new currencies of loyalty

Beyond Points: The New Currencies Of Loyalty Programs

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This post is also available in: Deutsch (German)

Companies regularly overestimate the value of their own bonus points and forget that there are other, often cheaper, yet more valuable benefits they can offer to their most loyal customers.

The most successful loyalty programs rely on these alternative currencies to offer their members real benefits that generate long-term loyalty.

The new currencies of loyalty

Many loyalty programs use some form of points that have a monetary value. However, it is often the alternative currencies that appeal to customers.

According to a study conducted by Bond Brand Loyalty in 2018, more than 85% of users of loyalty programmes find alternative currencies highly attractive.

I call them ‘new currencies’ because it helps to think of the various loyalty benefits that can be offered to customers as a currency. As a result, you are less likely to fall into the trap of returning to the old pattern of points.

After all, customers don’t want any points at all. Customers want to be rewarded, want to feel valued, want to do or have something faster and better. How about paying your customers not with points, but with appreciation, with visibility, with time or with anonymity? These are the ‘new currencies’.

These currencies can be used to build loyalty programmes that are much more sustainable. Points may not be out of the world, but they are supplemented by other currencies.

Let’s look at the four most important ‘new currencies’. But of course there are many more – the exact ones you should implement depend on your brand, product and the target group you’re trying to reach.

Loyalty currency: Time

Everything always has to go faster. Time as a currency can be used in many ways.

A good example of how time can become a valuable loyalty advantage is Amazon. People who shop online understandably want their goods as quickly as possible. AmazonPrime offers its customers exactly that: fast shipping at zero cost (apart from the annual fee for Prime).

Amazon knows that the time it takes for a shipment to reach a customer is an elementary loyalty building block and is continually expanding its offering to loyal customers. Prime members in some cities such as Berlin, for example, are already offered a 2-hour delivery.

Amazon’s customers don’t even think about earning points for their purchases – they can have their loyalty paid off through conveniences such as faster delivery times.

Yet the concept of time as a currency for loyalty programs is actually quite old – but far too often it has been overlaid by uninspired points. Airlines, for example, check in their most loyal customers faster or offer particularly fast queues.

Loyalty currency: Personalization

Personalization is an important building block for sustainable loyalty. Digital services such as Spotify or Netflix demonstrate how: Because their algorithms gradually learn what users like, they create ever greater exit barriers.

A long-time Spotify customer who cancels his subscription not only loses access to music, he also loses his personal playlists and music suggestions that Spotify makes based on the user’s listening history.

The mere access to music may also be available from the competition, but personalization starts from scratch. If you switch from Spotify to AmazonMusic, for example, you can access the same music, but you lose your personalized environment.

A loyalty program can therefore bind customers for the long term through personalization – without any points at all.

Loyalty currency: Convenience

The more convenient an offer is to use, the more people are willing to engage with it – even if there are already cheaper competitors elsewhere.

Convenience as a currency for loyalty programs is a crucial competitive advantage. Amazon, for example, is already testing analog stores in which buyers simply have to put their products in their trolleys. A camera captures the removal of the item, captures the identity of the person through face recognition, and automatically charges their Amazon account as soon as the customer leaves the store.

Other businesses are also increasingly opting for faster and more convenient checkout services. Such offers can be subsumed under the currency of convenience.

With the cashless AmazonStore, for example, it makes sense that only loyal customers are allowed to shop there. In other words, such customers who have already proven to be trustworthy in advance.

Convenience can be implemented almost everywhere. The hotel that independently organizes a rental car for the customer. Apple, which easily synchronizes all data between Apple devices. Or the Porsche workshop, which picks up the car, repairs it and puts it back right in front of the customer’s door again. All these are examples of convenience as a loyalty currency.

Loyalty currency: Appreciation

Appreciation can be a very powerful currency that may even cost close to nothing.

Many customers want appreciation and recognition for being loyal to a brand – often this appreciation is much more important than getting a few points worth just a few cents or a few euros.

Appreciation can be expressed in many ways, and it depends on the specific case of how you want to implement the currency of appreciation as part of a loyalty program. Special goodwill? Visibility in the community? Personalised christmas and birthday cards? Surprise gifts?

One thing is clear: If customers feel valued by a brand they are loyal to, the chance of remaining loyal to that brand increases dramatically.

General Benefits and Loyalty Perks

These loyalty currencies are of course also just general advantages that products offer. Amazon also tries to provide fast delivery times independently of AmazonPrime to outperform other online merchants. And Spotify also sees the personalization of its service as a general product advantage, regardless of whether one user is more loyal than another.

So, the question arises: How can we distinct between general product benefits and specific content of a loyalty program?

To do this, I suggest to think in two categories. One is general product benefits. The other one is, more refined, loyalty perks.

Of course Amazon tries to optimize its delivery times. But for prime customers it just goes a bit faster.

Therefore, fast delivery itself is a general product benefit and available to all customers. Super-fast delivery, on the other hand, is a Loyalty Perk.

Product benefits are often the small version of what you can offered as part of a loyalty program.

Loyalty perks are special benefits to offer your customers

A Loyalty Perk is a special offer, often a enhanced version of the already existing product benefits.

To illustrate this, here are three examples

Onlineshop
Fast delivery time is a product benefit, super fast delivery time is a Loyalty Perk.
Airline
Maximum legroom is a product benefit, an empty neighbor’s seat is a Loyalty Perk.
Car brand
Collecting the car from the dealer is a product benefit, bringing the new car directly to the front door of the customer is a Loyalty Perk.

