Pros and Cons of Rewards Programs

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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To achieve better sales and profits, most companies could be doing more to cultivate business from their existing customers. However, enthusiasm for customer-retaining strategies must not endanger sound customer-getting efforts. How companies balance the two is the big question. To intensify reaching old customers while still seeking new ones, for many firms, will mean changes in market analysis, planning systems, management incentives, and marketing and/or operations organization. In the rush toward growth, consumer marketers have tended to regard success as stemming from obtaining new customers while unwittingly minimizing the importance of satisfying old ones. It is time for more companies to distinguish between their getting and retaining functions, to assess the balance between them, and to remedy any deficiencies in customer retention. This process requires management to value the potential of current customers and to treat them in special ways to get them to keep coming back. Several major elements should be part of the new marketing mix for customer retention: Product extras Keeping customers frequently requires giving them more than the basic product that initially attracted them. Product extras for individual customers over time can play a sales-expansive role. Reinforcing promotions Product promotion works better when aimed at existing customers. If a marketer knows who these customers are, benefits can be obtained by giving them reinforcing communications. Sales force connections The sales force can play a decisive role in the customer-retention function. At a retail or service counter the salesperson is the focal point of the company's strategy and is the firm to the customer. Post-purchase communication A company must anticipate that some customers will encounter either minor or serious problems after purchasing. If the firm is not ready to hear and correct these difficulties, the customer may not repurchase  or may cancel the the relationship. Whether company or customer is at fault, standby post-purchase activities can be instrumental in saving these customers.

One Comment

  1. Chintan Bharwada November 19, 2010 at 2:07 am

    New post: Pros and Cons of Rewards Programs http://bit.ly/95PRgd

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