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BizReport : Loyalty Marketing : July 29, 2016

Brands: Why revenue based loyalty programs are a better draw

Revenue-based loyalty programs reward consumers for how much they spend rather than metrics such as miles flown, visits or number of purchases. One example is Starbucks' recent change to reward program members based on dollars spent rather than items purchased. These programs can be a draw for merchants. Here's what brands need to know.

by Kristina Knight

Kristina: For consumers, what is the benefit to this type of loyalty program?

Danielle Brown, Vice President of Marketing, Points: Revenue-based programs allow for a more equitable distribution of rewards that favors a brand's most profitable customers. Take Starbucks for example. Under their old model, if a customer were to purchase a tall blonde coffee twelve mornings in a row, they could get a free 101 Shot Espresso Latte (one of Starbucks' more expensive items). In this case, they would receive the highest valued product by purchasing one of the lowest priced items on the menu. But let's say every morning I drink a Venti Chai Vanilla Soy Latte - considerably more expensive than a tall blonde - and yet, the tall blonde drinkers are still earning the same rewards even though I am paying nearly 4 times more on a daily basis. A revenue-based system ensures that a brand can proportionally reward their profitable customers - those that spend more, earn more rewards.

Kristina: Why are these programs becoming more important for merchants and brands?

Danielle: To understand why more loyalty programs are turning to a revenue-based model, we can look back at why companies have rewards programs in the first place - customer retention is the name of the game. Repeat customers are a valuable asset to any business' bottom line and loyalty rewards are leveraged to drive this repeated behavior. It's function is to ingrain a set of desired customer actions and encourage them to remain faithful to the brand.

Under traditional loyalty models, all customers were treated equally regardless of their basket size; customers with larger purchases were valued the same as those making smaller purchases. Through the revenue-base loyalty model, rewards are being distributed more proportionally to reward the high-value and profitable customers spending the most with your brand.

Kristina: How can a business make the switch from traditional programs to revenue-based programs without disrupting the existing program/their loyal base of shoppers?

Danielle: If it's an established program with a large member base, disruption to your program is inevitable. Expect that consumers, especially those who benefitted under the old system, may be resistant to your loyalty program changes. Announce the changes to your program well in advance to help prepare consumers for the shift, and provide members with one-time discounts and rewards to help soothe some of their frustrations.

Make sure that the new values of your revenue-based program are easy to understand for consumers. If they can't figure it out, they won't get the gratification of earning and redeeming rewards and you'll do yourself a disservice by putting your valued members at risk.

Tags: loyalty marketing, loyalty program tips, loyalty program trends, Points

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