Often the companies who want to adopt a loyalty program don’t know what kind of reward strategy to use. Loyalty programs generally use one of four mechanisms to reward members. Each reward type offers its own set of benefits:
1. Discounts or cash back – This is the most common mechanics considered as a loyalty program. Discounts are an immediate monetary reward to the members but are generally limited to transactions at specific partners. A cash back program generally gives customers cash back in the form of a credit against an outstanding balance of points.
2. Rewards currency programs –the most mature mechanic to recognize the members. This would be a store or coalition program where the rewards currency could be exchanged to specific products or special services. These programes offer versatility and choice.
3. Soft benefits – this are significant appeal for many rewards program members. In this case there is no money that customers will receive back and no rewards currency. Rather, soft benefits involving additional services or exclusive privileges for customers are offered. One example would be the possibility of any member of a Home furniture retail store loyalty program to exchange its reward in a store partners services such as free transportation, free assembling or free interior designer studio for its next project.
4. Hybrid rewards – The latest trend in the loyalty industry is to offer a combination of rewards currency, discounts, cash back, and soft benefits. A hybrid program allows consumers to use their rewards currency as a way to extend their purchasing power. For example, Loyalty network program that allows its members to take advantage of significant discounts on selected items in the network shop (such as gadgets, movie tickets, flights and more) using their reward currency as a method of payment.
These different mechanics are then packaged into a rewards program offering either in the form of a customer club against membership fee, or as part of a loyalty program.
Whether a consumer prefers several frequent, smaller rewards or the ability to save or pool their rewards currency for a luxury item, the success of a rewards program to a large extent depends on how relevant the reward is to the individual.
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