brand. Instead of using rewards points as a currency, consider using points to determine consumer “status,” granting access to different membership levels, experiences, or privileges.
 
For example, Panera Bread uses its rewards program MyPanera to encourage its loyal customers to engage with the brand as often as possible. It rewards members based on purchase frequency, rather than point acquisition. Through this strategy, Panera Bread reduces liability as the financial burden is presented when consumers redeem the reward instead of the moment they earn points.
 
So, how do you develop a multichannel loyalty program that reduces financial liability? Here are five strategies that drive consumer engagement while minimizing risk:
 
Experiential
Experiential rewards aim to strengthen consumer affinity at a very low cost to the brand. While these types of rewards carry a high perceived value, the actual cost to the brand can be deeply discounted. This helps encourage repeat engagement and ultimately create a greater emotional connection with the brand.
 
Ultimate Fighting Champion (UFC) uses once-in-a-lifetime kind of rewards like training with a UFC Hall of Famer or VIP access to a pre-fight weigh-in. UFC’s loyal fans jump at the chance for such experiences. Although experiential rewards adhere to a more traditional points system, these rewards are redeemed at a much higher value, minimizing the regularity of the financial burden for the brand.
 
Privileges and Access
One thing that especially appeals to consumers about loyalty programs is receiving special privileges that aren’t available to the general public. Offering exclusivity gives members the feeling of being “in the loop” with brand happenings. These type of rewards are perceived to be more valuable since they usually aren’t something you can physically hold.
 
Brands that offer privileges and access minimize liability since they often cost a business virtually nothing. For example, TOMS’ Passport Rewards program offers customers early access to shop new collections before they’re released to the public.
 
Although it may take the consumer longer to accrue the points necessary to redeem these rewards, these loyalty programs can be very useful as they encourage consumer loyalty while keeping costs down for the brand.
 
Tiers
Another strategy that removes monetary value from the traditional points system is a tiered rewards program. Tiered programs encourage consumer loyalty by allowing consumers to move up through a hierarchal system based on consumer spend and engagement. A tiered system also helps brands understand who their most loyal customers through their engagement with the program, allowing you to reward them based on their continued loyalty.
 
Spotify uses a tiered reward program called Rock Stars that rewards members based on their contributions to the brand’s digital community. In return, high-contributing members are rewarded with premium codes, brand merchandise and experiences.
 
It’s important to vary rewards per level in a tiered program to give members something to aspire to and work toward. Tiered reward programs decrease liability by ascribing the cost of rewards to different levels, rather than carrying an ongoing burden through a traditional points system.
 
Auto Redemption
Auto Redemption programs use a pre-determined threshold of points or period of time to generate a reward automatically for the consumer. These programs reduce the ongoing financial burden for a brand through creating a timeline for when collateral will be spent on its loyalty program.
 
For example, a consumer who accrues 1,000 points is automatically rewarded with a $10 discount on a product or given the same amount in online store credit. Expiration dates can also be set with an auto redemption system, urging the consumer to repeat positive consumer behavior and create a sense of urgency.
 
Eddie Bauer Friends rewards members are automatically rewarded at the end of each program cycle based on number of points accrued and any remaining points are transferred to the next cycle. The only caution to this kind of program is that some consumers may not be as inclined to enroll if they don’t have the chance to pick and choose their own rewards.
 
Sweepstakes
Last, but not least, sweepstakes rewards offer an opportunity for all kinds of businesses to increase consumer loyalty and engagement while lowering points liability. Sweepstakes give a business complete control over the cost value of the reward, regardless of the number of entries or points spent.
 
For examples, Zumiez rewards program points can redeemed for entry into different sweepstakes with awesome prizes like a 1987 Ferrari Testarossa customized by Pink Dolphin. Prizes like these have a higher cost value, so it’s important to balance sweepstakes rewards with other, tangible prizes to reach a wider audience base.
 
Sweepstakes also offer special branded experiences that are not available to the general public. This helps drive excitement and engagement with the loyalty program, as well as overall brand affinity.
 
Key Takeaways
Creating a low liability program strategy can help your brand reduce the financial burden that often comes along with implementing a multichannel loyalty program. Using this approach not only lowers program costs, but it demonstrates great value from your brand to your customers.
 
If you’ve already implemented a loyalty program, think about the ways you can incorporate new rewards with a low liability strategy. Make sure this strategy is tailored to your overall business goals by creating a link between the consumer and the brand, either through social media activity or a referral incentive. Lastly, don’t forget to test your loyalty program to ensure it’s properly aligned with your target audience.

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