Companies have to find the balance between product benefits and loyalty perks. That can be a fine line. If too much content is withheld from loyal customers, the product gets less attractive to new ones.

Finding the right currency

These loyalty currencies mentioned above are examples. Categories, that enable you to think about which alternative benefits – apart from just points – you can offer to your customers. Use your imagination to come up with even more alternative currencies that empower your loyalty program!

Which currencies to use for your business exactly is highly dependent on your target group.

Customers of the car brand Porsche, for example, might be interested in completely different benefits that customers of a outdoor clothing supplier. While Porsche drivers want convenience and personalized offers, outdoor customers are much more interested in cheap prices, guidance and a new years event on which free gifts are raffled off amongst all participants.

In other words: Just like product benefits are different from product to product, loyalty perks are too.

This leads to a very simple conclusion why points are after all not that well suited for each and every loyalty program. Points work for brands and programs that don’t build up a strong emotional relationship with their customers. But for those who rely on emotional bonds, for those, who want to build deep, long-lasting and sustainable loyalty, points are just not strong enough. That’s why so many points-based loyalty programs fail to engage their customers reliably.

Example: Payback
Payback is a loyalty program that builds on points as a currency exclusively. If you purchase a product at one of their partner stores, and if you have one of their loyalty cards, you get a few points. These points can be redeemed against various rewards with small monetary value.

Payback doesn’t generate true loyalty, but is merely a nice addon for its customers. The motivation is low. Customers will be ‘loyal’ as long as it’s easy to get points and the monetary rewards are there. But as soon as another companies offers more points or better rewards, they are happy to switch – and become illoyal.

Payback creates mercenary loyalty – thats it. It’s the kind of loyalty that is literally payed. But companies should not pay their customers to be loyal when there are better, more sustainable and often cheaper ways of building loyalty. The much more valuable cult loyalty, for example, cannot be achieved by simply giving away points, because it lacks the emotional bonding.

Should points therefore be regarded completely? No. Points have their rightful place amongst other currencies that can be used for loyalty programs, but they are by far not the only one.

How important are points, then?

Most loyalty program rely on points. A good example to showcase this are all of the airline loyalty programs: Miles&More, Mileage Plan, AAdvantage, United Mileage Plus and so one.

The very concept of how they work is even ingrained in their name already. Users can collect miles – or points, it’s just called differently.

The problem of those programs is that they often miss what their customers truly care about.

Points are extrinsic. Moreover, the are often of very low monetary value. They are just not strong enough – emotionally speaking – to create true loyalty. Points are nice and all, but are they really the reason users interact with a brand – or interact more often with a brand, for that matter? The answer, more often that not, is no.

But still, points can be used to attribute to a loyalty program. They are not completely useless, but can serve as a nice addition to other, alternative currencies. In the next chapter, I am going to outline how points can be used the right way.

Use Case 1: Points as a basis for relevance

It can be useful to use loyalty points as a basis. Although points are neither particularly exciting, nor do they generate lasting loyalty, they generate extrinsic motivation and thus an initial impulse for action. This means that points are a good way of drawing prospective customers’ attention to a loyalty programme.

Because points are so general, they can be linked to many benefits – the typical point shops of loyalty programmes usually have something on offer for every taste.

This makes points a solid basis – they create relevance for all target groups. To ensure that the loyalty programme remains interesting, however, the points should be supplemented by alternative currencies as quickly as possible.

Here are my thoughts on why some loyalty programs work – and others don’t.

Use Case 2: Points as access to Loyalty Perks

One important question that many companies have is: How do I decide which loyalty perk should be given to which group of customers?

Using the example of the airline described above: Which customer is guaranteed an empty neighbor’s seat? Not all of them, of course, because then only half of the plane would be booked. So how do I choose?

To answer the question straight away: That’s what points are really good for! You could give users status points, for example, that unlock special benefits such as the free neighbours seat. As a result, points grant access to those alternative currencies that really matter to the customer.

It is important to understand that points as such have absolutely no value to the customer. Only if linked to benefits that people really care about, they become an asset.

Most loyalty programs, however, get that wrong. Their advertisement, their app, their website, their whole experience tries to convince you how awesome it is to get some points with every purchase, when people actually don’t care about them at all.

It’s the loyalty perks, the program benefits that users want. Points are just a means to an end. What matters is the content your loyalty program offers beyond.

Summary: Currencies, Loyalty Perks, Points

I have outlined in this article that most loyalty programs are built with points that can be redeemed in a bonus shop that’s connected to the loyalty program. If you have read this far, you should know that the main point of this article was to demonstrate why solely focusing on points is not sustainable, nor is it attractive for the customers.

Points as such are intrinsic, and when not linked to loyalty perks that users care about, user’s engagement decreases rather quickly before the loyalty effect successfully kicks in.

Companies should therefore use alternative loyalty currencies such as time, personalization, convenience or appreciation.

In order to implement those currencies, you need to distinguish between general product benefits and loyalty perks. Product benefits are general advantages a certain product has to offer for everyone. Loyalty perks, on the other hand, are special advantages specifically crafted for the most loyal of your customers.

This doesn’t mean that you should go and kill your points programs or never ever use points at all. No. But it does indicate very strongly that you should not rely on points alone.

People don’t want points, people want alternative currencies as outlined above. If points will get them there, fine. But it is those alternative currencies that really drive long-term engagement, emotional value and thus, as a result, loyalty.

Further articles

For more information about the topic, you may want to take a look at why some loyalty programs work and others don’t.

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