Editor’s note: Walter Blotkamp is VP of client relationships at MMR Research Associates, Washington, D.C.
What features should companies add to their rewards programs? Can any features be eliminated to save money without alienating customers? How does a company know if a rewards program is actually driving up business? Should a company emulate what a competitor is doing in its rewards program or does information suggest another path? Is there a better way to communicate reward opportunities?
Providing answers to the questions above can be challenging for researchers because the environment constantly changes, a result of both new players and the ever-present deal-seeking from program members. In the midst of a constant need to keep tabs on reward opinions and preferences, research across numerous industries such as travel, hospitality, retail and finance yields some learnings that are relevant for anyone researching, developing or refining a rewards program. Whether the program is a newbie or fully established, there are some truths that researchers should reflect on and some myths that should be cast aside so that the research generated is the most useful to the company.
Myth: Rewards programs can rely exclusively on behavioral redemption rates to decide what items to keep.
Truth: Not all valued items are frequently chosen.
Just because an individual has never chosen a particular redemption option does not mean they do not value it. Rather, we have found that the existence of other choices enhances program value even if these options are never chosen. An offering such as a charitable donation might be used infrequently but customers feel better about the program overall because it exists. Placing value on non-selected items is particularly true for people who might want to gift points/awards to others. In many cases, brand affinity is positively impacted by unchosen reward elements. Researchers should measure appeal and near-term intention and also ask about what customers – or perhaps their friends – might ever do. Streamlining for cost-savings based purely on behavioral redemption is not recommended.
Myth: Customers understand that limits on rewards, like expiration of rewards, are necessary.
Truth: Rewards expiration is very frustrating and threatens retention.
Consumers do understand some types of restrictions. For example, blackout dates for travel redemption are frustrating but there is grudging consumer understanding that holiday travel, or travel to a city hosting a special annual event, is a candidate for blackouts. However, consumers do not understand the need for reward expirations, even if they have an understanding of the economic purpose of expirations. They regard rewards earned in the same way as deposits into a checking account – the balance should remain until used. Researchers should ask consumers about possible reward program hassles that could negatively impact brand affinity. Avoid expiration if at all possible or communicate a simple way for customers to extend expiration dates if this exists.
Myth: Since many customers don’t sign up to earn points from partner companies, they must not value such program elements.
Truth: Customers want simplicity and shy away from complexity, even if they value the reward.
Customers do value the ability to earn – and redeem – through multiple partners but they value simplicity most of all. If earning additional points is in any way complicated they will shy away from it. While this behavior might actually have short-term economic value to the company, dissonance is generally not a good long-term strategy, particularly if competitors make it easier to earn points across partners. Also, the strong correlation between higher achieved tiers and partner company use suggests that there could be a communications issue: those at lower tiers, who are often less engaged, might either be unaware of the partner features or be confused about how to take advantage of them. Experience suggests partner exploration is underdeveloped in rewards research – don’t skimp on asking about specific partners and detail potential offers for evaluation. Research should also ensure brand fit with partners. References to “potential retail partners such as …” are far less helpful than presenting respondents with specifics. Upon implementation, keep participation streamlined and easy to understand.
Myth: Consumers accept and believe that all rewards should be earned.
Truth: A quick earn is a quick win for the company.
A sign-up bonus is highly valued. Partial redemption schemes can help foster getting a reward quicker if the full reward would indeed take some time to achieve. Customers want to have an initial reward delivered quickly rather than have to wait for multiple purchases to gain any reward. Offering surprise rewards along the way such as member sales/discounts, special achievement programs/earnings bonuses or special event access helps generate early involvement and commitment. Researchers and program developers should be keen to investigate special, one-time, within-reach bonuses that help keep rewards programs vibrant.
Myth: Tiers motivate achievement to the next level and higher-tier customers are more loyal.
Truth: Tier achievement is often a matter of circumstance, not a sign of loyalty.
This finding might be a bit more controversial. While the fundraising and philanthropy industries have clearly identified that differential benefits at various tiers will increase donations, the same cannot be said of corporate customer rewards programs. There are certainly exceptions but by and large people cannot fly more, dine out more or go to the store more frequently to push themselves into a higher tier. This is why progress bars to the next level are not seen to be as motivating as, say, a video game level progression or goal-focused fitness monitoring. In fact, constantly being reminded of a higher tier that is not in someone’s reach tends to create resentment. Lower-tier membership does not necessarily denote less loyalty. Thus, companies should be very careful about how they communicate tiers. Researchers should recognize that rewards members may not know how to get the most out of their tiers and should create some focus on program understanding. Again, customers not fully taking advantage of rewards can create short-term value but that condition is not likely to create loyalty in the long run, which is of course the goal of rewards programs in the first place.
Myth: Consumers evaluate rewards based solely on their economic value.
Truth: Presentation matters. Economic equivalence does not express perceived value.
I have run many choice studies on various rewards program features and almost invariably find that how a feature or element is presented greatly impacts perceived value. We know from behavioral economics that seemingly irrational behavior can in fact be predicted – sometimes with understanding of an underlying cause and sometimes without. While some customers are fully rational in their rewards program choices, many are not. Researchers should not shy away from putting similar, economically equivalent items into choice studies for program features – they are rarely redundant. Work to gain a strong understanding of what will and will not motivate redemption and earnings.
There is no one right method to apply to rewards research. As with all research, the method is dependent on the question at hand. While much of the research appropriately uses choice techniques and/or TURF-type analysis to determine current and potential feature value, there seems to be less focus on the dynamics of use. For instance, companies might determine value by tracking usage but not have a full understanding of share of rewards wallet or habit vs. conscious use. Are people looking at points when determining class of flight or is their class of flight choice more habitual? Qualitative research could be in order here to gain greater understanding.
Regardless of the methods and measures used, researchers must be aware of the truths that exist in this arena and be sure to adjust accordingly for myths that might impact research outcomes.