Loyalty Programmes: Getting it right and oh so wrong
Who's getting it right?
"Sticker shock" is the key cause to cart abandonment rates as the surprise of fulfilment and delivery charges stack up unexpectedly. Amazon are combatting this through their Prime scheme which offers customers free one-day and sometimes same-day shipping on millions of products and no minimum value for delivery. The fact that people are willing to pay £79 a year to be part of Amazon's loyalty program demonstrates its success rate so far. It is estimated that Amazon loses $1-2bn a year through Prime but due to the benefits that their customers receive it has been found that the average Prime customer spends over double the amount of a non-prime customer, which in turn allows Amazon to recoup more than enough in transaction revenue. This scheme is simple, transparent and gives customers what they want – a great value-added feature. Prime members also get access to unlimited streaming of movies and TV via the Amazon Fire Stick (RRP £35). To find out more information about providing your own personalised value-added loyalty scheme – contact us!
Virgin Atlantic Flying Club
The Virgin Atlantic Flying Club ticks the boxes of a great loyalty scheme and offers its customers a simple but engaging system: Earn miles – Spend your miles. Miles are earned based on how far you fly, how often you fly and your ticket type and can be spent on reward flights, upgrades and to more destinations. Virgin have partners in the air and on the ground who customers can earn and spend with too.
In addition to earning miles, Virgin have integrated a tiered system whereby the more points a customer collects, the further up the chart they go. From red, through to silver and up to gold.
Club Red members earn miles on flights and get discounts on rental cars, airport parking, hotels, and holiday flights.
Club Silver members earn 50% more points on flights and have access to expedited check-in and priority stand-by seating.
Club Gold members get double miles, priority boarding, and access to exclusive clubhouses where they can grab a drink or get a massage before their flight.
Keeping to only 3 tiers and creating a comprehensive benefits table, allows customers to easily understand the extra benefits they'll receive as they move from Red to Silver to Gold. Customers are hooked from the beginning through early offers and benefits even if they're not huge spenders, which a lot of loyalty programs fail to provide.
Who's getting it wrong?
Starbucks haven't yet hit gold with their loyalty program. Their original rewards program was notoriously stingy; members needed to make 15 purchases to earn 15 stars, which then gets them just one free coffee – that's a 6.67% earnings ratio. In 2016 this was scrapped in favour of a reloadable prepaid Starbucks Visa. Users earn points wherever Visa is accepted. It's a change that was met with a backlash from its customers which lasted for months after its launch. The outcome is that the scheme doesn't really reward loyal customers (with points for frequent visits), it benefits those who spend more on the new card. Whilst this encourages people to spend more, Starbucks have noted that loyalty scheme members already spent three times more than normal customers. These customers come back regularly anyway so are already loyalty personified. The big spenders are now being appreciated for their value to the brand (in terms of spend) but when it comes to building spend and loyalty of the less frequent customers, we think this needs some work. It may be too early to judge this new program fully but watch this space and we'll report back!
We're going back to 1996 to one of the most famous consumer reward program fiascos. Pepsi's loyalty was simple enough – earn points and reward yourself with 'Pepsi swag' such as sunglasses, a jacket or a t-shirt. However, in a commercial for their loyalty scheme, they displayed a fighter jet with the words, "Harrier Fighter: 7,000,000 Pepsi Points." This was an attempt at a humorous way of grabbing attention, however, one business student took it literally, gathering an investment group who put together enough points to acquire the jet for just over $700,000 worth of points - a great deal considering a Harrier jet cost over $33 million at the time! After three years of legal proceedings and a lot of negative publicity, Pepsi won their fight and the judge agreed that no reasonable person would expect a military jet from Pepsi.
Lesson to learn – don't promise the sky (if you can't deliver it).