Most loyalty programs are broken. They focus too much on an explicit exchange of value when they should be focused on an implicit value exchange.
Pavlov’s bell and the trap of explicit rewards
Explicit rewards — where you do X and get Y — are proven and powerful tools. We all respond to incentives, but today they’re only part of the equation.
While rewards are a fundamental part of the business landscape (88% of all credit card spending is on a card that includes rewards), some of the most transformative programs did not lead with explicit rewards.
When targeting emerging Millennial and Gen Y audiences who revel in experiences over things, over-reliance on rewards is a mistake.
The quiet power of implicit rewards
The barista who knows your name and your drink. Your favorite bottle of wine waiting for you when you arrive from a long day of traveling. A skip to the front of the line because a single click placed your favorite order. These are all examples of implicit rewards. They’re nuanced, unique to each brand, and growing in value.
In the history of loyalty, some programs have transformed industries. Hertz #1 Club and Amazon Prime led with experiences. Hertz offered a better way to rent a car. Amazon offered unlimited expedited shipping. There were no point systems to be found; instead, they set new paradigms for behavior that competitors had to chase. They depended on a concept of membership.
At Material, we strive to design modern loyalty programs that deliver that sort of industry-changing impact. We believe it’s powered by an experience-first mindset in program design and evolution.
It might sound complex, but we have 3 simple rules that shape our thinking:
1. Seek signature moments that can be elevated with data and membership
Every customer journey has pain points with diminished satisfaction and emotion. Those moments are the areas to hone in on and build something better.
Loyalty can help by adding insights or tools based on a direct customer relationship. Frustrations with long lines or an impersonal shopping experience, for example, can be alleviated with expedited checkout and recommendations based on previous purchases. Or put simply, this is achieved through a relationship that creates value through an exchange of information between members and brands.
2. Layer incentives to accelerate adoption and consumer behavior change
Incentives, with a structured do X and get Y formula, can be powerful motivators. Airline miles, hotel points, and cash-back credit cards are proven to profitably change behavior.
Threshold-type incentives can also change behavior by creating a reachable exclusivity. Reach the next level, and now you can board the plane first or get exclusive access to entertainment.
These explicit incentives are accelerants for adoption, engagement, and retention. They not only improve adoption of tools like mobile apps, but they can also enhance customer experience by delivering value and create an opportunity cost for switching.
3. Evolve with the customer experience front of mind
After we launch a program with a client, we watch member-level performance to see where we can improve. Our indicators are adoption, engagement, and retention. If we don’t see the program achieving expectations, we look to the customer experience for a solution.
It might be enabling customers to use the program in all purchasing channels, as we recommended for Pizza Hut to drive millions of incremental transactions.
Or it could be earning rewards throughout the store, as we recommended for 7-Eleven to drive deeper engagement among members.
In all cases, our lens is improving the customer experience. Because happy customers will keep coming back.
We’re just getting started
We’re entering an exciting time in the loyalty industry when brands and industries that used to seem above the language of “points” and “free” are launching their own rewards programs.
Even Apple and Uber, disruptive companies that used to drive loyalty with superior products, are launching programs — a strong signal that loyalty programs have become an expectation of the overall customer experience and value exchange.
Despite this ubiquity, we think it’s early in the game. There are more customers to delight and more industries to change, and the technology we use to interact is constantly evolving.