Pros and Cons of Rewards Programs

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Nearly everyone has or wants to have a customer loyalty rewards program. Rewards programs operated by large businesses are fairly successful. But, this does not apply to majority of small and medium businesses. I believe that every positive aspect of a rewards program almost always has a negative side. Here are the major pros and cons of rewards programs.

Pros

  • Consumers are aware how rewards programs work – you spend and collect points. It is simple and easy to understand.
  • Rewarding points will enable you to reduce price discounting.

  • This will give you an option to reward customers with double or triple points on popular products, where you are not allowed to reduce prices.
  • Collecting additional information will help you segment your market. This way you can have special targeted promotions to test the market.
  • You can have an edge over the competition, as you have the ability to change the redemption thresholds.
  • You will have the ability o soft launch “out-of-the-box innovative promotional ideas.
  • You can align your brand with other businesses. This will allow customers to earn reward points at the “partner” business.
  • With such a rewards program you will definitely collecting a wealth of customer data. Use this data to create special offers to up-sell and cross-sell product and services.
  • It is advisable to plan a “refer a friend” campaign on a yearly basis. For the best result, target the customer segment with the highest engagement.
  • Employees can be included in the rewards program. Points can be issued to employees for reaching certain performance targets.

Cons

  • A large number of rewards programs are active in the market. You will confuse the customer if you have a complex rewards program.
  • Your rewards program will be devalued if customers require large sums of point to redeem small meaningful items.
  • Generally speaking, you will need to reenergise your loyalty offering at least once a year to keep the rewards program “top of mind” relevant to customer needs.
  • Once launched, management of the rewards program is essential. Even more essential is to have superior customer service standards for the program members. Remember, these are your regular customers, and you are trying to cultivate their loyalty.
  • Keep track of unclaimed reward points. This should be part internal management reports. This will allow you to plan for contingencies.
  • A rewards program is a long term initiative demanding significant investment in research and resources.

Kindly note that, customer rewards programs are structured marketing efforts that reward, and therefore encourage, loyal buying behaviour, behaviour which is potentially of benefit to the business. This tool, if used effectively, can develop long lasting relationships with your most valuable customers.

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