Friday, 28 March, 2008

Should loyalty programmes pay interest?

In all the loyalty programmes I know of points have a constant value until they lapse, when they lose all value. But if one of the avowed aims of loyalty programmes is to keep customers loyal, shouldn't it be somewhat different? Shouldn't points value go up wit time? After all, it's the customers' deferred discount lying with the company.

Ok, that's ridiculous.

However, a time-linked valuation may be an idea whose time has come. It may go like this: Points have 150% value if redeemed within 30 days of their accrual; 125% if redeemed between 1 and 3 months; 105% if used between a quarter and a year; 100% thereafter, till they lapse. (It works like a bank account standing on its head.) There may be hikes in value around customers' birthdays and anniversaries, etc.

Communicating these value changes and deadlines will give marketers excuses to talk about other things too. The whole intention is to make recency work for you.

The technology is surely there by now. Is anyone using this system or variable valuation?


Nakul Mehra said...

I'm in the process of starting a Loyalty Marketing programme which is not a Multi-Party programme - implies, that one customer will be treated as a 'customer' of one particular brand unlike existing programmes likes imint, etc. The variable valuation, increment of sensitivity of Purchases:Points ratio - to be maintained is highly complex, technically, if you would talk about a Multi-Party Loyalty programme; although, one can think of applying this unique invention of yours to the primary one I mentioned.

N&P said...

I suppose it is complicated enough. But won't math-smart people like those who, say, do complicated stock market calculations be able to make the business rules?

Second, someone who's had a loyalty programme for a long time may be able to find some simple rules from the data with him. Using them he can create two accounts, one for the members, which is simple; and the other for himself, a bit more complex, with variable valuation. He can then aside the extra points for points-driven promotion, which lets him sell more at lower immediate cost and increase involvement with the programme.

In any case, variable-valuation will be something new... maybe that will be good enough.